KazTransGas and Intergas Central Asia 'BB' Ratings Affirmed; Outlook Stable

/Standard & Poor's, August 25, 04/ - LONDON (Standard & Poor's) Aug. 25, 2004--Standard & Poor's Ratings Services said today it affirmed its 'BB' corporate credit ratings on Kazakhstan-based gas pipeline operator Intergas Central Asia (ICA) and its holding company KazTransGas (KTG). The outlook is stable. The ratings reflect the risk to cash flows from ICA and KTG's heavy dependence on their major counterparty, the Russian gas monopoly OAO Gazprom (BB-/Stable/--), and on Turkmenistan, Uzbekistan, and Ukraine (B+/Stable/B). They also reflect the companies': lack of operational diversity due to dependence on two large transit pipelines; an uncertain regulatory environment; and potentially high capital expenditure and borrowing needs to upgrade and expand the network. These risks are offset at this rating level by ICA's monopoly position as the trunk pipeline operator between Central Asian gas exporters and the main European gas market, its strategic importance to the Republic of Kazakhstan (foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A-3) and 100% ownership by the state-owned KazMunaiGas (KMG) oil and gas group. KTG's prudent approach to transit pipeline capacity expansion is also supportive of credit quality. ICA operates the Kazakh gas pipeline network under a 20-year concession agreement. The company's major activity is the transportation of Russian, Uzbek, and Turkmen gas through Kazakhstan primarily to Russia, and ultimately central Europe. KTG's dependence on Turkmen gas flows is to some extent mitigated by long-term agreements for supply contracts between Russia, Turkmenistan, and Ukraine. Increased volumes under these contracts exceed current capacity, which may require expansion. KTG's other activities include sales of gas, gas distribution within Kazakhstan, own gas production, gas storage, power, heating, and hot water supplies. "We expect KTG and ICA to replace existing short-term debt successfully with long-term borrowings by the end of 2004. We also expect the companies to implement a prudent investment policy and not to launch any debt-financed transit pipeline expansion projects unless backed by strong guaranteed offtake and tariff agreements with key partners," said Standard & Poor's credit analyst Eugene Korovin. "At the same time, KTG and ICA's slightly weaker stand-alone credit profile will remain dependent on the strength of support from KMG and its credit quality." [2004-08-25]