S&P affirms KEGOC rating at BB+

Tashkent, Uzbekistan (UzDaily.com) -- Standard & Poor’s Ratings Services (S&P) had affirmed its ’BB+’ long-term corporate credit rating on Kazakhstan Electricity Grid Operating Co. (JSC) (KEGOC), the state-owned transmission grid operator in the Republic of Kazakhstan (foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A-3; Kazakhstan national scale ’kzAAA’). The outlook is stable.

The rating was removed from CreditWatch, where it had been placed with negative implications on 16 June 2009.

“The removal from CreditWatch and affirmation reflect our expectations that KEGOC will likely continue receiving ongoing government support and our opinion that the likelihood of timely and sufficient extraordinary government support is “very high”,” said Standard & Poor’s credit analyst Sergei Gorin.

S&P based this on its assessments of KEGOC’s:

• "Very important" role in Kazakhstan’s economy as a provider of core infrastructure services;
• "Very strong" link with the Kazakh government, illustrated by state guarantees on some of KEGOC’s existing and, possibly, new debt, as well as equity injections to cover liquidity shortfalls.

However, S&P considered KEGOC’s stand-alone credit profile to be weak and assess it at ’B+’ because of its large investment programme and associated construction risk, high foreign currency and floating risk exposure, aggressive financial policy, high leverage, and the relatively weak characteristics of Kazakhstan’s power sector. Kazakhstan’s relatively low wealth, limited customer diversification, and historically delayed payments impair KEGOC’s market position.

Ongoing and potential timely and sufficient extraordinary state support to KEGOC partly mitigates these risks. KEGOC also benefits from its monopoly position in a stable and low-operating-risk electricity transmission business.

The stable outlook reflects that on the sovereign. KEGOC’s future credit quality largely depends on the continuity of strong government support.

“If the government reconsiders its level of support to KEGOC, we might lower the rating on KEGOC due to its rather weak stand-alone credit profile,” said Mr. Gorin.

Moreover, if we believe KEGOC’s liquidity position to have deteriorated or if there were indications of lower state support, S&P could lower its estimation of the company’s stand-alone credit profile and/or lower the corporate credit rating.

Stronger-than-expected operational and financial results, improvements in the financial profile, and more explicit government support might create ratings upside potential.