S&P removes ratings of Kazakhstan railways from CreditWatch

Standard & Poor's Ratings Services affirmed its 'BB' long-term corporate credit rating on Kazakhstan's national railroad company Kazakhstan Temir Zholy (KTZ), and its core subsidiary, freight-wagon owner JSC Kaztemirtrans (KTT). The outlook is negative.

The agency also affirmed 'kzA' Kazakhstan national scale rating on KTZ and KTT.

Meanwhile, the ratings agency removed all ratings from CreditWatch, where it had placed KZT and KTT with negative implications on Apr. 20, 2016.

The rating actions follow KTZ having secured refinancing sources for the $350 million notes that mature on May 11, 2016. Three creditors (Kazakhstan's State Pension Fund, European Bank for Reconstruction and Development (EBRD) and Halyk Savings Bank of Kazakhstan) provided $300 million, of which about 60 percent was in Kazakh tenges, somewhat reducing KTZ's foreign currency exposure. The company will use about $50 million of its own cash to cover the remaining part of maturing debt.

S&P continues to assess KTZ's stand-alone credit profile (SACP) at 'b', reflecting the company's strong market position in Kazakhstan and its exposure to commodity traffic volatility.

The company's SACP also reflects its high leverage, stemming from inflation of its foreign currency debt and lower EBITDA generation, reflecting the fall in cargo transportation volumes.

"We could lower the ratings on KTZ if we downgrade the sovereign," said the agency. "We could also downgrade KTZ if our assessment of extraordinary government support weakens, because of the state's reduced willingness or ability to provide tangible financial aid, subsidies, and equity injections."

Lessened government support could also result from KTZ's partial privatization, said the agency.

"We would unlikely lower our ratings on KTZ if we revise SACP to 'b-' from 'b'," said the. "We could lower the ratings if we revise our SACP down by more than one notch, which could happen if there is sharp deterioration of liquidity, triggered by KTZ's inability to reset or waive the covenants, for example."

S&P said that it would likely revise its outlook on KTZ to stable if the agency took the same action on the sovereign.

Source: Trend