Fitch Assigns JSC Samruk-Energy's Domestic Bonds 'BBB' Rating
November 30, 2012 Fitch Ratings
Fitch Ratings-London/Moscow-30 November 2012: Fitch Ratings has assigned Kazakhstan-based JSC Samruk-Energy's KZT3bn 6% domestic bonds a 'BBB' local currency senior unsecured rating and 'AA+(kaz)' National senior unsecured rating. A full list of Samruk-Energy's ratings is below.
Fitch has notched down the local currency senior unsecured rating by one notch from Samruk-Energy's Long-term local currency Issuer Default Rating (IDR) of 'BBB+' due to the structural and contractual subordination in the group's debt structure. Secured and prior-ranking debt at the operating company level constituted 61% of group debt (based on IFRS accounts' treatment of shareholder loans) and materially exceeded 2x group EBITDA at end-2011. Future senior unsecured debt raised at the Samruk-Energy holding company level is expected to be subordinated to other prior-ranking creditors within the group.
Fitch will monitor the company's planned progress in raising senior unsecured debt and repayment of this prior-ranking debt, thereby reducing the degree of subordination at the holding company level.
-Notching Down From Sovereign
Samruk-Energy's Long-term IDRs have been notched down from the Kazakh sovereign's ratings ('BBB+'/Stable) by one notch as Fitch considers the legal, operational and strategic ties between the state (Samruk-Energy's ultimate parent) and the group as strong, according to the agency's Parent and Subsidiary Rating Linkage methodology.
The strength of the ties between Samruk-Energy and the state is determined by the ultimate state ownership of the company through JSC Sovereign Wealth Fund "Samruk-Kazyna", the company's strategic importance for the Kazakh economy, state guarantees for its debt and equity injections provided by the state for the group's capex projects. Fitch assesses Samruk-Energy's standalone business and financial profile to be commensurate with a weak 'BB' rating category compared to its Russian and Kazakh peers.
The state (primarily through Samruk-Kazyna) provided guarantees for 43% of Samruk-Energy's debt at end-H112. Other forms of tangible state support include asset contributions of KZT126.6bn and an equity injection of KZT89bn over 2009-2011. The government usually makes equity injections into Samruk-Energy, which redistributes the funds among its operating companies.
Samruk-Energy's standalone ratings benefit from its vertical integration, with activities ranging from coal mining to generation and transmission and distribution of power and heat. Fitch expects the generation segment to remain the main cash flow driver for the group. It accounted for 60.8% of the company's EBITDA (based on proportionate consolidation method) in H112 followed by coal mining (24.7%) and transmission and distribution (14.7%).
-Negative Free Cash Flow
Fitch expects the group to continue generating solid and stable cash flow over 2012-16 due to volumes and tariff rise as well as stable dividends flow from the JVs. Fitch forecasts that Samruk-Energy will remain free cash flow negative over 2012-15 due to an intensive investment programme and introduction of dividend payments to its sole shareholder. Although Samruk-Kazyna plans to pursue a balanced dividend policy towards its subsidiaries, which will incorporate their investment needs, Samruk-Energy intends to pay 20% to 40% of net income as dividends over 2012-15. The agency expects the group's FFO gross adjusted leverage (based on the equity accounting method) to stay above 3x over 2012-15.
RATING SENSITIVITY ANALYSIS
Positive: Future developments that could lead to positive rating actions include:
- Positive sovereign rating action
- Increase of the level of state support (eg state guarantees for a larger portion of the company's debt)
- Material reduction in the structural and contractual subordination in the group's debt structure could be positive for its foreign and local currency senior unsecured ratings
Negative: Future developments that could lead to negative rating action include:
- Negative sovereign rating action
- Diminishing level of state support
LIQUIDITY & DEBT STRUCTURE
Samruk-Energy's cash position of KZT42.6bn at end-9M12 was sufficient to cover the group's short-term debt of KZT13bn. The group's debt repayment schedule over 2012-15 is not onerous and is relatively balanced. Its debt maturity profile is well balanced, reflecting the long-term nature of the company's investments.
-Cash at Local Banks
Almost all of the group's cash position is held at the local banks. While the Kazakh banking system has recently stabilised after having been hit by the global financial crisis, Fitch believes that the immediate and unlimited access to deposits at local banks may not be fully exercised.
FULL LIST OF RATINGS
Long-term foreign currency Issuer Default Rating (IDR): 'BBB', Stable Outlook
Long-term local currency IDR: 'BBB+', Stable Outlook
Short-term foreign currency IDR: 'F3'
Long-term National rating: 'AAA(kaz)', Stable Outlook
Expected foreign currency senior unsecured rating: 'BBB-'(EXP)
Local currency senior unsecured rating: 'BBB'
National senior unsecured rating: AA+(kaz)
Country of riskKazakhstan
Redemption (put/call option)
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