The affirmation reflects the view of S&P that KTO continues to enjoy a «high» likelihood of timely and sufficient extraordinary government support from the government of Kazakhstan.
S&P also continue to see KTO as a «strategically important» subsidiary of the KMG group. KTO's «strategically important» status within the KMG group and its importance to the government of Kazakhstan are underpinned, by the view of S&P, by the company's role as the main oil pipeline network operator in the country, transporting more than 53% of oil volumes in the country.
S&P consider KTO's role for the government to be «very important» and the link between the company and the government to be «strong». S&P also assume that extraordinary state support would likely come directly from the government.
S&P point out that in accordance with rating methodology, the rating on KTO is capped by the rating on its parent, KMG (BB+/Negative).
According to S&P, KTO has a solid market position and limited competition from rail and tanker transport, owing to Kazakhstan's land-locked location, geographic isolation from the Caspian Sea, and the low cost of pipeline transportation. However, S&P assess country risk in Kazakhstan as «high,» and consider tariff regulation to be opaque and irregularly revised.
S&P mention that KTO group has a favorable debt structure - all of outstanding debt is currently at the level of the operating subsidiaries and joint ventures. KTO also enjoys good financial flexibility, thanks to its adequate cash position, flexibility to defer most of its new projects, and available borrowing capacity. In 2015, S&P expect KTO to continue generating strongly positive free operating cash flow on the back of the tariff increases that took place in 2014. S&P think that KTO's sizable accumulated cash balances cover all existing investment projects and allow for high dividend payouts.
S&P analysts notes that KTO’s rating might be lowered if company undertakes new investment projects requiring significant external borrowing, resulting in weakened credit measures, or if any substantial unfavorable changes in new contracts with customers will be applied. The revise of the outlook on KTO back to stable might be if S&P will take a similar action on the parent company.
Press Service
«KazTransOil» JSC
