Fitch: No Immediate Rating Impact on KTZ from Subsidiaries' Debt Repayment Delay
In its consolidated accounts for 1Q16, KTZ disclosed that VMZ and VSK missed debt and interest payments of KZT1.2bn (USD3.6m) each as at 31 March 2016. The delays were due to time overruns on VMZ's investment project and volatility in VSK's production volumes. The payment terms were eventually renegotiated by both companies. Halyk Bank of Kazakhstan (BB/Stable) extended VMZ's grace period for the repayment of both principal and interest until January 2017-January 2018. ATF Bank JSC (B-/Stable) agreed to defer VSK's payments of both principal and interest until February 2017.
Neither of the subsidiaries has cross-default provisions with KTZ, nor do they act as a guarantor or qualify as a material subsidiary under its Eurobond documentation. This is because their gross assets, gross revenues and pre-tax profits represent less than 10.0% of KTZ's consolidated gross assets, consolidated gross revenues and pre-tax profits (VSK and VMZ each represent less than 1% of KTZ's gross assets, gross revenues and pre-tax profits). The delays in repayments therefore do not constitute an event of default under the Eurobond documentation.
KTZ's ratings reflect that Fitch continues to assess the links between Kazakhstan (BBB/Stable) and KTZ as strong. The sovereign's willingness and ability to support KTZ was demonstrated in May 2016 through state assistance in refinancing KTZ's USD350m Eurobond. The company's ratings continue to be driven more by the linkages with the sovereign than KTZ's standalone profile and are one notch lower than the state.