On August 21, 2013, the international rating agency Moody`s Investors Service changed outlook to «Positive» « affirming the corporate credit rating of «KazTransOil» JSC (hereinafter – the KTO or Company) at level «Вaa3».
Moody`s Investors Service noted that the application of Agency’s Global Midstream Energy methodology, published 1 December 2010, results in an A rating for KTO. However, the Agency believes that the geopolitical risks associated with operating in Kazakhstan, as well as risks related to growing competition from third-party pipelines justify positioning the company's BCA in the Ba rating category.
The Agency, by virtue of the Company ownership structure (KTO is 90% owned by KMG NC, which in turn is 100% owned by the Government of Kazakhstan (Baa2 stable) via its Samruk-Kazyna holding), considers KTO to be a government related issuer (GRI). That is why the Agency applies the GRI methodology to determine its rating. The final Baa3 rating comprises (1) a baseline credit assessment (BCA) of ba1, which measures the company's underlying fundamental credit strength; (2) the Baa2 local currency rating of the Kazakhstan government; (3) «high» support; and (4) «high» dependence.
KTO's BCA of ba1 reflects fundamental risk factors, such as (1) growing competition from third-party pipelines; and (2) risks related to the political and regulatory framework in Kazakhstan. KTO's credit profile benefits from (1) the scale of the company's operations and revenue stream stability; (2) the company's strong position in the Kazakhstan market, protected by its national operator status; (3) low medium-term risk of losing transportation volumes; and (4) strong profitability metrics and low leverage.
The Agency’s assumption that there is a high level of default dependence between KTO and the Kazakh government is based on the company's operating and financial proximity to the government, and the government's reliance on the oil & gas sector. In addition, the Agency’s assessment that KTO would benefit from a high level of support reflects the company's strategic importance to the state, the government's interventionist history, and the importance of energy exports to the Kazakh economy's growth.
KTO's scale of operations is «moderate» and maps to an upper Ba rating category based on the company's asset base and EBITDA. The Agency’s positively recognizes KTO's dominant position in a market.
KTO's tariffs on transportation of oil and water via its trunk pipeline system are regulated by the state via Kazakhstan's Agency for Regulation of Natural Monopolies (ARNM), and are adjusted as needed to reflect operating cost inflation and the desired rate of return on investments. KTO transportation tariffs are not linked to oil price movements.
The Agency estimates KTO's price and volumes risk exposure (also known as business risk) as low and map it to the Aa rating category. This is due to KTO's strategic positioning and monopoly status for pipeline transit of oil from Kazakhstan to Russia, Europe and China.
The Agency notes that KTO's customer base is fairly diversified and KTO's operations are spread evenly between (1) the domestic market; (2) exports to Russia via the Atyrau-Samara trunk pipeline; and (3) exports to China via the Atasu-Alashankou pipeline.
The Agency notes that KTO has virtually no financial debt at the holding level; most of group's debt sits at the level of Kazakhstan China Pipeline joint venture, which is not consolidated in accordance with the equity method of accounting assumed by the company in 2008. As a result, the company's leverage and coverage metrics map to the Aaa rating category.
The Agency considers KTO's liquidity position as «strong» given the company's cash reserves of $620 million as of the end - March 2013 and stable projected cash flow stream. As of end -2012, KTO had no material debt on its balance sheet and no refinancing risk. The Agency expects cash flow generation at KTO in 2013-14 to comfortably cover its maintenance capex of $250 million, as well as dividend payouts in the amount of 40% of net profit.
«Positive» outlook on the ratings is in line with the sovereign ratings' outlook and reflects the Agency opinion that there are close linkages between the company and its support provider –the government of Kazakhstan.
IR Service
«KazTransOil» JSC
