11.05.2016, 11:11
S&;P Affirms Credit Rating of Kazakhstan Temir Zholy
OREANDA-NEWS. Standard &Poor's Ratings Services today affirmed its 'BB' long-term corporate credit rating on Kazakhstan's national railroad company, Kazakhstan Temir Zholy (KTZ), and its core subsidiary, freight-wagon owner JSC Kaztemirtrans (KTT). The outlook is negative.
We also affirmed our 'kzA' Kazakhstan national scale rating on KTZ and KTT. At the same time, we removed all ratings from CreditWatch, where we had placed them with negative implications on April 20, 2016.
The rating actions follow KTZ having secured refinancing sources for the $350 million notes that mature on May 11, 2016. Three creditors provided $300 million, of which about 60% was in tenge, somewhat reducing KTZ's foreign currency exposure. The company will use about $50 million of its own cash to cover the remaining part of maturing debt.
The new refinancing set up includes the following arrangements:
- About $150 million provided by the State Pension Fund of Kazakhstan through a purchase of Kazakh tenge (KZT) 50 billion in local notes. The government of Kazakhstan played an important role in facilitating this transaction.
- $100 million credit facility provided by the European Bank for Reconstruction and Development (EBRD).
- $100 million credit facility provided by Halyk Savings Bank of Kazakhstan, of which KTZ will only use $50 million for refinancing.
The deal replaces the original refinancing plan, a $300 million agreement with EBRD that was signed in July 2015 and cancelled in February 2016.
We continue to assess KTZ's stand-alone credit profile (SACP) at 'b', reflecting the company's strong market position in Kazakhstan and its exposure to commodity traffic volatility. The company's SACP also reflects its high leverage, stemming from inflation of its foreign currency debt and lower EBITDA generation, reflecting the fall in cargo transportation volumes. We estimate that KTZ's Standard & Poor's-adjusted debt-to-EBITDA ratio stood at 8.0x-8.5x, and funds from operations (FFO) to debt at 5.0%-8.0%, at the end of 2015. We expect adjusted debt to EBITDA to remain above 5x and FFO to debt to stay below 12% over the next 12 months.
We also continue to incorporate in the rating our view of the very high likelihood that the government of Kazakhstan, KTZ's owner, would provide timely and extraordinary support to the company.
Our negative outlook on KTZ mirrors the outlook on Kazakhstan.
We could lower the ratings on KTZ if we downgrade the sovereign. We could also downgrade KTZ if our assessment of extraordinary government support weakens, because of the state's reduced willingness or ability to provide tangible financial aid, subsidies, and equity injections. Lessened government support could also result from KTZ's partial privatization.
We would unlikely lower our ratings on KTZ if we revise SACP to 'b-' from 'b'. We could lower the ratings if we revise our SACP down by more than one notch, which could happen if there is sharp deterioration of liquidity, triggered by KTZ's inability to reset or waive the covenants, for example.
We would likely revise our outlook on KTZ to stable if we took the same action on the sovereign.
We also affirmed our 'kzA' Kazakhstan national scale rating on KTZ and KTT. At the same time, we removed all ratings from CreditWatch, where we had placed them with negative implications on April 20, 2016.
The rating actions follow KTZ having secured refinancing sources for the $350 million notes that mature on May 11, 2016. Three creditors provided $300 million, of which about 60% was in tenge, somewhat reducing KTZ's foreign currency exposure. The company will use about $50 million of its own cash to cover the remaining part of maturing debt.
The new refinancing set up includes the following arrangements:
- About $150 million provided by the State Pension Fund of Kazakhstan through a purchase of Kazakh tenge (KZT) 50 billion in local notes. The government of Kazakhstan played an important role in facilitating this transaction.
- $100 million credit facility provided by the European Bank for Reconstruction and Development (EBRD).
- $100 million credit facility provided by Halyk Savings Bank of Kazakhstan, of which KTZ will only use $50 million for refinancing.
The deal replaces the original refinancing plan, a $300 million agreement with EBRD that was signed in July 2015 and cancelled in February 2016.
We continue to assess KTZ's stand-alone credit profile (SACP) at 'b', reflecting the company's strong market position in Kazakhstan and its exposure to commodity traffic volatility. The company's SACP also reflects its high leverage, stemming from inflation of its foreign currency debt and lower EBITDA generation, reflecting the fall in cargo transportation volumes. We estimate that KTZ's Standard & Poor's-adjusted debt-to-EBITDA ratio stood at 8.0x-8.5x, and funds from operations (FFO) to debt at 5.0%-8.0%, at the end of 2015. We expect adjusted debt to EBITDA to remain above 5x and FFO to debt to stay below 12% over the next 12 months.
We also continue to incorporate in the rating our view of the very high likelihood that the government of Kazakhstan, KTZ's owner, would provide timely and extraordinary support to the company.
Our negative outlook on KTZ mirrors the outlook on Kazakhstan.
We could lower the ratings on KTZ if we downgrade the sovereign. We could also downgrade KTZ if our assessment of extraordinary government support weakens, because of the state's reduced willingness or ability to provide tangible financial aid, subsidies, and equity injections. Lessened government support could also result from KTZ's partial privatization.
We would unlikely lower our ratings on KTZ if we revise SACP to 'b-' from 'b'. We could lower the ratings if we revise our SACP down by more than one notch, which could happen if there is sharp deterioration of liquidity, triggered by KTZ's inability to reset or waive the covenants, for example.
We would likely revise our outlook on KTZ to stable if we took the same action on the sovereign.
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