Disposal of KMGI Stake is Credit-Neutral for NC KMG

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National Company KazMunayGas’s (NC KMG) planned disposal of a 51 percent stake in KMG International NV (KMGI) to CEFC China Energy Company Limited will probably have a neutral effect on NC KMG’s credit profile, Fitch Ratings international ratings agency said in a message, reports KazWorld.info with reference to the official website of Fitch Ratings agency.

Fitch Ratings-Moscow-10 March 2017: Fitch Ratings says that NC KazMunayGas’s (NC KMG, BBB-/Stable) planned disposal of a 51% stake in KMG International NV (KMGI, B+/RWN) to CEFC China Energy Company Limited (CEFC, not rated) will probably have a neutral effect on NC KMG’s credit profile. The finalisation of the transaction announced in December 2015 is pending the satisfaction of multiple conditions including an approval by the Romanian government. The parties expect the deal to close in mid-2017. Fitch estimates that although the transaction would further strengthen NC KMG’s liquidity, the company’s gross leverage will be broadly unaffected.

In December 2016 NC KMG and CEFC renewed the sale and purchase agreement (SPA) with respect to the stake in KMGI. This confirms CEFC’s commitment to the deal despite the ongoing investigation by Romania’s Directorate for Combating Organized Crime and Terrorism (DIICOT). The announced USD680 million in disposal proceeds are positive for NC KMG, while deconsolidation of EBITDA generated by KMGI’s refining, marketing and trading businesses (Fitch-calculated amount of USD148m in 2015) would be negative. Fitch continues to consolidate KMGI in NC KMG’s financials as the deal has not been finalised.

Fitch puts more emphasis on NC KMG’s gross financial metrics. At end-2016, NC KMG’s Fitch-calculated funds flow from operations (FFO) adjusted gross leverage may have exceeded 8x, above Fitch’s mid-term negative rating guidance. Assuming that the KMGI disposal took place on 1 January 2016, NC KMG’s end-2016 FFO adjusted gross leverage will remain largely unchanged. NC KMG’s gross debt includes USD3 billion in oil prepayments received from Vitol, an oil trader.

Fitch maintains KMGI on Rating Watch Negative. Fitch will resolve the RWN following the completion of the disposal and clarification of the outcome of the investigation by DIICOT.


Maxim Edelson
Senior Director
+7 495 956 9986
Fitch Ratings CIS Limited
26 Valovaya Street
Moscow 115054

Slava Demchenko
+7 495 956 9901

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