(Repeat for additional subscribers)
Jan 31 (The following statement was released by the rating agency)
Fitch Ratings has assigned JSC KazTransGas Aimak's (KTGA) KZT6.7bn bond a final local
currency senior unsecured 'BB+' rating and National senior unsecured 'AA-(kaz)' rating. A full
list of KTGA's ratings is below.
The five-year bond was placed on 29 January 2014 (ISIN: KZ2C00002483) and is the
first issue under KTGA's KZT50bn programme. It is rated in line with KTGA's
'BB+' senior unsecured rating as it represents a senior unsecured obligation of
KTGA. We expect that KTGA will use the issue proceeds to fund its capex
KTGA is Kazakhstan's state-owned near-monopoly engaged in domestic natural gas
transportation and distribution. Its ratings are aligned with that of its
immediate parent and Kazakhstan's national gas operator KazTransGas JSC (KTG,
BB+/Stable) and reflect the company's dominant market position and its strong
strategic and operational ties with KTG.
KEY RATING DRIVERS
Near-Monopoly in Domestic Gas
KTGA, a 100% subsidiary of KTG, operates natural gas distribution and supply in
nine out of 10 Kazakh regions and serves households and industrial consumers.
KTGA directly operates all but one remaining gas distribution network in the
Almaty region, which may be merged with the company pending the state's
approval. In 2012, KTGA sold 8.2 billion cubic metres of natural gas, which
accounted for 87% of Kazakhstan's domestic consumption. Its Fitch-adjusted
revenue reached KZT88.3bn (USD597m), excluding a one-off gas sale to related
Full Ratings Alignment
We align KTGA's and KTG's ratings, as per Fitch's Parent and Subsidiary Rating
Linkage criteria. This reflects our assessment of strong operational and
strategic, and moderate legal ties between KTGA and KTG. As Kazakhstan's
national gas operator, KTG maintains and develops the country's domestic and
transit gas pipelines and sells natural gas domestically and for export. KTGA is
responsible for KTG's domestic operations including domestic gas transportation
and sales of marketable natural gas. KTGA benefits from its links with the
state, which Fitch has factored into KTGA's ratings.
Regulated Tariffs, High Receivables
KTGA's profitability depends on cost-plus domestic tariffs and regulated gas
prices set by Kazakhstan's Agency for Regulation of Natural Monopolies (AREM).
We view Kazakhstan's tariff-setting environment as developing. Historically, gas
prices and transit tariffs have been sufficient for KTGA to maintain adequate
profits and finance its moderate maintenance capex. We expect this to continue
under our rating case scenario. However, this may not be the case in an economic
recession, as AREM may face political pressure to limit tariff increases.
KTGA purchases natural gas from domestic and foreign producers and sells it to
domestic consumers. In 2012, its receivables collection period was 56 days,
which is significantly longer than that of its local peers. While KTGA says that
current payment discipline is strong, this might change in the event of an
economic downturn, affecting its operating cash flows.
Capex Drives Leverage Up
KTGA's ongoing KZT92.5bn (USD600m) 2013-2018 capex programme will be partially
debt-funded. We expect the company's funds from operations (FFO) gross adjusted
leverage to increase to above 5x by 2015 from 1.3x in 2012. The capex covers the
modernisation and extension of existing gas pipelines, and will have a
moderately positive effect on the company's EBITDA through higher transportation
and sales volumes and lower gas losses. We view the company's financial policy
as aggressive but commensurate with the 'BB' rating category.
Future developments that may, individually or collectively, lead to positive
rating action include:
- Positive changes in Kazakhstan's regulatory environment eg, long-term tariffs
linked to the asset base.
- KTGA's FFO gross adjusted leverage materially below 3x on a sustained basis.
Future developments that may, individually or collectively, lead to negative
rating action include:
- Weakening ties between KTGA and KTG, eg, if KTG fails to make agreed equity
injections into KTGA.
- Negative rating action on KTG.
- KTGA's leverage above 6x on a sustained basis, eg, due to an increase in capex
without a corresponding increase in equity contribution from the state, or due
to lower-than-expected tariffs.
LIQUIDITY AND DEBT STRUCTURE
At 30 September 2013, KTGA had KZT1.7bn in cash and cash equivalents plus
KZT13.9bn in short-term deposits, which almost fully covered its KZT17.3bn
short-term debt. We expect the company to be able to refinance its bank loans
when they become due.
KTGA aims to raise long-term funds to finance its ambitious capex. We estimate
that its gross debt could reach KZT50bn in 2014 or 2015.
FULL LIST OF RATINGS
Long-Term foreign currency Issuer Default Rating (IDR): 'BB+', Outlook Stable
Long-Term local currency IDR: 'BB+', Outlook Stable
Short-Term foreign currency IDR: 'B'
National Long-Term rating: 'AA-(kaz)', Outlook Stable
Senior unsecured rating: 'BB+'
National senior unsecured rating: 'AA-(kaz)'