S&P affirmed ratings of Samruk-Energy; outlook negative
05.01.15 14:46
/Standard & Poor's, Moscow, December 30, 14, KASE headings/ Standard &
Poor's Ratings Services said today that it has affirmed its 'BB+/B' long-term
and short-term corporate credit ratings and 'kzAA-' Kazakhstan national scale
rating on Kazakhstan-based energy group Samruk-Energy JSC. The outlook is
negative.
The affirmation reflects our continued view that there is a "high" likelihood
that the Kazakh government would provide timely and sufficient extraordinary
financial support to Samruk-Energy in the event of financial distress. This is
underpinned by the company's market position, which consolidates 47% of
installed power generation capacity in the country. The rating also reflects our
assessment of the group's stand-alone credit profile (SACP) at 'b+', based on
our view of its business risk profile as "weak" and its financial risk profile
as "aggressive.".
In the first half of 2014, Samruk-Energy acquired 50% of the coal-fired
electricity generator Ekibastuz GRES-1, which allowed the company to gain 100%
ownership of this power station, the largest in the country. The $1.3 billion
transaction was financed with a Kazakh tenge (KZT) 200 billion loan and a
KZT21 billion equity injection, both provided by Samruk-Energy's 100%
shareholder, Samruk-Kazyna. In October 2014, Samruk-Energy received another
KZT100 billion equity injection aimed at repaying half of the loan. However,
even after this transaction, we expect the ambitious investment program
(announced at KZT433 billion in 2014-2017) to result in heavily negative free
operating cash flow (FOCF) generation and weakened credit metrics and financial
risk profile. We have therefore revised our assessment of the financial risk
profile to "aggressive," from "significant" previously.
The negative outlook reflects that on the sovereign rating. According to our
methodology for government-related entities, we will lower the rating on Samruk-
Energy by one notch if the sovereign rating is downgraded to 'BBB', provided
that the SACP on Samruk-Energy and likelihood of extraordinary state support
remain unchanged.
The negative outlook further reflects the risk that Samruk Energy might not
receive sufficient ongoing state support via such supportive measures as
conversion of shareholder debt to equity, favorable price caps, and equity
injections, and therefore might not be able to strengthen its credit metrics
over the coming two years. We might then remove the positive comparable ratings
modifier, triggering a downward revision of the group's SACP to 'b' and a one-
notch lowering of the corporate credit rating, provided that our assessment of
the likelihood of extraordinary state support is unchanged.
We could revise the outlook to stable if the outlook on the sovereign rating is
revised to stable. In addition, such an outlook revision would be contingent on
the restoration of credit metrics to levels we consider commensurate with a
"significant" financial risk profile, including debt to EBITDA between 3x and 4x
and FFO to debt in the 20%-30% range . This could occur in case of further
conversion of loans to equity, further equity contributions, or lower investment
levels at the Samruk-Energy level.
We might lower the ratings if the sovereign rating is lowered to 'BBB'. Pressure
on the SACP might arise if the group adopts more aggressive financial policies
that aren't commensurate with our current expectations, for instance if
increased investments led to a debt leverage position exceeding 5x debt to
EBITDA or FFO to debt below 12%, or if the liquidity and maturity profiles
weaken.
According to our methodology for rating government-related entities, a lowering
of Samruk-Energy's SACP to 'b' would lead to a one-notch downgrade, all else
being equal.
If we revised the likelihood of extraordinary state support to "moderately
high," it would also result in the lowering of our rating on Samruk-Energy, if
the SACP and sovereign ratings remain unchanged. Such a revision might stem
from a demonstrated weaker willingness of the government to provide financial
support to the group, revision of government strategies regarding development
of the private sector, or enhanced privatization above our expectations during
the "People's IPO.".
Primary Credit Analyst:
Sergei Gorin, Moscow (7) 495-783-4132;
sergei.gorin@standardandpoors.com
Primary Credit Analyst:
Elena Anankina, Moscow (7) 495-783-4130;
elena.anankina@standardandpoors.com
[2015-01-05]