Fitch upgrades rating of KazTransOil to "BB+" from "BB"
09.11.04 11:08
/REUTERS, London, November 9, 04/ - Fitch Ratings, the international rating
agency, has today upgraded the ratings of Kazakhstan-based OTC
KazTransOil ("KTO") and its USD150 million notes to Long-term 'BB+' from
BB'. KTO's Short-term rating is affirmed at 'B'. Following the upgrade, the
Outlook is now Stable.
The rating action follows the recent upgrade of Kazakhstan's sovereign rating
to "BBB-' (BBB minus)/Stable from "BB+'/Positive, due to improved
creditworthiness underpinned by the development of the country's oil and gas
sector and the spill-over of high oil prices. The fast growth of the
hydrocarbons sector has ensured that the oil and gas industry continues to
dominate the economy. The rating reflects KTO's strategic importance to the
state's oil and gas industry and the vital role it plays in the transportation
of the country's oil production to export markets. The upgrade for KTO,
however, is not automatically connected to the recent sovereign upgrade.
The Stable Outlook foresees continued stability in Kazakhstan's
macroeconomic environment, which has benefited KTO. Additionally,
Kazakhstan's increasing oil production and growing importance in
international oil markets mean KTO will continue to play a key role in the
country's energy policy and will be able to rely on stable cash flow from
regulated prices. Finally, long-term contracts and purchase agreements will
assure that KTO continues to be an important oil transportation link to both
Western European and Chinese consumers.
Over the next 10 years, Kazakhstan's oil output is set to rise to around 3.5
million bpd from just over 1 million bpd, higher than current production levels
in Norway and only slightly below output in Iran and Mexico. The company's
business profile is enhanced by a conservative business plan in which
management seeks to grow the company without over expanding or
diversifying into unrelated business lines. Furthermore, KazTransOil enjoys
good relations with its Russian counterpart Transneft and has several long-
term contracts in place.
Conversely though,, the company faces a regulated price environment and
other state regulatory restrictions which at times can place downward
pressure on its earnings potential. However, tariff regulation so far has
proved to be relatively benign to the company's earnings, as the stable tariff
structure has allowed it to be profitable.
KazTransOil has an ambitious capital expenditure programme with
management planning to connect and expand existing pipeline networks,
while at the same time aiming to upgrade and modernise the network. Fitch
sees this as a positive and believes the proposed expansion will significantly
improve the company's operational importance and profit potential, especially
its pipeline access to Chinese markets.
Finally, KazTransOil's current leverage position is strong with a net
debt/EBITDA ratio (excluding restricted cash) of only 0.2x in 2003, down from
0.7x in 2002. Although the company plans to increase leverage to take
advantage of the tax shield an increased leverage position affords, Fitch
expects the company's credit ratios to remain commensurate with the current
rating.
[2004-11-09]