Intergas Finance B.V. Proposed Notes Issue Assigned 'BB' Long-Term Rating

/Standard & Poor's, Moscow, October 19, 04/ - Standard & Poor's Ratings Services said today it assigned its 'BB' long-term senior unsecured debt rating to the proposed notes issue by Intergas Finance B.V., a finance subsidiary of KazTransGas (KTG; BB/Stable/--), which--through its 100% subsidiary Intergas Central Asia (ICA; BB/Stable/--)--operates the gas pipeline network of Kazakhstan under a 20-year concession agreement. The size and maturity of the notes issue will be determined at placement. "The rating on the notes is the same as the rating on both KTG and ICA, reflecting that the notes will be irrevocably, unconditionally, jointly, and severally guaranteed by both KTG and ICA and will rank equal to their other senior unsecured obligations," said Standard & Poor's credit analyst Eugene Korovin. The covenant package includes a negative pledge and restrictions on mergers, asset transfers, an amendment-of-concession agreement, and a dividend payout. The transaction is not expected to include financial covenants. The noteholders are also entitled to claim early redemption upon breach of any covenant, termination of the concession agreement, or change of control over the companies, which are currently 100%-controlled by the Republic of Kazakhstan (foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A- 3) through the 100% state-owned KazMunaiGas (KMG) oil and gas group. The ratings on ICA and its holding company KTG continue to reflect the risk to cash flows from the group's heavy dependence on its major counterparty, the Russian gas monopoly OAO Gazprom (BB-/Developing/--), and on Turkmenistan, Uzbekistan, and Ukraine. The ratings also reflect the companies' lack of operational diversity due to dependence on two large transit pipelines; uncertain regulatory environment; and potentially high capital expenditure and borrowing needs to upgrade and expand the network. These risks are offset at the 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 Kazakhstan, and ownership by KMG. KTG's prudent approach to the expansion of its transit pipeline capacity also supports the group's credit quality. For detailed information apply: Evgene Korovin, Moscow, 7 (095) 783-40-90, eugene_korovin@standardandpoors.com Elena Anankina, Moscow, 7 (095) 783-41-30, elena_anankina@standardandpoors.com [2004-10-19]