Moody's affirmed National Company Kazakhstan Temir Zholy and its bonds ratings
/Moody's Investors Service, London, May 15, 14/ - London, 15 May 2014 –
Moody's Investors Service has today affirmed Baa3 issuer rating and senior
unsecured rating of JSC National Company Kazakhstan Temir Zholy (KTZ) and
Baa3 rating of the senior unsecured notes issued by Kazakhstan Temir Zholy
Finance B.V. (KTZ Finance), a special purpose financial company, and
guaranteed by KTZ and its operating subsidiaries. Moody's has also affirmed
the Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating
(PDR) of Kaztemirtrans JSC (KTT), as KTT is a key wholly owned operating
subsidiary of KTZ, is managed as an integral part of KTZ and faces similar
risks. Concurrently, Moody's has assigned a provisional (P)Baa3 rating with
a positive outlook to the proposed CHF-denominated notes to be issued by KTZ.
The outlook on all the ratings remains positive.
"Our affirmation of KTZ's ratings reflects our view that the company's financial
metrics will remain within guidance for the current baseline credit assessment
(BCA) of ba2, which is a measure of the company's standalone financial
strength, despite anticipated moderately increased leverage in the next few
years" says Sergei Grishunin, a Moody's Assistant Vice President – Analyst
and backup analyst for KTZ. "The company's financial metrics are further
buoyed by its long-term debt maturity profile, low refinancing risks and solid
– AFFIRMATION OF Baa3/Ba1 RATINGS –
KTZ's Baa3 senior unsecured issuer rating is based on Moody's designation of
the company as a government-related issuer (GRI), which reflected in KTZ's
BCA of ba2, its 'high' dependence and 'high' implied state support.
Today's affirmations reflects Moody's expectations that KTZ will be able to
aintain its financial metrics, such as leverage (measured by Moody's adjusted
debt/EBITDA) and interest coverage (measured by Moody's adjusted EBITA/interest
expenses), within the guidance for the current BCA of ba2. This comes against
the backdrop of Moody's projections that KTZ's financial metrics will soften
in the next 12-24 months as a result of the company's large debt-financed
capital expenditure and exposure to foreign-currency risk. Nearly 67%
of the group's debt is denominated in US$ (as of year-end 2013) while
its revenues are predominantly denominated in Kazakhstan tenge (KZT).
KTZ's ba2 BCA is constrained by the company's (1) limited freight diversity; (2)
aged fleet and rail infrastructure, which requires substantial investments in
renewal and modernization and limits capex flexibility; and (3) overall exposure
to an emerging market operating environment with a less developed regulatory,
political and legal framework.
KTZ's BCA remains underpinned by (1) the company's status as the monopoly
owner and operator of Kazakhstan's rail infrastructure; (2) its strategic
importance to the economy of Kazakhstan; (3) its leadership in its domestic
market; and (4) the generally supportive regulatory environment in the country,
which allows KTZ to recover its operating costs and obtain passenger
transportation subsidies, and links tariff decisions and the group's investment
– ASSINGMENT OF (P)Baa3 RATING –
The (P)Baa3 rating assigned to the notes is equivalent to the senior unsecured
issuer rating of KTZ, as well as to other senior unsecured debt instruments
issued by KTZ and KTZ Finance that are currently outstanding and rated by
Moody's. The new notes will be guaranteed by KTZ's main operating subsidiaries,
KTT and Lokomotiv JSC (not rated). The proceeds from the placement of the notes
are to be lent by the issuer to members of the KTZ group, predominantly to its
logistic operator KTZ Express JSC (not rated) to be used to finance its
development projects. The new notes, as well as the obligations of the
guarantors, will rank at least pari passu with all other present and
future senior unsecured obligations of the issuer and the guarantors,
respectively (save only for such obligations as may be preferred by
mandatory provisions of applicable law).
RATIONALE FOR POSITIVE OUTLOOK
The positive rating outlook reflects the potential for an upgrade of KTZ's and
KTT' ratings, which would be likely in the event of an upgrade of the sovereign
rating, provided that KTZ and KTT maintain financial metrics comfortably within
the guidance for the current BCA category and a solid liquidity on a sustainable
WHAT COULD CHANGE THE RATINGS UP/DOWN
The positive outlook on KTZ's and KTT's ratings reflects the potential for
a rating upgrade should the Government of Kazakhstan be upgraded.
In addition, upward pressure on KTZ's BCA and rating could arise if conditions
in the Kazakhstan freight transportation market remain stable and KTZ is able
to maintain adjusted debt/EBITDA sustainably below 2.5x, along with strong
Upward pressure on KTT's rating could also arise if conditions in the
Kazakhstan freight transportation market remain supportive, coupled with KTT
generating positive free cash flow on a sustainable basis and reducing its
A weakening of the credit quality of the sovereign or a deterioration in state
support could also negatively affect KTZ's senior unsecured ratings. Moody's
could also lower KTZ's BCA and rating if its consolidated adjusted debt/EBITDA
were to weaken towards 3.5x and its adjusted EBITA/interest weakened to 3.0x
on a sustained basis, or if its liquidity were to deteriorate materially.
We could downgrade KTT's rating if there were a sustained deterioration in
KTT's ability to generate cash flow and in its leverage metrics, or if the
company's liquidity position weakened. In addition, KTT's rating would be
downgraded if we were to downgrade the rating of the Kazakhstan
government, or revise downwards our assessment of the probability of the
government providing extraordinary support to the company in the event of
The principal methodology used in these ratings was the Global Surface
Transportation and Logistics Companies published in April 2013. Other
methodologies used include Government-Related Issuers: Methodology
Update published in July 2010. Please see the Credit Policy page on
www.moodys.com for a copy of these methodologies.
Headquartered in Astana, Kazakhstan, JSC National Company Kazakhstan Temir
Zholy (KTZ), is the 100% state-controlled vertically integrated rail group
operating the national rail network of the Government of Kazakhstan. In 2013,
the group generated revenue of around $5.7 billion, 85% of which was provided
by freight transportation services. Headquartered in Astana, Kaztemirtrans JSC
(KTT) is a 100% owned subsidiary of KTZ.
For ratings issued on a program, series or category/class of debt, this
announcement provides certain regulatory disclosures in relation to each rating
of a subsequently issued bond or note of the same series or category/class of
debt or pursuant to a program for which the ratings are derived exclusively
from existing ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain regulatory
disclosures in relation to the rating action on the support provider and in
relation to each particular rating action for securities that derive their
credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive rating that
may be assigned subsequent to the final issuance of the debt, in each case
where the transaction structure and terms have not changed prior to the
assignment of the definitive rating in a manner that would have affected the
rating. For further information please see the ratings tab on the issuer/entity
page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support
from the primary entity(ies) of this rating action, and whose ratings may
change as a result of this rating action, the associated regulatory disclosures
will be those of the guarantor entity. Exceptions to this approach exist for
the following disclosures, if applicable to jurisdiction: Ancillary Services,
Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating
analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for
additional regulatory disclosures for each credit rating.