Rating Action: Moody’s Changes To Stable Outlook On Ratings Of 8 Kazakhstani GRIs; Affirms Ratings

Rating Action: Moody's Changes To Stable Outlook On Ratings Of 8 Kazakhstani GRIs; Affirms Ratings

London, 01 August 2017 — Moody’s Investors Service has changed to stable from negative the outlook on the ratings of eight Kazakhstani government-related issuers (GRIs) — in the oil & gas, mining, transportation and defence sectors — as a result of significant progress made by the Government of Kazakhstan toward adjusting the country’s economy, public finances and banking system to the reality of low oil prices. Concurrently, Moody’s has affirmed all these ratings. For all affected GRIs, their respective baseline credit assessments have been affirmed, and their support and dependence assumptions remain unchanged as a result of this rating action.

Today’s actions follow Moody’s change of the outlook on Kazakhstan’s Baa3 government bond rating to stable from negative and the affirmation of the rating on 26 July 2017. For additional information on the sovereign rating action, please refer to the related announcementhttps://www.moodys.com/research/–PR_370462

A complete list of affected companies and rating actions can be found at the end of this press release.

RATINGS RATIONALE

Today’s rating actions are in line with the sovereign rating action and reflect the strong credit linkages of the affected companies with the state as well as their exposure to the operating and macroeconomic environment of Kazakhstan.

Moody’s believes that Kazakhstan’s policy response to the negative oil price shock and available financial buffers have stabilised the economy and the government’s fiscal strength. As a result, the rating agency expects that the operating environment for Kazakhstani non-financial corporates will remain stable or gradually improve over the next 12-18 months, supporting their credit profile.

In particular, Moody’s recognizes that (1) Kazakhstan’s effective policy response to the global oil price shock, driven by countercyclical government spending and increased exchange rate flexibility, has supported the economy and bolsters prospects of future shock absorption capacity; (2) its very strong fiscal position has only slightly eroded during the oil shock despite higher foreign-currency debt costs and recapitalization of some banks, thereby providing flexibility and ample financial resources to manage potential further contingent liability risks; and (3) recent government actions to strengthen and recapitalize the banking system help address banks’ solvency risks.

At the same time, Kazakhstan’s credit profile is constrained by (1) low, albeit improving, institutional strength; (2) a relatively high proportion of foreign-currency government debt, which raises the vulnerability of public finances to a potential sharp depreciation of the currency; (3) susceptibility to event risk related to presidential succession which, if it were to proceed in a disorderly manner, could affect economic, external and fiscal trends; and (4) weak asset quality, remaining high deposit dollarization and higher concentration in the banking system signalling ongoing contingent liability risk to the sovereign.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on the affected companies’ ratings is in line with the stable outlook for Kazakhstan’s sovereign rating and reflects Moody’s expectation that each company’s specific credit factors, including their operating and financial performance, market position and liquidity, will remain commensurate with their ratings on a sustainable basis.

Moody’s additionally notes that in the case of JSC NC Kazakhstan Engineering (KE), given the fundamental weakness of company’s standalone positioning, the stabilization of the outlook on its B1 ratings is driven by the demonstrated continuing government support provided to the company’s regular operations, resulting in improved liquidity which addresses KE’s funding needs and debt service through end 2018. KE’s standalone highly leveraged financial profile as of end-2016 and overall baseline credit assessment is weakly positioned in the b3 category.

List of affected ratings

Affirmations:

..Issuer: KazMunayGas NC JSC

….LT Issuer Rating, Affirmed Baa3

….Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

….Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: KazMunaiGaz Finance Sub B.V.

….Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

….Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: JSC KazTransOil

….LT Issuer Rating, Affirmed Baa3

….LT Corporate Family Rating, Affirmed Baa3

..Issuer: JSC KazTransGas

….LT Issuer Rating, Affirmed Baa3

..Issuer: Intergas Central Asia

….LT Issuer Rating, Affirmed Baa3

..Issuer: National Company Kazakhstan Temir Zholy JSC

….LT Issuer Rating, Affirmed Baa3

….Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

….Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: KTZ Finance LLC

….Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Kaztemirtrans, JSC

….LT Corporate Family Rating, Affirmed Ba1

….Probability of Default Rating, Affirmed Ba1-PD

..Issuer: Kazatomprom JSC

….LT Issuer Rating, Affirmed Baa3

..Issuer: JSC NC Kazakhstan Engineering

….LT Corporate Family Rating, Affirmed B1

….Probability of Default Rating, Affirmed B1-PD

.National Scale LT Corporate Family Rating, Affirmed Baa3.kz

Outlook actions:

..Issuer: KazMunayGas NC JSC

….Outlook, Changed To Stable From Negative

..Issuer: KazMunaiGaz Finance Sub B.V.

….Outlook, Changed To Stable From Negative

..Issuer: JSC KazTransOil

….Outlook, Changed To Stable From Negative

..Issuer: JSC KazTransGas

….Outlook, Changed To Stable From Negative

..Issuer: Intergas Central Asia

….Outlook, Changed To Stable From Negative

..Issuer: National Company Kazakhstan Temir Zholy JSC

….Outlook, Changed To Stable From Negative

..Issuer: KTZ Finance LLC

….Outlook, Changed To Stable From Negative

..Issuer: Kaztemirtrans, JSC

….Outlook, Changed To Stable From Negative

..Issuer: Kazatomprom JSC

….Outlook, Changed To Stable From Negative

..Issuer: JSC NC Kazakhstan Engineering

….Outlook, Changed To Stable From Negative

PRINCIPAL METHODOLOGIES

The principal methodologies used in rating KazMunayGas NC JSC and KazMunaiGaz Finance Sub B.V. were Global Integrated Oil & Gas Industry published in October 2016, and Government-Related Issuers published in October 2014.

The principal methodologies used in rating JSC KazTransGas and Intergas Central Asia were Natural Gas Pipelines published in November 2012, and Government-Related Issuers published in October 2014.

The principal methodologies used in rating JSC KazTransOil were Midstream Energy published in May 2017, and Government-Related Issuers published in October 2014.

The principal methodologies used in rating National Company Kazakhstan Temir Zholy JSC, KTZ Finance LLC and Kaztemirtrans, JSC were Global Surface Transportation and Logistics Companies published in May 2017, and Government-Related Issuers published in October 2014.

The principal methodologies used in rating Kazatomprom JSC were Global Mining Industry published in August 2014, and Government-Related Issuers published in October 2014.

The principal methodologies used in rating JSC NC Kazakhstan Engineering were Global Aerospace and Defense Industry published in April 2014, and Government-Related Issuers published in October 2014.

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