On 28 August 2014 Fitch Ratings (hereinafter – Fitch) has affirmed JSC KazTransOil's (hereinafter - KTO) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook.
KTO's ratings reflect its strong operations and credit profile, which as Fitch expects will maintain at least over the medium term, and its strategic importance to the economy of Kazakhstan.
Fitch noted KTO as champion in Kazakhstan oil transportation field. KTO dominates the Kazakh oil transportation sector, which is critical for the national economy. In 2012, KTO received 'national operator' status, which legally protects its monopolistic position.
KTO ratings capped by the parent organization NC KMG's level because the parent exercises significant influence over KTO's free cash flow through dividends, which NC KMG needs to service its large standalone debt. At the same time KTO separately has solid liquidity and no debt. Fitch consider that KTO's uncapped ratings are in the low 'A' category.
Fitch believe that in the event of financial stress, the state would support KTO, either directly through equity contributions or loans from state-owned banks, or indirectly through higher tariffs.
Analysts noted KTO’s stable operations. In 2013, KTO's crude turnover (excluding JVs) reached 37 billion tonne-kilometres, up 7% yoy; in 1H14 the turnover was down 2% on 1H13. We expect that KTO's volumes and turnover will decline gradually over the medium term, reflecting maturing production at Kazakhstan's key oilfields.
KTO's tariffs increase in 2014 mitigated the effect of devaluation of national currency. Fitch view timely tariff indexation as essential for KTO's sound financial performance.
Fitch noted solid credit profile of KTO despite significant capex. According to Fitch’s expectations KTO's annual capex may exceed KZT50bn in 2014-2018, compared with KZT33bn in 2013, as it is undertaking two significant projects: construction of the second line of the Kazakhstan-China pipeline to boost its capacity to 20 million tonnes per annum and upgrades of the Karazhanbas-Aktau and Uzen-Aktau pipelines. We expect KTO to report negative FCF until 2018 due to higher capex, but FFO adjusted net leverage should remain under 0.5x in the medium term.
