S&P affirms long-term credit ratings of National company KazMunayGaz and KazMunaiGas EP at "ВВ+", outlook negative

/Standard & Poor's, Moscow, April 22, 2015, KASE heading/ Standard & Poor's Ratings Services affirmed its 'BB+' long-term corporate credit ratings on Kazakhstan-government-controlled vertically integrated oil company KazMunayGas NC JSC (KMG) and its core subsidiary KazMunaiGas Exploration Production JSC (KMG EP). The outlook is negative. At the same time, we also affirmed our 'kzAA-' Kazakhstan national scale rating on KMG. The affirmation reflects our view that despite weakening credit metrics, KMG's liquidity will not deteriorate due to its manageable debt maturity profile and dividend income from its largest holdings. However, we now think the likelihood of extraordinary government support is very high, rather than extremely high. This reflects the absence of government support amid the fall in oil prices and substantial capital expenditure (capex), which the company has to finance with debt. It also reflects the lack of progress with regard intragroup mergers/transactions, as KMG still has no access to the almost US$4 billion of cash held at its majority-owned subsidiary KMG EP. That said, according to our criteria for government-related entities (GREs) the revision of the likelihood of support does not impact our rating on KMG, which still receives four notches of uplift from its stand-alone credit profile of 'b'. KMG is a 100% government-owned national oil company with stakes in essentially all of Kazakhstan's oil-related assets and priority access to new assets, which also benefits from vertical integration into pipelines. KMG holds stakes in all significant oil operations in Kazakhstan. It is one of the country's largest exporters and taxpayers and has some social mandates, such as supplying the local market with fuel at fairly low prices and investing in socially important projects. Still, KMG is responsible for only about 28% of the country's oil production (12% if only majority-owned s over the next 12 months as of the same date included: - About US$2.4 billion in short-term debt maturities, including a $1.5 billion Eurobond repaid in January 2015. - Capex for Kashagan, which we understand the parent company will have to finance; and - Dividends to Samruk-Kazyna in line with the 15% payout ratio. Our assessment of liquidity as less than adequate also factors in the possible breach of covenants in 2015. However, we expect KMG to receive support from the government in various forms to prevent early redemption claims. The negative outlook on KMG mirrors the outlook on Kazakhstan. If we were to lower our rating on Kazakhstan, we would likely lower the rating on KMG. This is because the uplift we include in the long-term rating on KMG reflects our expectation of a "very high" likelihood of government support for the company. We could also lower the ratings if KMG's stand-alone credit profile (SACP) weakens to 'b-', however, this would likely be due to deteriorating liquidity, which we do not expect in our base-case scenario. We would likely revise our outlook on KMG to stable if we made a similar revision to our rating on the sovereign. Primary Credit Analyst: Alexander Griaznov, Moscow (7) 495-783-4109; alexander.griaznov@standardandpoors.com Secondary Contact: Simon Redmond, London (44) 20-7176-3683; simon.redmond@standardandpoors.com Additional Contacts: Ekaterina Kulikova, Moscow +7 (495) 783-4090; ekaterina.kulikova@standardandpoors.com Industrial Ratings Europe; Corporate_Admin_London@standardandpoors.com [2015-04-27]