Fitch Ratings has assigned JSC National Company Kazakhstan Temir Zholy's (KTZ)
The notes are guaranteed by KTZ's subsidiaries
The senior unsecured rating is in line with KTZ's Long-term foreign currency Issuer Default Rating (IDR) of 'BBB'/Stable. The bonds' proceeds will be used to finance the development of infrastructure projects of KTZ-Express, KTZ's new wholly owned logistics subsidiary as well as to finance its own capital expenditures and for its general corporate purposes.
KTZ's ratings reflect its 100% state ownership, indirectly owned through the JSC National Welfare Fund Samruk-Kazyna (S-K), and strategic importance to
KTZ's tariffs are regulated and its investment plans approved, and directly co-funded by the state through equity injections and loans. The government also provides direct subsidies for the loss-making passenger business.
However, despite relatively substantial and timely financial support, KTZ's ratings are one notch lower than the state given the absence of explicit guarantees but also past instruction by the state for KTZ to undertake relatively sizeable social projects at the group's expense.
Fitch expects KTZ's earnings will continue to be supported by fairly robust volumes due to still strong GDP growth rates (expected by Fitch to be in excess of 5.5% in 2014 and 2015) and demand for the transportation of commodities, KTZ's key revenue driver. The 8% proposed average tariff increase for 2014 is also expected to be supportive, although it remains lower than pre-2013 levels.
Growth rates are therefore unlikely to witness the highs of previous years, due in part to some dampening effect of the unification of tariffs in the Single Economic Space, expected to lead to reduced export tariffs, which accounts for around 40% of KTZ's freight turnover. Nevertheless, cost optimisation programmes aimed at increasing efficiency should help offset pricing pressures and maintain margin levels as witnessed in 9M13.
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