S&P affirms ratings of KazTransGas and Intergas Central Asia, outlook negative

/Standard & Poor's, Moscow, April 23, 2015, KASE heading/ Standard & Poor's Ratings Services affirmed its 'BB+' long-term corporate credit ratings on Kazakh gas utility company KazTransGas (KTG) and its 100% owned gas pipeline operator Intergas Central Asia JSC (ICA). The outlook is negative. We also affirmed the 'BB+' rating on the senior unsecured debt of ICA. The rating action reflects our view that KTG has a stand-alone credit profile (SACP) of 'bb', has a moderately strategic status in the KazMunayGas (KMG) group, and enjoys a "moderately high" likelihood of timely and sufficient extraordinary government support from the government of Kazakhstan. We assume, however, that in case of financial stress, any extraordinary support to KTG would likely come directly from the government. Therefore, we base the corporate credit rating on KTG on its SACP plus uplift for potential government support, capped at the rating level of the parent company. In accordance with our criteria for government-related entities (GREs), our view of a "moderately high" likelihood of extraordinary government support is based on our assessment of KTG's: - "Important" role for Kazakhstan, given its strategic importance as the monopoly gas supplier in the service area, and ICA's status as the national trunk gas pipeline operator; and - "Strong" link with the government via full ownership of KTG by its parent,100% state-owned oil and gas champion KMG. We equalize the ratings on ICA with those on KTG, reflecting the overall creditworthiness of the KTG group. The consolidated approach reflects the companies' close integration, KTG's 100% ownership of ICA and other major subsidiaries, financial guarantees on much of the group's debt issued by ICA and KTG, large intragroup cash flows, and an absence of effective subsidiary ring fencing. We base our view of KTG's SACP as 'bb' on its "fair" business risk profi ing significant external borrowing and leading to leverage above our expectations. For instance, this might occur if KTG increased capital expenditures because of a greater need to invest in gas distribution assets or start new large investment projects. The ratings could also come under pressure as a result of any indications of negative interference from KMG, including, but not limited to, inducement to pay excessive dividends. If we revised down our assessment of KTG's SACP by one notch, it would lead us to lower the long-term rating to 'BB', provided that the sovereign long-term local currency rating and the likelihood of extraordinary financial government support remained the same. If we saw signs of weakening state support, we might consider revising down the likelihood of extraordinary government support for KTG. Under our criteria for GREs, we would have to revise the likelihood of extraordinary government support down to "moderate" from the current "moderately high" to result in a downgrade of KTG. This might be a result of increased substantial privatization risk, negative interference track record, or reshuffling of government priorities in its support initiatives. Ratings upside is currently limited by the ratings on the parent. We could revise the outlook to stable only if we revise the outlook on KMG to stable. Primary Credit Analyst: Sergei Gorin, Moscow (7) 495-783-4132; sergei.gorin@standardandpoors.com Secondary Contact: Alexander Griaznov, Moscow (7) 495-783-4109; alexander.griaznov@standardandpoors.com Additional Contact: Infrastructure Finance Ratings Europe; InfrastructureEurope@standardandpoors.com [2015-04-27]