/ADDITION/ Long-term credit rating of Kazakhstan grid operating company has been upgraded up to "ВВ+"; "Stable" outlook

/Standard & Poor's, Moscow, November 3, 03/ - Standard & Poor's Ratings Services said today it raised its long-term corporate credit rating on Kazakhstan Electricity Grid Operating Co. (JSC) (KEGOC) to 'BB+' from BB'. The outlook is stable. The rating action follows a full-scale review of the company following the upgrade of the Republic of Kazakhstan (foreign currency BB+/Stable/B; local currency BBB-/Stable/A-3) on May 28, 2003. The rating on KEGOC, the fully state-owned monopoly operator of the Republic of Kazakhstan's high-voltage electricity transmission grid, reflects the business risks associated with its relatively high concentration of generators and consumers in the electricity sector of Kazakhstan, its aggressive financial policy, and the expected deterioration of its financial flexibility from 2004-2005, when it starts to repay the principal on its long-term loans. These concerns are offset at this rating level by KEGOC's strategic importance to, and consequent support from, central government. Its monopoly position in electricity transmission in Kazakhstan and supportive regulation are also positive factors. KEGOC exploits 23,520 km of high-voltage lines with the tension from 110 kW to 1150 kW; in 2002 company's revenues were KZT12.6 bn. (about USD85 m.). KEGOC's key investment project for modernization of the National electrical network is financed by the funds of two credit lines given by International bank for reconstruction and development (IBRD) and European bank for reconstruction and development (EBRD). Both credit lines have been secured by Kazakhstan Government. Production and financial policy of the company has been in great degree targeted to successful realization of an investment project and following covenants as well, which are included into credit agreements with IBRD and EBRD. KEGOC does not plan to borrow new funds before final stages begin or before modernization project is finished. Future borrowings, most probably, will not be secured by Kazakhstan Government. Practice of tariffs establishing is under the very significant influence of various political and macroeconomic factors, however the regulating body tries to promote to successful realization of modernization project. Increasing of tariffs of KEGOC for the year 2003 may serve as an example of such the support. KEGOC has the strategic meaning for the country that is confirmed by the guarantees given by the government concerned with the existing positions of KEGOC's long- term indebtedness and promises to holding of more favorable for the company policy in the future. Standard & Poor's estimates influence of close relation between KEGOC and the government in accordance with criteria, which are used for government-supported entities, and considers KEGOC as a company, which participates in realization of economic policy of the state, whose credit rating is closely concerned with the sovereign rating, but not necessarily equal to it. Liquidity At present company's liquidity position does not cause anxiety. Debt instruments liable to redemption within the nearest 12 months, equal to no more than USD2 m. At the same time as of October 30 of 2003 volume of the company's funds was equal to about KZT5.8 bn. (more than USD35 m.). Besides, available credit line in the amount of USD25 m. supports the company's liquidity. The company has limited freedom of maneuver within the framework of the limits for some financial indicators (covenants), which are included into agreements of long-term borrowings. It limits the company's financial flexibility, because theoretically in case of breaking covenants company's creditors can announce the borrowings as liable to immediate redemption. However the probability of such the development of events is extremely low for the central government's guarantee is acting on the credits, and, besides, in the future banks may relax covenants. Outlook The stable outlook reflects that on the sovereign. "We expect KEGOC to remain closely integrated with central government, that future government tariff policy will be supportive, and that KEGOC will not make a decision about any new long-term debt not guaranteed by the government until 2005," said Standard & Poor's Infrastructure Finance credit analyst Mikhail Galkin. "In 2005, there should be more certainty about the tariff policy, electricity market development in Kazakhstan, and KEGOC's ability to repay the principal on existing long-term loans." An improvement in the sovereign ratings on Kazakhstan will not necessarily result in an upgrade of the rating on KEGOC. ------------------------------------------ Rating-list To From ----------- -------------- --------------- Borrower's credit rating -------------------------- --------------- BB+/ Stable /- BB/ Positive /- ------------------------------------------ For detailed information: Mikhail Galkin, Moscow, 7 (095) 783-41-32 Paul Lund, London, 44 (207) 826-37-15 Analysts' e-mails: mikhail_galkin@standardandpoors.com paul_lund@standardandpoors.com Infrastructureeurope@standardandpoors.com [2003-11-05]