Fitch affirms KazTransOil ratings; outlook Stable
02.09.14 15:00
/Fitch Ratings, Moscow/London, August 28, 14, heading by KASE/ – Fitch Ratings
has affirmed Kazakhstan-based JSC KazTransOil's (KTO) Long-term foreign currency
Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook. A full list of
rating actions is below.
KTO's ratings reflect its strong operations and credit profile, which we expect
it will maintain at least over the medium term, and its strategic importance to
the economy of Kazakhstan (BBB+/Stable). KTO is the national operator of oil
pipelines in Kazakhstan. Its ratings are capped by those of its parent, JSC
National Company KazMunayGas (NC KMG, BBB/Stable). Excluding the share in
transportation volumes of equity accounted subsidiaries, it transported 59.6
tonnes of oil in 2013, equivalent to about 1.1m barrels per day (mmbbl/d). In
2013, KTO generated KZT106bn in EBITDA and KZT94bn in funds from operations
(FFO). At 30 June 2014, the company had KZT117bn in cash and no balance-sheet
debt, and we expect leverage to remain under 0.5x in 2014- 2018.
KEY RATING DRIVERS
Kazakhstan Oil Transportation Champion
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 estimates that in 2013 it
shipped 57% of crude produced in Kazakhstan, excluding the volumes shipped by
its two joint ventures (JVs) with China National Petroleum Corporation (CNPC,
A+/Stable), which operate the major parts of the 20m tonne per annum capacity
Kazakhstan-China oil pipeline.
Ratings Capped by the Parent
We cap KTO's ratings at NC KMG's level because the parent exercises significant
influence over KTO's free cash flow (FCF) through dividends, which NC KMG
needs to service its large standalone debt of KZT1,818bn (USD11.8bn) at end-
2013. We consider that KTO's uncapped ratings are in the low 'A' category,
limited by country-specific corporate governance issues and concentration of
assets in one country. We also 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.
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. In 2014, Russia
and Kazakhstan agreed to ship up to 10 million tonnes of Russian crude to China
at a specified tariff. However we do not incorporate any impact on KTO at this
time.
Tariffs Increases Mitigate Devaluation
KTO's tariffs are regulated by Kazakhstan's Agency for Regulation of Natural
Monopolies (AREM), which periodically reviews them. AREM has increased
KTO's export tariffs twice this year in January and in April, by 23% in total,
and domestic tariffs in January by 50%. We view timely tariff indexation as
essential for KTO's sound financial performance.
Solid Credit Despite Significant Capex
We expect that 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.
Non-Recourse JV Debt Excluded
We continue to treat the indebtedness of Kazakhstan-China Pipeline LLP (KCP),
KTO's 50% JV with CNPC, as non-recourse to KTO. These borrowings include a
USD288m (residual amount) bank loan due in 2019 and a USD733m bank loan due in
2018 that was guaranteed by CPNC until 31 December 2013. KCP had a solid
financial position at end-2013. Fitch estimates that its net debt/EBITDA stood
at 2.8x and in 2013 its FCF reached KZT15bn. We believe that the JV will be able
to service its debts without any help from KTO.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- Positive rating action on NC KMG's ratings would likely lead to positive
rating action on KTO.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- Negative rating action on KMG NC would likely be replicated on KTO.
- KTO's aggressive capex and/or dividend payments exceeding our expectations
resulting in a significant and sustained deterioration of its credit metrics,
including FFO gross adjusted leverage above 2x.
LIQUIDITY AND DEBT STRUCTURE
Solid Liquidity, No Debt
At 30 June 2014, KTO had KZT117bn in cash and deposits mainly with local
banks eg, Halyk Bank of Kazakhstan (BB/Stable) held nearly 50% of KTO's funds
at that time and Kazkommertsbank (B/Stable) held another 38%. KTO had no
financial debt at 30 June 2014.
The rating actions are as follows:
Long-Term IDR: affirmed at 'BBB', Outlook Stable
Local currency Long-Term IDR: affirmed at 'BBB', Outlook Stable
Short-Term IDR: affirmed at 'F3'
National Long-Term Rating: affirmed at 'AA+(kaz)', Outlook Stable
Senior unsecured rating: affirmed at 'BBB'
National senior unsecured rating: affirmed at 'AA+(kaz)'.
Contact:
Dmitry Marinchenko
Associate Director
+44 20 3530 1056
Supervisory Analyst
Maxim Edelson
Senior Director
+7 495 956 9901
Fitch Ratings CIS Limited
26 Valovaya Street
Moscow 115054
Committee Chair
Alex Griffiths
Managing Director
+44 20 3530 1709
Media Relations: Julia Belskaya von Tell, Moscow,
tel. + 7 495 956 9908/9901,
julia.belskayavontell@fitchratings.com
[2014-09-02]