S&P revises KazTransOil outlook to positive

Standard & Poor's revised its outlook on the Kazakhstan-based oil pipeline operator KazTransOil to positive from stable and affirmed its BB long-term corporate and senior unsecured ratings.

The ratings on KazTransOil are constrained by its operational dependence on the Russian Federation and its monopoly pipeline operator OAO AK Transneft to enable the export of oil. The ratings also are constrained by KazTransOil's diminishing role in the export of crude oil by Kazakhstan following the launch of the Caspian Pipeline Consortium project in 2001, the requirement for considerable investment in KazTransOil's infrastructure, and the constraints of operating within an emerging economy.

The risks are offset at this rating level by the strategic importance of KazTransOil to its owner, state-owned KazMunaiGas, and the Kazakh economy, supportive and increasingly transparent regulation, the existence of a long-term agreement between Russia and Kazakhstan guaranteeing minimum oil off-take volumes, and KazTransOil's robust financial profile.

"The ratings assume that KTO (KazTransOil) will continue to maintain a strong balance sheet over the next five years, with total debt to total capital not rising more than 30%-35%," said S&P credit analyst Mikhail Galkin.

"We expect the company's funds from operations interest coverage to remain strong at more than 6.0x over the same period. If new investments are backed by long-term off-take contracts, the targets on debt and interest coverage ratios may be revised."

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