Fitch Upgrades Kazakh railways long-term issuer default rating

Nov. 23. Trend

By E. Kosolapova

Fitch Upgrades Kazakh railways long-term issuer default ratingFitch Ratings has upgraded National Company Kazakhstan Temir Zholy (KTZ) (Kazakh railways) Long-term Issuer Default Rating (IDR) and Kazakhstan Temir Zholy Finance B.V.’s senior unsecured rating to ‘BBB’ from ‘BBB-‘.

The Outlook on the Long-term IDR is Stable.

“The upgrade of KTZ’s ratings reflects the agency’s upgrade of Kazakhstan’s long-term foreign and local currency IDRs to ‘BBB+’ from ‘BBB’ and to ‘A-‘ from ‘BBB+’, respectively, with Stable Outlooks,” Fitch said.

According to Fitch, KTZ’s ratings reflect its 100 percent indirect state ownership and strategic importance to Kazakhstan, as it provides about half of freight and passenger transportation in the country. KTZ’s tariffs are regulated and its investment plans are approved, and directly co-funded, by the state (through equity injections and soft loans). The government also provides direct subsidies for the loss-making passenger business, the agency said.

Fitch expects company’s cash flow from operations (CFO) to remain strong in 2012, but the increase in capex will mean higher gross debt. Fitch expects free cash flow (FCF, before equity contributions) to remain negative for the foreseeable future.