Kazakhstan’s Energy Companies Retain High Currency Risks

Kazakhstan's Energy Companies Retain High Currency Risks

High currency risk and potential difficulties with refinancing of debt, on which maturities are due are the key risks for the most rated energy companies of Kazakhstan in current difficult market conditions, a report of the international rating agency Fitch Ratings says.

The report entitled Kazakhstan Utilities Peer Comparison was published on April 24.

Fitch believes that the financing of energy companies from state-owned banks will be affordable, but in case of any significant deterioration of the economic situation, pressure on the country’s banking system may become possible, and that will limit its ability to provide sufficient liquidity to all borrowers. Significant currency risks and adverse regulatory changes increase such concerns for energy companies.

Fitch considers that KEGOC, Kazatomprom, the Central Asian Electric Power Corporation and Kazakhstan’s utility systems are taking more favorable positions than Samruk-Energo, Ekibastuz GRES-1, Mangistau Electricity Distribution Network Company and subsidiaries of the Central Asian Electric Power Corporation.

The currency discrepancy between the debt and revenue, as well as the limited use of hedging by the majority of the rated energy companies of Kazakhstan, means that any potential further weakening of the national currency will negatively affect the creditworthiness of the rated companies in the near future, all other things being equal, according to Fitch.

In addition, the agency expects that economic growth will limit the prospects for business growth for Kazakhstani energy companies in 2017-2019.

“Inflation, expressed by a high single-digit number, will restrain the ability of companies to cut costs, and most of Kazakhstan energy companies will remain under pressure in the face of economic difficulties, regulatory uncertainty and large capital investment programs, which will be financed mainly through debt,” the report said.

The ratings of the largest Kazakhstan energy companies continue to take into account state support.

Potential privatization and the subsequent weakening of state support may lead to a review of the ratings of Kazakhstani companies to reflect the independent financial and operational profiles.

Fitch Ratings has affirmed Kazakhstan’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at ‘BBB’ with Stable Outlooks. The issue ratings on Kazakhstan’s senior unsecured foreign-currency bonds have also been affirmed at ‘BBB’. The Short-Term Foreign- and Local-Currency IDRs have been affirmed at ‘F2’. The Country Ceiling has been affirmed at ‘BBB+’.