Fitch assigns Kazakh Samruk-Energy’s notes ‘BBB-‘ final rating

Dec. 19. Trend

E. Kosolapova

Fitch assigns Kazakh Samruk-Energy's notes 'BBB-' final ratingFitch Ratings has assigned Kazakhstan-based Samruk-Energy’s 3.75 percent $500 million notes due 20 December 2017 a final foreign currency senior unsecured rating of ‘BBB-‘.

“Fitch has notched the final foreign currency senior unsecured rating down by one notch from Samruk-Energy’s Long-term foreign currency Issuer Default Rating (IDR) of ‘BBB’ due to the structural and contractual subordination in the group’s debt structure,” the agency said.

Secured and prior-ranking debt at the operating company level constituted 61 percent of group debt (based on IFRS accounts’ treatment of shareholder loans) and materially exceeded 2x group EBITDA at end-2011. Future senior unsecured debt raised at the Samruk-Energy holding company level is expected to be subordinated to other prior-ranking creditors within the group.

Samruk-Energy’s Long-term IDRs have been notched down from the Kazakh sovereign’s ratings (‘BBB+’/Stable) by one notch as Fitch considers the legal, operational and strategic ties between the state (Samruk-Energy’s ultimate parent) and the group as strong, according to the agency’s Parent and Subsidiary Rating Linkage methodology.

According to Fitch, the strength of the ties between Samruk-Energy and the state is determined by the ultimate state ownership of the company through Sovereign Wealth Fund “Samruk-Kazyna”, the company’s strategic importance for the Kazakh economy, state guarantees for its debt and equity injections provided by the state for the group’s capex projects.

Fitch assesses Samruk-Energy’s standalone business and financial profile to be commensurate with a weak ‘BB’ rating category compared to its Russian and Kazakh peers.

Samruk-Energy’s standalone ratings benefit from its vertical integration, with activities ranging from coal mining to generation and transmission and distribution of power and heat. Fitch expects the generation segment to remain the main cash flow driver for the group. It accounted for 60.8 percent of the company’s EBITDA (based on proportionate consolidation method) in the first half of 2012 followed by coal mining (24.7 percent) and transmission and distribution (14.7 percent).

Fitch expects the group to continue generating solid and stable cash flow over 2012-16 due to volumes and tariff rise as well as stable dividends flow from the JVs. Fitch forecasts that Samruk-Energy will remain free cash flow negative over 2012-15 due to an intensive investment programme and introduction of dividend payments to its sole shareholder.

Although Samruk-Kazyna plans to pursue a balanced dividend policy towards its subsidiaries, which will incorporate their investment needs, Samruk-Energy intends to pay 20 percent to 40 percent of net income as dividends over 2012-15. The agency expects the group’s FFO gross adjusted leverage (based on the equity accounting method) to stay above 3x over 2012-15.