TEXT-S&P affirms Samruk-Energy proposed notes at 'BB+'

Mon Dec 24, 2012 6:13am EST

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(The following statement was released by the rating agency)

Dec 24 - Standard & Poor's Ratings Services has today affirmed its 'BB+' issue rating on the proposed $500 million (about Kazakhstani tenge 75 billion) notes of Kazakhstan state-owned vertically integrated electricity utility Samruk-Energy JSC (BB+/Stable/B; Kazakhstan national scale rating 'kzAA-'). The recovery rating of '4' on the proposed notes remains unchanged.

The 'BB+' issue rating on the proposed $500 million notes is at the same level as the corporate credit rating on Samruk. The recovery rating of '4' indicates our expectation of average (30%-50%) recovery prospects in the event of a payment default. The size of the issuance has increased to $500 million from the $200 million originally envisaged. We understand that the majority of the proceeds of the notes (about $420 million) will be utilized for capital expenditures or acquisition spending.

Our opinion of the recovery prospects for the notes is supported by our view that, in the event of default, the likely recovery for the noteholders would hinge on the ability and willingness of the Kazakh government to negotiate with creditors, rather than formal restructuring, given the implied sovereign support and the strategic nature of Samruk-Energy's assets. However, the recovery prospects are constrained by the unsecured nature of the notes and our view of Kazakhstan as an unfavorable insolvency regime for creditors.

Given implied sovereign support and the strategic nature of Samruk-Energy's assets, we believe it unlikely that the group's assets would be sold to repay creditors. Therefore, in large part, we believe noteholder recoveries are likely to depend on the ability and willingness of the Kazakh government to reach a negotiated settlement in the event of default.

Following the increase in the size of the proposed notes issue, we now estimate that the group's intrinsic enterprise value at default would need to exceed KZT90 billion at the hypothetical point of default, based on our waterfall assumptions, to cover more than 30% of the notes' principal and prepetition interests. This is consistent with a recovery rating of '4'. We assume that about KZT35 billion of prior-ranking claims, excluding enforcement costs, would need to be covered before payment of about KZT157 billion of unsecured debt claims that we assume would be outstanding at default. The latter amount comprises the proposed KZT75 billion notes, as well as various unsecured debt instruments.

RELATED CRITERIA AND RESEARCH

All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.

-- Kazakhstan-Based Samruk-Energy's Proposed Notes Assigned 'BB+' Issue Rating And A Recovery Rating Of '4', Nov. 28, 2012

-- Kazakhstan State-Owned Vertically Integrated Electricity Utility Samruk-Energy Rated 'BB+/B' And 'kzAA-'; Outlook Stable, Nov. 20, 2012

-- General Criteria: Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

-- Criteria - Corporates - Recovery: Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' Speculative-Grade Debt, Aug. 10, 2009

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

RATINGS LIST

Ratings Affirmed

Samruk-Energy JSC

Senior Unsecured Debt BB+

Recovery Rating 4

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