Fitch upgrades ratings of KazTransgGas, Intergas Central Asia and KazTransGas Aimak; outlook Stable
24.04.14 10:58
/Fitch Ratings, Moscow, April 17, 14, heading by KASE/ – Fitch Ratings has
upgraded KazTransGas JSC's (KTG) and its fully-owned subsidiaries, Intergas
Central Asia JSC's (ICA) and KazTransGas Aimak JSC's (KTGA), Long-term Issuer
Default Ratings (IDRs) to 'BBB-' from 'BB+'. The Outlook is Stable. A full list
of rating actions is provided at the end of this commentary.
The upgrade of KTG and its subsidiaries (KTG or the group) reflects Fitch's
reassessment of the group's linkage with its state-owned parent JSC National
Company KazMunayGas (NC KMG, BBB/Stable). We believe that the 'national
operator' status granted to KTG in 2012, the ongoing transfer of trunk gas
pipelines from the state to ICA, as well as NC KMG's flexible approach to KTG's
dividend payouts underline stronger parent-subsidiary links between KTG and
NC KMG than what was reflected in the previous ratings.
The group's ratings are now notched down by one level from that of its parent,
reflecting their close linkage, but also limited legal ties between the two. KTG
qualifies as a material subsidiary in NC KMG's eurobond documentation and is
subject to cross-default provisions, but NC KMG does not guarantee KTG's debt.
KTG is the state-owned monopoly engaged in natural gas transit, transportation
and distribution in Kazakhstan (BBB+/Stable). It continues to derive most
profits from the transit of central Asian gas to Russia.
KEY RATING DRIVERS
Midstream and Downstream Gas Monopoly
KTG's ratings reflect its position as the operator of the Kazakh gas pipeline
network, the only transit route for central Asian gas to Russia and Europe. As
the national gas company, it has a pre-emptive right to purchase natural gas
from local oil & gas companies and resell it domestically and for export. ICA,
the operator of trunk gas pipelines, generated 60% of the group's consolidated
EBITDA in 2013.
High Customer Concentration
OAO Gazprom (BBB/Negative) remains the group's principal customer,
accounting for 71% of ICA's 2013 revenues, down from 76% in 2012. In January
2011, Gazprom and ICA signed a five-year contract for transit of 28 billion
cubic meters (bcm) of central Asian gas, of which 80% are covered by
'ship-or-pay' clauses. In 2012 and 2013 despite significantly lower
transportation volumes ICA's profits did not suffer, due to Gazprom honouring
its 'ship-or-pay' obligation.
In our rating case, we forecast stable gas revenues until January 2016 when the
contract with Gazprom expires, as we believe that Gazprom's purchases of central
Asian gas and hence ICA's transit revenues may decline to reflect current
purchase volumes.
Fully Regulated Tariffs
The group's profitability is driven by cost-plus domestic tariffs and regulated
gas prices set by Kazakhstan's Agency for Regulation of Natural Monopolies
(AREM). We view Kazakhstan's tariff environment as developing. Historically,
gas prices and transit tariffs have been sufficient for KTG to maintain
adequate profits and finance its capex, which we expect to continue under our
rating case. However, in an event of a prolonged economic recession AREM may
face pressure to limit further tariff increases, which could force KTG to raise
its leverage beyond our expectations.
Manageable Capex
We view as manageable the group's KZT140bn investment programme in 2014-2016,
which will be partially debt-funded, and expect its credit metrics to remain
commensurate with the current ratings. After KTG completes most of its
development projects in 2014, annual capex should fall to under KZT40bn per
year in 2015 and 2016, from about KZT70bn per year in 2013 and 2014.
We do not foresee any significant impact on KTG's creditworthiness from the
construction of the Beineu-Bozoy-Shymkent pipeline and Line C of the Asian
Gas Pipeline from Central Asia to China, which are financed by KTG's JVs with
China National Petroleum Corporation (CNPC, A+/Stable) and are guaranteed by
CNPC and NC KMG with no recourse to KTG.
Moderately Rising Leverage
At end-2013, KTG's funds from operations (FFO) adjusted gross leverage was
1.8x, and we expect it to reach 2.3x in 2016. We forecast that the group's FFO
interest coverage will deteriorate to 7.7x in 2017, from 10.5x at end-2013,
which remains adequate for the current ratings.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- a positive rating action on NC KMG
- evidence of stronger ties between NC KMG and KTG
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- a negative rating action on NC KMG
- evidence of weaker ties between NC KMG and KTG, e.g. sustained deterioration
of credit profile with FFO adjusted gross leverage rising above 3.0x, or
cancellation of the cross default provision
LIQUIDITY AND DEBT STRUCTURE
At end-2013, KTG's short-term debt of KZT33.7bn was fully covered by cash and
short-term bank deposits of KZT22bn and undrawn credit lines of KZT38.3bn.
There are no major debt repayments in 2014-2016, and nearly 90% of KTG's
maturities fall on 2017 when ICA's USD540m eurobond is due. KTG intends to
borrow up to KZT50bn in 2014 to finance capex.
In February 2014, Kazakhstan devalued the tenge to USD/KZT185 or by 17%
from the end-2013 level, which followed the depreciation of the Russian rouble
by 13%. We expect this to have no material impact on the group's leverage, as
losses on its USD-denominated debt will largely be offset by gains from ICA's
USD-denominated revenues.
LIST OF RATING ACTIONS
KazTransGas JSC
Long-Term foreign currency IDR: upgraded to 'BBB-' from 'BB+', Outlook Stable
Long-Term local currency IDR: upgraded to 'BBB-' from 'BB+', Outlook Stable
Short-Term IDR: upgraded to 'F3' from 'B'
National Long-Term rating: upgraded to 'AA(kaz)' from 'AA-(kaz)', Outlook Stable
Senior unsecured long-term rating: upgraded to 'BBB-' from 'BB+'
Senior unsecured National long-term rating: upgraded to 'AA(kaz)' from
'AA-(kaz)'
Intergas Central Asia JSC
Long-Term foreign currency IDR: upgraded to 'BBB-' from 'BB+', Outlook Stable
Long-Term local currency IDR: upgraded to 'BBB-' from 'BB+', Outlook Stable
Short-Term IDR: upgraded to 'F3' from 'B'
National Long-Term rating: upgraded to 'AA(kaz)' from 'AA-(kaz)', Outlook Stable
Senior unsecured long-term rating: upgraded to 'BBB-' from 'BB+'
Senior unsecured National long-term rating: upgraded to 'AA(kaz)' from
'AA-(kaz)'
KazTransGas Aimak JSC
Long-Term foreign currency IDR: upgraded to 'BBB-' from 'BB+', Outlook Stable
Long-Term local currency IDR: upgraded to 'BBB-' from 'BB+', Outlook Stable
Short-Term IDR: upgraded to 'F3' from 'B'
National Long-Term rating: upgraded to 'AA(kaz)' from 'AA-(kaz)', Outlook Stable
Senior unsecured long-term rating: upgraded to 'BBB-' from 'BB+'
Senior unsecured National long-term rating: upgraded to 'AA(kaz)' from
'AA-(kaz)'
Contact:
Principal Analyst
Dmitry Marinchenko
Associate Director
+44 20 3530 1056
Supervisory Analyst
Maxim Edelson
Senior Director
+7 495 956 9901
Fitch Ratings Moscow
Valovaya Street, 26
Moscow
Committee Chairperson
Alex Griffiths
Managing Director
+44 20 3530 1709
Media Relations: Julia Belskaya von Tell, Moscow
tel. + 7 495 956 9908/9901,
julia.belskayavontell@fitchratings.com
[2014-04-24]