OREANDA-NEWS. On April 22, 2008 Standard & Poor's Ratings Services said that it affirmed its 'BB' long-term corporate credit rating on Kazakhstan's largest telecommunications provider, Kazakhtelecom (JSC). The outlook is stable, reported the press-centre of KASE.

"The rating is limited by the evolving market structure and changing regulatory environment of Kazakhstan's telecoms sector, low demand for value-added services, and meaningful pressure on profitability," said Standard & Poor's credit analyst Alexander Griaznov. "Kazakhtelecom's increasing debt-financed investments put pressure on the company's financial profile and also constrain the rating."

The company's resilient business position in key markets mitigates these weaknesses, as do its considerably improved network quality and capabilities and sound liquidity position.

Kazakhtelecom's financial profile continues to support the rating, despite a meaningful increase in debt in 2007, which reached Kazakhstani tenge 88 billion (\\$700 million). Debt now represents 1.9x adjusted EBITDA, which is close to the upper level of our expectations at this rating level. However, we take into account the stable dividend flow from GSM Kazakhstan (the leading mobile operator in the country), which, if added to EBITDA, would decrease the leverage to 1.4x. Moreover, the company's cash balances represent almost 25% of total debt, and can be also routed for debt repayment.

"We expect the company to prudently manage potential investments, without causing significant deterioration in credit metrics," said Mr. Griaznov. "The company's ability to judiciously manage its debt leverage remains important for Kazakhtelecom's credit quality."

At this rating level, we expect the company to maintain a sound capital structure, including a ratio of funds from operations to debt of about 50%.

Negative rating pressures could build if the company's increasing investment appetite leads to increased debt in excess of our expectations. We see no ratings upside potential over the next 12 months, because substantial strengthening of the business characteristics is unattainable in the given timeframe.