S&P affirms ratings of National company Kazakhstan Temir Zholy and Kaztemirtrans; outlook revised from “Stable” to “Negative”
February 17. KASE. Standard & Poor’s
Standard & Poor’s Ratings Services said today that it had revised its outlook on Kazakhstan’s national railroad company, Kazakhstan Temir Zholy (KTZ) and its core subsidiary, Kaztemirtrans, to negative from stable. At the same time, we affirmed our ‘BBB-‘ long-term corporate credit and ‘kzAA’ Kazakhstan national scale ratings on KTZ and Kaztemirtrans.
The rating actions follow our downgrade of Kazakhstan and assignment of a negative outlook. We revised our outlooks on KTZ and Kaztemirtrans because of their status as government-related entities, incorporating a three-notch uplift to take into account our expectation of a “very high” likelihood of government support if needed and reflecting the high likelihood that we would downgrade KTZ and Kaztemirtrans if we downgraded the sovereign further.
KTZ is 100% indirectly government-owned, national railroad owner and operator. The rating on KTZ reflects our view of the company’s stand-alone credit profile (SACP) at ‘bb-‘ and the “very high” likelihood that its owner, the government of Kazakhstan, would provide extraordinary support to the company.
Historically, KTZ has benefitted from the state’s tangible financial aid, subsidies, and equity injections and we expect that to continue, although some projects may be delayed. We also note that the country’s land-locked position, which lacks access to the sea or navigable rivers, makes railroads vital for national transportation. KTZ, as the national railroad company responsible for about one-half of all freight traffic in Kazakhstan, plays a key role in Kazakhstan.
The negative outlooks on KTZ and Kaztemirtrans mirror the outlook on Kazakhstan.We could lower the rating on KTZ if we downgrade the sovereign. We could also downgrade KTZ if our assessment of extraordinary government support weakens from current levels because of the state’s reduced willingness or ability to provide tangible financial aid, subsidies, and equity injections. Weakened government support could also result from KTZ’s partial privatization.
We could lower the rating on KTZ if we revise our assessment of KTZ’s SACP downward. This could occur if the company’s adjusted funds from operations to debt were to fall below 20%, which could be driven by a substantial and prolonged decline in freight traffic, or if KTZ had to debt finance a greater portion of its capital expenditures than we currently anticipate. We would likely revise our outlook on KTZ to stable if we revised our outlook on the sovereign to stable.