Kazakh Electricity Group Samruk-Energy affirmed at ‘B+/B’ – S&P

Kazakhstan: Credit Rating

S&P Global Ratings today affirmed its ‘B+’ long-term and ‘B’ short-term corporate credit ratings on Kazakhstan-based electricity group Samruk-Energy and its ‘B+’ issue rating on the group’s $500 million senior unsecured Eurobonds due December 2017. The outlook on the long-term corporate credit rating is stable.

The agency raised Kazakhstan national scale long-term rating on Samruk-Energy to ‘kzBBB’ from ‘kzBBB-‘.

At the same time, it removed the long-term global and national scale ratings from CreditWatch, where it placed them with negative implications on April 10, 2017.

The affirmation reflects the view of Samruk-Energy’s improved liquidity, which in our view will likely be sufficient to meet the group’s upcoming maturity of $500 million Eurobonds in December 2017.

“We understand Samruk-Energy has recently committed additional lines from local banks and that its committed liquidity sources are broadly equivalent to its full annual liquidity needs for 2017, including the Eurobond. This has led us to revise upward our assessment of the group’s stand-alone credit profile (SACP) to ‘b-‘ from ‘ccc+’,” reads the statement.

The refinancing plan reflects management’s efforts and does not at this stage include any direct support from the government or Samruk-Energy’s shareholder, holding company Samruk-Kazyna. Although we believe Samruk-Energy’s status as a government-related entity (GRE) may support its relationships with banks, the group has not received any cash infusions from the government to support redemption of the Eurobond.

“We also understand that the group has about KZT49 billion in cash and deposits, and we expect its generation of funds from operations (FFO) will broadly match capital expenditure (capex) requirements,” reads the statement.

However, the amount of the refinancing is considerably large and Samruk-Energy relies predominantly on external funding sources in the local market. The banking system in Kazakhstan is more vulnerable than systems in Europe. The country has also experienced swings in foreign-exchange rates, so any negative developments could limit funding available to the group and put pressure on its liquidity.
Under the group’s now updated refinancing plan, it no longer relies on the proceeds from disposals of four noncore subsidiaries for an estimated amount of about $120 million. “Previously, we had expected that auctions of some of these subsidiaries were close to finalization. However, in our opinion, the process appears increasingly complex and new timelines are difficult to estimate. We understand that if these assets are privatized, Samruk-Energy will likely borrow less on the market or partially repay existing debt,” said the agency.

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