Fitch Affirms KazTransGas at ‘BB’ and JSC Intergas Central Asia at ‘BB+’; Outlooks Stable


Fitch Affirms KazTransGas at 'BB' and JSC Intergas Central Asia at 'BB+'; Outlooks StableFitch ratings has on September 15 affirmed Kazakhstan-based KazTransGas’s (KTG) Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BB’ and Short-term IDR at ‘B’. The Outlooks for the Long-term IDRs are Stable.

The agency has simultaneously affirmed JSC Intergas Central Asia’s (ICA) Long-term foreign and local currency IDRs at ‘BB+’, its senior unsecured rating at ‘BB+’ and its Short-term IDR at ‘B’. The Outlooks for the Long-term IDRs are Stable. Intergas Finance B.V.’s senior unsecured issues have also been affirmed at ‘BB+’.

The ratings of KTG, ultimately state-owned, and its 100% subsidiary ICA reflect ICA’s position as the monopoly operator of the gas pipeline network in Kazakhstan, which remains the only feasible route for transit of Central Asian gas to Russia and further to Europe.

The ratings are underpinned by improved credit metrics of the group. In 2009 and H110, OAO Gazprom (Gazprom; ‘BBB’/Stable), the main counterparty of KTG and ICA representing around 90% of ICA’s FY09 revenue, honoured its ship-or-pay obligations under the contract with ICA for transit of Central Asian gas (which makes up the bulk of the group’s revenue), despite much lower actual volumes of Turkmen gas purchased by Gazprom.

The ratings and their Stable Outlooks also factor in Fitch’s expectations that both companies will maintain relatively solid financial profiles in 2011, albeit weaker than in 2009-10, if this contract (which expires at end-2010) is renewed on less favourable terms for KTG/ICA. KTG’s financial metrics are also expected to be enhanced by expansion of its activities in sales of gas purchased from other domestic producers with attractive economics.

Fitch’s forecasts for KTG and ICA are based on the agency’s assumptions of flat international gas transit tariffs over 2011-14 and exclusion of a ship-or-pay clause from a new agreement with Gazprom related to Central Asian gas transit. As such, Fitch expects KTG/ICA’s FFO adjusted leverage to rise above 2x in 2011, whereby the companies will still remain well placed among their pipeline peers rated by Fitch.

ICA’s ratings are one notch above KTG’s because ICA is the main operating entity and a profit centre for the group. ICA (FY09 FFO adjusted leverage of 1.46x and EBITDAR margin of 63.4%) has stronger credit metrics than KTG (1.61x and 47.9%, respectively).

The ratings also consider KTG/ICA’s intensive capex programmes, which may require additional external funding, thus putting upward pressure on leverage.

Despite some stabilisation in the Kazakh banking system, Fitch continues to place greater emphasis on gross rather than net leverage figures in its analysis, as a large portion of the group’s cash position is held with Kazakh banks.