Fitch Downgrades Seven Kazakh Corporates' National Scale Ratings Following Recalibration
OREANDA-NEWS. Fitch Ratings has downgraded the National Scale ratings of seven Kazakh corporates. The downgrades reflect a recalibration of the Kazakh national scale, which followed the recent downgrading of the Kazakh sovereign rating (see 'Fitch Downgrades Kazakhstan to 'BBB'; Outlook Stable' dated 29 April 2016).
The rating actions also follow the recent downgrade of international scale ratings of several Kazakh corporates (see 'Fitch Downgrades Six Kazakh Corporates on Sovereign Rating Action' dated 5 May 2016). A full list of rating actions is available at www.fitchratings.com or by clicking the link above.
The core rationale for these rating actions is the direct impact of the sovereign downgrade on the ratings of state-owned entities. For each issuer's Key Rating Drivers, Rating Sensitivities and Key Assumptions, see our most recent rating action commentaries, referenced below:
KEY RATING DRIVERS
JSC National Company Kazakhstan Engineering (Long term National rating downgraded to 'AA(kaz)' from 'AA+(kaz)'; Outlook Stable)
We continue to view the operational and strategic links between Kazakhstan Engineering (KE) and the state as moderate to strong, which supports the application of the top-down rating approach. The strength of these ties is underpinned by the state control, strategic importance of the company to the government's ambition to expand the country's industrial base and diversify the national economy as well as the tangible financial support from the state that has already been exhibited and pledged. The two-notch differential between the company's Long-term Issuer Default Rating (IDR) and the sovereign's reflects the lack of debt guarantees provided by the state and the slightly lower priority KE would likely receive compared with key natural resources, utilities or infrastructure companies.
See 'Fitch Affirms Kazakhstan Engineering at 'BBB-'; Outlook Stable' dated 22 September 2015 at www.fitchratings.com for full rating rationale and disclosures.
JSC Samruk-Energy (Long-term National rating downgraded to 'AA(kaz)' from 'AA+(kaz)'; Outlook Stable)
Fitch applies a two-notch differential between the Long-term IDR of Samruk-Energy and the state. We continue to view the operational and strategic links between Samruk-Energy and ultimately the state as strong, which supports the application of the top-down rating approach. The strength of these ties is underpinned by the company's strategic importance to the Kazakh economy as the company controls about 39.8% of total installed electricity generation capacity and 35.6% of total coal output in the country. The strength of ties is also supported by the state's approval of the company's strategy and capex programme, and by tangible financial support in the form of equity injections, asset contributions, subordinated loans and subsidies.
See 'Fitch Affirms Samruk-Energy at 'BBB-'; Outlook Stable' dated 23 December 2015 at www.fitchratings.com for full rating rationale and disclosures.
JSC Mangistau Electricity Distribution Company (MEDNC; Long-term National rating downgraded to 'A+(kaz)' from 'AA(kaz)'; Outlook Negative)
MEDNC's ratings are currently notched down three levels from the sovereign's, reflecting moderately strong links between the company and its ultimate parent.
The Negative Outlook reflects our assessment of weakening ties between MEDNC and its ultimate parent, Kazakhstan. This is due to the planned sale of the full 75% stake owned by 100% state-owned JSC Samruk-Energy (BB+/Stable) in MEDNC over the medium term as well as expected material deterioration of the company's credit metrics over 2015-2018 due to debt-funded large capex imposed by the state.
See 'Fitch Affirms Mangistau Electricity Distribution Company at 'BB+'; Outlook Negative' dated 6 August 2015 at www.fitchratings.com for full rating rationale and disclosures.
JSC KazTransOil (KTO; Long-term National rating downgraded to 'AA+(kaz)' from 'AAA(kaz)'; Outlook Stable)
KTO's ratings are capped by those of JSC National Company KazMunayGas (NC KMG), its majority shareholder, due to the parent's significant influence over KTO's free cash flow (FCF) through dividends. KTO's dividend payout has been relatively high historically, from 66% to 231% in 2011-2014.
See 'Fitch Affirms KazTransOil at 'BBB'; Outlook Stable' dated 08 September 2015 at www.fitchratings.com for full rating rationale and disclosures.
KazTransGas JSC (KTG) and subsidiaries (Long-term National ratings downgraded to 'AA(kaz)' from 'AA+(kaz)'; Outlook Stable)
KTG's ratings are notched down one level from NC KMG's ratings. KTG and Intergas Central Asia JSC (ICA) qualify as material subsidiaries in NC KMG's Eurobonds and are subject to cross-default provisions, but NC KMG does not guarantee their debt.
We view the intra-group links between KTG, ICA and KazTransGas Aimak JSC (KTGA) as strong and hence align the ratings of the two subsidiaries with KTG's. The evidence of strong linkage includes KTG's financial guarantees to KTGA, operational interdependence and a common planning and budgeting process between the companies.