OREANDA-NEWS. The tenge's sharp fall last week will weaken the credit metrics of most Fitch-rated companies in Kazakhstan, with utilities most exposed due to their high foreign-currency debt, limited foreign-currency revenues and lack of hedging, Fitch Ratings says.

The immediate ratings impact is limited because our ratings largely factored in the potential for a significant devaluation and because some are linked to the sovereign rating (BBB+/Stable). But in some cases this approach could change if it appears that sovereign support is weakening. We have assigned a Negative Outlook to two ratings (Central-Asian Electric-Power Corporation (CAEPCo, BB-/Negative) and Sevkazenergo (BB-/Negative)) that are not sovereign-linked.

Kazakhstan Electricity Grid Operating Company (KEGOC) (BBB+/Stable), railway company Kazakhstan Temir Zholy (KTZ) (BBB/Stable), CAEPCo and Samruk-Energy (BBB-/Stable) are likely to see the biggest increases in leverage.

At 20 August, 45% of CAEPCo's debt was in dollars whereas all its revenue was in local currency. Following the devaluation we expect funds from operations (FFO) gross adjusted leverage to increase to above 3x in 2015-2017 and FFO interest coverage to drop below 4x from 2016. This may result in a breach of our negative rating guidelines and we have therefore changed its Outlook to Negative. The Outlook on CAEPCo's subsidiary Sevkazenergo has also been revised to Negative. Around 34% of Sevkazenergo's debt at 20 August was in dollars and we expect its FFO gross adjusted leverage to test our negative rating guideline of 3x in 2015 and coverage metrics to breach our guideline over 2015-2018. Sevkazenergo's ratings are aligned with those of its sole shareholder CAEPCo.

Our analysis of Kazakh companies is based on gross leverage, so that we do not give credit for any cash balances held at Kazakh banks. This limits the risk to ratings from any potential contagion from problems in the domestic banking sector, where we expect the falling tenge to affect both asset quality and capital ratios.

KEGOC, KTZ and Samruk-Energy are all indirectly 100% state owned. The close links mean KEGOC's rating is aligned with the sovereign, KTZ is notched down once and Samruk-Energy is notched down twice.

However the weaker tenge may cause them to breach leverage covenants on bank loans and we could reassess our rating approach if they do not receive state support to improve their financial profiles and/or re-negotiate these covenants. This could result in increasing the notching from the sovereign or switching to a bottom-up rating approach, although KEGOC is likely to remain aligned with the sovereign due to particularly strong links, including state guarantees for its debt.

KTZ has already arranged a USD300m syndicated loan to partially refinance its USD350m Eurobond due for repayment in May 2016. The European Bank for Reconstruction and Development has raised the allowed debt/EBITDA ratio in a covenant on existing loans for 2015 to 4.5x from 3.5x, which allows more headroom. We estimate that tenge's fall will increase KTZ's FFO adjusted gross leverage by 0.5x.

Oil and gas companies are also big foreign-currency borrowers, with most of their debt denominated in dollars. In the short term the devaluation will increase leverage ratios across the sector, but these companies also generate a large portion of their revenues and cashflows in dollars and over time the impact on leverage ratios should therefore be limited.

The ratings of KazMunayGas (BBB/Stable) and its subsidiaries KazTransGas (BBB-/Stable) and Intergas Central Asia (BBB-/Stable) are linked to the sovereign.

We expect these companies to increase EBITDA margins as the FX-denominated component in their revenues exceeds that in their costs. KazMunayGas is at risk of breaching debt covenants, but the company is already reducing debt and we expect the Kazakh state to provide support if needed.

In other sectors, the devaluation will increase leverage at Kazakhtelecom (BB/Positive), whose debt was less than 50% in foreign currency at end-2014. However our analysis indicates the tenge would have to fall by 50% from its level at the start of the year before a currency move on its own might affect the rating.

Kazakhstan Engineering's (BBB-/Stable) rating is linked to the sovereign and any impact on margins will be mitigated because most local currency contracts with government customers have a cost pass-through provision, while export contracts are normally priced in dollars.