S&P affirms ratings of National Company KazMunayGas (Kazakstan); outlook Stable

November 11. KASE

S&P affirms ratings of National Company KazMunayGas (Kazakstan); outlook StableStandard & Poor’s Ratings Services said today that it had affirmed its long-term corporate credit ratings on 100% state-owned vertically integrated oil company JSC NC KazMunayGas (KMG) at ‘BBB-‘. The outlook is stable.

The affirmation follows our affirmation of the local currency sovereign ratings on the Republic of Kazakhstan at ‘BBB+’.

Under our methodology, our ratings on government-related entities (GREs) are pegged to the local currency sovereign rating. Our rating on KMG therefore continues to reflect our expectation of an ‘extremely high’ likelihood of timely and sufficient extraordinary government support and our assessment of KMG’s stand-alone credit profile (SACP) at ‘b+’.

KMG is the government’s key tool to increase the national presence in the oil and gas sector. It is Kazakhstan’s largest exporter, taxpayer, and employer.

KMG is 100% owned by the government of Kazakhstan through the national welfare fund Samruk-Kazyna (BBB+/Stable/A-2; Kazakhstan national scale ‘kzAAA’). Our analysis of KMG is based on our criteria for GREs rather than parent-subsidiary links, because we currently view Samruk-Kazyna as an extension of the Kazakhstan government. Although the government is mulling IPO plans for large government-related entities, a minority stake in KMG might be sold, if at all, only in 2015.

We assess KMG’s SACP at ‘b+’, and we consider it to be on an improving trend. In our view, KMG’s SACP is constrained by a ‘highly leveraged’ financial profile, with large investments, negative free operating cash flow (FOCF), only indirect access to cash flows from its joint ventures, an aggressive financial policy, and still significant-albeit diminishing-exposure to Kazakhstan’s weak banking system.

We see the group’s business risk profile as constrained by huge investment plans. These include Kashagan, a large new internationally led oil project in which KMG has a 16.8% stake, and large capital expenditures to upgrade refineries.

Our assessment of KMG’s business risk profile as ‘fair’ is supported by the group’s vertically integrated structure and diversity, as well as the ongoing support from the Kazakh government for access to domestic hydrocarbon assets. KMG has stakes in almost all of Kazakhstan’s important oil and gas assets, as well as legally privileged access to new oil and gas assets in the country.

The stable outlook reflects our expectation that KMG will continue to benefit from an ‘extremely high’ likelihood of timely and sufficient extraordinary government support. It also reflects the stable outlook on the sovereign, which underpins our assessment of its ability to support KMG.

Ratings upside could develop if KMG’s SACP improves to ‘bb-‘. This could follow improving financial metrics and cash flow generation, and if KMG manages to cover its refinancing and investment needs by gradually reducing its large cash balances rather than by issuing new debt.

Ratings downside could develop if KMG’s SACP deteriorates lower than ‘b-‘. Also, because of the large difference between the rating and the SACP, we could lower the rating if we saw that the government’s stance toward KMG were no longer consistent with an ‘extremely high’ likelihood of support, for instance if the IPO were to proceed and were to affect KMG’s links with the government.


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National Company KazMunayGas (Kazakhstan) installs six new units at Petromidia oil refinery

November 11. KASE

JSC NC KazMunayGas announces that enterprise Rompetrol Rafinare (part of The Rompetrol Group) has completed installation of six out of nine production plans under the modernization move for Petromidia. The full completion of “Investment package 2010-2011″ modernization programme is expected in the 1st quarter 2012, with the total of capital expenditures reaching USD367 m.

– The investment package will enable Petromidia oil refinery to join the major oil refineries in Southern and Eastern Europe. Upon completion, Petromidia may fully switch to processing the Kazakh oil under Europe 5 requirements”, – says Gabit Kurkimov, vice-president for Business Development of The Rompetrol Group.

After full completion of the reconstruction, Petromidia will step up production from 3.7 m tons to 5 m tons a year, processing 100% of Urals crude oil. Moreover, the oil refinery will increase production of diesel from 37% to 45% and will continue producing high-quality fuels complying with EU requirements.

The following units were installed: the catalytic cracking unit, the Klaus unit (gas de-sulphuration), the amines unit (gas de-sulphuration and acid gases removal), the new torch system, the air separation unit, as well as transformation of the vacuum gasoil hydro-cleaning unit into the diesel vacuum hydro-cleaning unit was carried out.