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Rating Action:

Moody's assigns Baa3 rating to KTZ's new senior unsecured notes

06 May 2022

London, May 06, 2022 -- Moody's Investors Service ("Moody's") has today assigned a Baa3 rating to the new proposed USD benchmark backed senior unsecured notes due 2025 to be issued by National Company Kazakhstan Temir Zholy JSC (KTZ or the company). All other ratings for KTZ were unaffected by today's rating action. The outlook on the rating is stable.

The proceeds from the contemplated issuance will be used to for the repayment of KTZ's CHF250 million backed senior unsecured notes due December 2023 and for general corporate purposes.

RATINGS RATIONALE

The Baa3 rating assigned to the bond is in line with KTZ's Baa3 issuer rating and outlook. KTZ's rating reflects a standalone assessment which has the characteristics of a strong B profile, and several notches of uplift reflecting KTZ's continued strategic importance to its parent company Sovereign Wealth Fund Samruk-Kazyna JSC (Samruk-Kazyna, Baa2 stable) and, therefore, the Government of Kazakhstan (Baa2 stable).

KTZ's standalone credit assessment reflects (1) its position as the monopoly owner of rail transportation infrastructure and the largest provider of transportation services in Kazakhstan; (2) the strategic and social importance to the state; (3) its recently improved operating and financial performance; (4) the consistent focus on strengthening its financial profile, and (5) the ordinary government support via tariff indexation, state subsidies, and equity injections.

Conversely, the KTZ's rating is constrained by (1) its historically weak standalone credit quality, driven by its susceptibility to macroeconomic and foreign-exchange-rate volatility and significant investment requirements; (2) the relatively high leverage; (3) the fairly aggressive liquidity management; and (4) the remaining uncertainties around the evolution of the pandemic and the global economic outlook.

RATING OUTLOOK

The stable outlook on KTZ's rating is in line with the stable outlook on Kazakhstan's sovereign rating, the rating of Samruk-Kazyna, and reflects Moody's view that KTZ's specific credit factors, including its operating and financial performance, credit metrics, market position and liquidity, will remain commensurate with its rating on a sustainable basis, and there will be no weakening in the probability of support from Samruk-Kazyna and the government in the event of financial distress.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Upward rating pressure could emerge if Moody's were to upgrade Kazakhstan's sovereign rating and Samruk-Kazyna's rating assuming no change in the likelihood of support from Samruk-Kazyna and the government in the event of financial distress, but would, in any case, remain subject to a significant improvement in the company's standalone creditworthiness. In particular, a rating upgrade would require that the company establishes a sufficient track record of more stable operating performance, pursues prudent financial policy and liquidity management, and sustainably reduces its adjusted debt/EBITDA towards 4.0x through the economic and investment cycles.

KTZ's rating could come under pressure if there were a downward reassessment of the government's and Samruk-Kazyna's ability and willingness to provide support. A deterioration in the company's standalone credit quality beyond levels commensurate with the solid B category and increased liquidity concerns could also lead to a rating downgrade.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Surface Transportation and Logistics published in December 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1296092. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CORPORATE PROFILE

Headquartered in Nur-Sultan, Kazakhstan, National Company Kazakhstan Temir Zholy JSC is the vertically integrated monopoly owner and operator of the national rail network of the Republic of Kazakhstan, as well as the leading provider of freight and passenger rail transportation services in the country. The company is also an operator of several other key infrastructure assets such as sea ports. The sole shareholder of KTZ is JSC National Welfare Fund Samruk Kazyna. In the year ended 31 December 2021, the group generated revenue of around KZT1,329 billion and Moody's-adjusted EBITDA of KZT426 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Timo Fittig
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London, E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

David G. Staples
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London, E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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​
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