S&P Cuts Kazakh Samruk-Energy Ratings On Increasing Refinancing Risk
The International Rating Agency S&P Global Ratings has lowered its global scale long-term corporate credit ratings on Kazakhstan-based electricity group Samruk-Energy to ‘B+’ from ‘BB-‘, along with the national scale long-term rating to ‘kzBBB-‘ from ‘kzBBB+’, the rating agency said in a message.
S&P also lowered its issue rating on Samruk-Energy’s $500 million senior unsecured notes due December 2017 to ‘B+’ from ‘BB-‘.
All these ratings remain on CreditWatch with negative implications, where S&P placed them on Dec. 21, 2016.
At the same time, the rating agency affirmed the ‘B’ global scale short-term corporate credit rating on Samruk-Energy.
“The downgrade reflects our view of increasing liquidity risk, given the upcoming maturity of $500 million Eurobonds in December 2017,” S&P said.
According to the rating agency, currently available cash and equivalents and committed lines cover only about one-half of Samruk-Energy’s annual liquidity needed for 2017 (or about $680 million-$685 million). This has led the rating agency to revise its assessment of the company’s liquidity to weak from less than adequate and its assessment of its stand-alone credit profile to ‘ccc+’ from ‘b’.
The company has moved forward with its refinancing plans. Of the four assets put up for sale, the disposals of three noncore subsidiaries are close to finalization and the auctions’ winners have been announced. The auction of the fourth noncore subsidiary, Tengiz Munai, is scheduled for the second quarter of 2017. S&P expects all four subsidiaries to be sold for at least a total of $120 million. The company is also negotiating new committed lines with local banks of about $250 million, and has already reduced its large capital expenditure (capex) program to about Kazakhstani tenge (KZT) 45 billion (about $135 million) from the historical level of 80-100 billion tenges.
According to the S&P, if the company completes the asset sales and obtains committed lines as planned, it will have sufficient liquidity to cover the upcoming Eurobond.
The continuing CreditWatch reflects potential pressures on liquidity and credit quality if the company fails to obtain funding sufficient to cover the Eurobond, or doesn’t receive timely and sufficient financial support for this from the Kazakh government or from its parent Samruk-Kazyna, which would reflect a weakening link with the government.
However, at this stage, S&P continues to believe there is a high likelihood that Samruk-Energy would receive timely and sufficient extraordinary support from the government (likely via Samruk-Kazyna), but this assessment could change depending on the government’s strategy with regard to any support for Samruk-Energy’s upcoming Eurobond maturity, including the timing of any decision to provide support. S&P noted that Samruk-Kazyna currently has available resources to cover the liquidity gap at Samruk-Energy if needed.
In the base case, S&P expects Samruk-Energy’s leverage at 5x debt to EBITDA at the end of 2017, despite the higher tariffs already approved by the regulator, growing electricity demand, an increase of export sales, and asset disposals.
S&P aims to resolve its CreditWatch in about three months. The rating agency could affirm the ratings if Samruk-Energy’s liquidity and leverage stabilizes. The CreditWatch resolution will also involve the analysis of extraordinary government support.