July 20, 2012 |
|Fitch Ratings-Moscow/London-19 July 2012: Fitch Ratings has affirmed JSC National Atomic Company Kazatomprom's (Kazatomprom) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-', Short-term IDR at 'F3' and foreign currency senior unsecured rating at 'BBB-'. Fitch has simultaneously revised the Rating Outlook on the Long-term IDR to Stable from Negative. |
The Outlook revision reflects Fitch's comfort in Kazatomprom's ability to boost its uranium production and obtain significant dividends from its joint ventures (JVs) and associates. In 2011, dividends received increased dramatically to KZT19.7bn from KZT5.7bn in 2010, as JVs and associates continued to ramp up their production and moved into a stable cash-generating phase. As a result, Kazatomprom reported a substantial decrease of funds from operations (FFO) adjusted leverage to 2.1x.
Kazatomprom's investment-grade rating continues to be primarily driven by its leading position in global uranium mining, stable operating profile, the fact that most of its uranium production volumes have been contracted over the medium term, its competitive cash costs compared to those of its global peers and stable profit margins despite market challenges following the Fukushima accident in 2011. In 2011, Kazatomprom maintained its leading position in global uranium mining having reached production of about 11 thousand tonnes, including production of equity-method associates. It benefits from high barriers to entry particular to the sector, as the uranium mining industry requires special certification and licensing with long lead times and specialised expertise.
Fitch rates Kazatomprom on a standalone basis, as legal, operational and strategic ties between the company and Kazakhstan (rated 'BBB'/Positive/'F3' by Fitch), its ultimate parent, are considered limited, according to Fitch's Parent and Subsidiary Rating Linkage criteria dated 12 August 2011. Fitch notes that Kazatomprom's rating incorporates implicit state support in the form of certain privileges in obtaining subsoil use agreements through direct negotiations with the Kazakh government and the state participation in negotiation with certain foreign customers.
Kazatomprom's ratings are constrained by its presently limited diversification and exposure to uranium price volatility. The latter could be mitigated by the expected vertical integration and shift to higher value-added products and services in the future as well as its strong market position, contracted sales and ramped-up production.
Although uranium oxide (U3O8) futures prices have been under pressure since the March 2011 Fukushima accident, Fitch does not currently anticipate that they will weaken further.
Fitch notes that Kazatomprom's intensive investment programme of about KZT290bn over 2012-2014 is likely to be partly funded with additional debt. Using conservative uranium price and sales volume assumptions, Fitch expects Kazatomprom's FFO adjusted leverage to remain at around 2.5x and FFO interest coverage to stay in a range of 7x-12x in 2012-2015. The agency noted that the company's capex programme has certain flexibility. When calculating FFO, Fitch includes dividends from Kazatomprom's JVs and associates. The agency expects these dividends to continue increasing from KZT19.7bn in 2011 following JVs and associates' production expansion. Fitch will closely monitor the performance of Kazatomprom's JVs and associates and the dividends paid to the company, which have become essential for its cash flow generation.
Over 60% of the Kazatomprom's debts are due in 2015 and it needs to repay KZT22bn of loans maturing in 2012. Its total indebtedness at 31 December 2011 includes other financial liabilities of KZT47.4bn that are mainly guarantees of minimum distribution to Beijing Sino-Kaz Uranium Resources, a JV partner, for KZT45bn until 2033.
Kazatomprom continues to provide financial guarantees to its unconsolidated JVs, which have bank debt, mainly from Japanese banks. Fitch continues to exclude these off-balance sheet liabilities from the adjusted debt calculations. In total, Kazatomprom had outstanding financial guarantees of KZT35.7bn at end-11 (down from KZT56.7bn at end-10) primarily on behalf of two JVs - Kyzylkum LLP and Baiken-U LLP, both of which are currently in the production/commissioning phases. Most of Kazatomprom's existing financial guarantees expire in December 2018. Fitch estimates that Kazatomprom's FFO adjusted leverage ratio for FY10 and FY11 would have been higher by about 1.5x and 0.5x, respectively, if all off-balance sheet obligations were included in the leverage ratio calculations.
Even though Kazatomprom's exposure to the weak Kazakh banking sector declined in 2011, it continues to maintain large deposits and cash balances with local banks.
|Full company name||Joint Stock Copmany "National Nuclear Company "Kazatomprom"|
|Country of risk||Kazakhstan|
|Country of registration||Kazakhstan|