Fitch Affirms KazMunaiGaz National Company at 'BBB-'; Outlook Stable
MOSCOW. June 30 (Interfax) - On Wednesday, Fitch Ratings affirmed Kazakhstan-based KazMunaiGaz National Company's (NC KMG) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-' and 'BBB' respectively.
The agency said in a statement: "Fitch has additionally affirmed NC KMG's foreign and local currency senior unsecured ratings at 'BBB-' and 'BBB' respectively and Short-term foreign currency IDR at 'F3'. The Outlooks for the Long-term IDRs are Stable.
"NC KMG's ratings incorporate state support, as reflected in the favourable operating environment and the state's facilitation of funding arrangements for some of the company's projects, in accordance with Fitch's Parent and Subsidiary Rating Linkage methodology. This is underpinned by the importance of the oil and gas sector to the Kazakh economy, and the company's status as an agency representing the state's interests in this industry.
"In Fitch's view, although NC KMG continues to benefit from relatively strong links with the Kazakh state, full and timely financial support, which would allow a continued full rating alignment with the sovereign, is not certain without robust legal ties (for example, explicit guarantees). Therefore, the Outlooks on NC KMG's Long-term IDRs remained Stable after the Outlooks on Kazakhstan's Long-term IDRs were revised to Positive on 20 December 2010.
"Despite an improvement in its financial profile in 2010, the group continues to compare unfavourably to its similarly rated Russian and international peers based on its 2010 FFO adjusted leverage of 3.7x (4.7x in 2009) and FFO interest coverage of 5x (4.2x in 2009). Fitch does not expect material de-leveraging over 2011-2012, given the company's sizable investment programme of USD13.6bn over 2011-2015 and based on the agency's conservative oil price deck. The agency forecasts that free cash flow will remain negative over 2011-2012 due to an intensive capex programme.
"The company benefits from a balanced debt maturity profile with short-term debt of KZT479.1bn (USD3.25bn) at end-2010, accounting for 21% of total debt and compared to its cash position of KZT1,202.2bn (USD8.2bn) at end-2010. However, Fitch does not view NC KMG's strong liquidity position and thus sound net leverage ratios as fully offsetting its high indebtedness. This is because a large portion of its cash is held at domestic banks with still limited accessibility and due to the company's expectations that its total debt level will remain largely unchanged over the next two years. Hence, the agency continues to place greater emphasis on the analysis of gross leverage-related ratios rather than net figures.
"NC KMG benefits from its strong position in the domestic market as the second-largest oil and gas producer (including equity stakes). Nevertheless, in a global context it remains a relatively small scale player with its expansion prospects tied to the development of the projects, in which the company owns minority stakes only. Its majority-owned upstream subsidiary (JSC KazMunaiGas Exploration Production ('BBB-'/Stable)) operates mature fields and thus strives to maintain stable production."