OREANDA-NEWS. On August 13, 2007 Kazakhtelecom JSC (Astana), shares of which are traded in Kazakhstan stock exchange's (KASE) category "A" official list, provided KASE with the press-release with next contention, reported the press-centre of KASE:

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July 16, 2007. Standard & Poor's confirmed the long-term credit rating "BB" of the largest provider of connection services Kazakhtelecom JSC (KTK). Forecast of rating's change is - "Stable".

Negative influence on level of ratings of KTK have yet not formed structure of market and changing regime of regulating of telecommunication sector of Kazakhstan, liberalization of market of services of distant connection and strengthening of competition. The need for a support of liquidity, increasing of investments and high level of dividend payments are limiting the potential of growth of financial stability and flexibility of the company and also reflect on its rating. Some counterweight for these negative factors are strengthening business-position of KTK (it remains the leader in chosen market segments), significant increase of quality of company's network and positive dynamics of economy of Kazakhstan.

One more plus for KTK is moderate level of application of financial key factor. Kazakhstan telecommunication sector is in the process of restructuring, distinctive features of which are the evolution of regulating system, need for re-balancing of structure of tariffs and growth of competition. It should be noted that KTK - and exactly the fact of its leadership on the market - attracts more and more rapt attention of government and regulating bodies, which increases the risk of unfavorable changes in legislation and creates the uncertainty. Moderate level of average available income and wide territory of the country are holding the process of telephonization and hence, are limiting the potential of growth of income of KTK from traditional services of core connection and new services of connection. Liberalization of market of highly profitable services of distant connection may create the threat to market position and profitability of KTK, especially due to evident lateness of process of re-balancing of tariffs. Except this, growth of capital costs and investments of KTK, connected to development of services of mobile connection of GSM standard, negatively influences on financial flexibility and causes the of debt assignment of company, acceptable for today.

As a whole, company holds the strongest positions in important for it (from the view of profit) segment of market, including local and distant telephony, transfer of data, access to Internet and other services with high stake of added cost.

Increase of quality and widening of network, using of model of vertical integration of business, let KTK to preserve leadership and competitiveness on the market and also widen its presence in important segment of new services of connection. Preservation of positive dynamics of development of Kazakhstan economy development is favorable to further development of business and increase of demand for connection services, which let KTK to increase the scales of activity and volumes of generating money flows. Financial indicators of the company decreased a little, but remain enough successful and acceptable for given rating category: debt assignment makes 1.4 indicators EBITDA as of end of year 2006, or about 31% of general capitalization. Indicators of operation profitability are also high, though they decreased a little in comparison with historically maximal indicators: as of end of year 2006 relation of EBITDA to profit exceeded 39%.

Liquidity

The liquidity of KTK is restricted by the need to refinance the short-term liabilities whose stake in the debt structure increased. As of December 31, 2006, they made 56% of total borrowed capital of the company. Remarkable decrease of financial flexibility is caused by an increase of capital expenditures and investment activity of KTK that is caused by strategic acquisition of assets in 2006.

As of December 31, 2006, the volume of short-term loan liabilities exceeded KZT35 bn. ($276 m.) while the remaining monetary sources and the operational cash flow (net) generated in over 2006, totaled KZT 4,4 bn. and KZT 29,4 bn., respectively. The company has well-established business relationships with different international and Kazakhstan banks, which is a favorable factor for liquidity management. However, the need for refinancing of the main part of debt during in the short run increases the requirements to KTK's efficiency. A counterbalance for this risk is the fact that the government of the country controls the company, and that the company is the key connection operator in Kazakhstan.

The sufficient flexibility of KTK's investment program helps, also, to prevent the risk of decrease of the company's financial flexibility. At the same time, the considerable needs in financing of investments in the infrastructure of cell phone connection that is being created, and, also, still remarkable level of dividend payments restrict the financial flexibility. It is very probable that the significant needs in financing of capital-intensive cell business, that is oriented for the further development, will require some increase of debt - in view of the probability of a negative effect of a free cash flow in the near future.

However, overall, the debt load of KTK will remain moderate.

Forecast

"Stable" forecast reflects the estimates of Standard & Poor's that the improvement of financial and economical indicators of KTK (including the competition advantages that are related to the presence of fiber-optic network that covers the whole territory of the country), and also the acceptable level of financial risk will allow the company to overcome the difficulties that arose because of the current restructuring of telecommunication market and its legislative base, and because of increased concurrence.

We expect that KTK will moderately consider the potential investments in creation of its own cell phone connection business without allowing a serious deterioration of credibility indicators. The key factors that determine the credibility of the company will remain its ability to efficiently solve problems that are related to uncertainty in the field of regulation, to conduct a thoughtful dividend policy and to manage the financial flexibility in an efficient way while supporting a sufficient liquidity level.

Supporting liquidity is an important task for the company; we expect that, in the nearest future, KTK successfully solve the problems related to refinancing.

Nevertheless, incapacity of KTK to achieve an improvement of its liquidity positions by minimizing the stake of short-term debt in the structure of debt (or retardation of the process) may have negative consequences for the company's rating.