Standard & Poor's could lower rating of KazTransOil CJSC

/IRBIS, Feb 26, 02/ - Standard & Poor's international rating agency informed on Monday that long-term credit rating of KazTransOil CJSC, currently placed on BB level was included into CreditWatch list with possible prospects of credit lowering. This decision was based on Decree of the President of Kazakhstan on merger of NOC KAZAKHOIL CJSC and NC Oil & Gas Transportation CJSC that entitles KazTransOil CJSC. Following is an original news release of REUTERS. (Press release provided by Standard & Poor's) NEW YORK, Feb 25 - Standard & Poor's said today it placed its double-'B' long-term corporate credit ratings on Kazakhstan-based oil transportation company KazTransOil (KTO) on CreditWatch with negative implications. The CreditWatch placement follows the issuance of a Decree by the President of the Republic of Kazakhstan on the merger of two major state- owned companies: Transportation of Oil and Gas CJSC (TOG) and KazakhOil CJSC to form a new state-owned entity, Kazmunaigas CJSC. TOG holds 100% of the shares in KTO. "Although KTO's stand-alone credit quality is not expected to be weakened by the group restructuring, the ratings on KTO could be affirmed or lowered from the current level depending on the consolidated credit quality of the merged entity and the financial policy of the new parent company," said Standard & Poor's Infrastructure Finance credit analyst Rachel Goult. "KazakhOil's stand-alone credit quality is weaker than that of KTO and its presence in the merged entity could weaken the consolidated group's credit quality to double-'B'-minus or even lower. Standard & Poor's will need to consider whether KTO can continue to be rated at its stand-alone level. As part of this process it will need to seek assurance from the management of KTO and Kazmunaigas that the financial strength of KTO will not be impaired by the group restructuring and that KTO can continue to be rated at its stand- alone level. KTO's management has indicated that such assurance will be provided, which will limit, although not completely eliminate, the probability of any rating action," Ms. Goult added. Under the decree, the Government of Kazakhstan states its intention to complete the merger and asset transfer within three months. The standalone-ratings on KTO reflect its status as the operator of the majority of Kazakhstan's oil pipeline infrastructure and its important role in the development of the country's growing oil reserves. The ratings are strengthened by the company's robust financial profile, reflecting the supportive nature of the government's regulatory environment toward KTO. The ratings are offset by KTO's exposure to Kazakhstan's oil production profile, the financial health of oil producers in Kazakhstan, and the company's dependence on neighboring Russia (B+/Positive/B) for pipeline access to export markets. International crude oil prices and Russia's political risks are, therefore, key rating determinants over which KTO has no control. KTO's diminishing role in the export of Kazakhstan's crude oil production, following the launch of the Caspian Pipeline Consortium (CPC) project at the end of 2001 has been factored into the rating. Standard & Poor's expects, however, that the financial impact of increased export route competition on KTO will be limited, with strong domestic transportation growth offsetting export reduction.