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Rating Action:

Moody's confirms Kazatomprom's Baa3 rating; negative outlook

26 Apr 2016

London, 26 April 2016 -- Moody's Investors Service has today confirmed the Baa3 issuer rating of Kazatomprom JSC, a major world uranium producer owned by the Government of Kazakhstan. The outlook on the rating is negative.

The confirmation takes into account the following drivers:

-- Kazatomprom's robust financial and liquidity profile, supported by low cost position globally

-- the capacity within its current rating to absorb sovereign weakness

-- the continued strong likelihood of state support

Today's action concludes the rating review initiated by Moody's on 22 January 2016 and follows the downgrade of Kazakhstan's government bond rating with a negative outlook on 22 April 2016. For additional information, please refer to the related announcement:

https://www.moodys.com/research/Moodys-downgrades-Kazakhstans-rating-to-Baa3-with-negative-outlook-concluding--PR_347131.

RATINGS RATIONALE

Today's confirmation of Kazatomprom's Baa3 rating reflects Moody's view that (1) Kazatomprom's financial and liquidity profile has sufficient resilience to absorb the prolonged weakness and volatility of the uranium market; and (2) the strong probability of extraordinary state support embedded in Kazatomprom's rating remains appropriate.

As Kazatomprom is fully controlled by the government of Kazakhstan, the company is seen by Moody's as a government-related issuer (GRI). Under the GRI rating methodology, Kazatomprom's Baa3 rating benefits from an uplift to the company's standalone credit strength measured by a ba2 baseline credit assessment (BCA), driven by the strong probability of state support in the event of financial distress.

Moody's had earlier placed Kazatomprom's rating on review for downgrade pursuant to the agency's review of the global mining sector, parts of which have undergone a fundamental downward shift. Having been traded at historical lows after the 2011 Fukushima accident, uranium has not experienced the same magnitude of recent price reductions seen in base metals. Nevertheless, it is a volatile commodity, the price of which is hard to predict as it is not only driven by industrial supply and demand factors.

Moody's expects that Kazatomprom will address uranium price risk by focusing on cost efficiency, prudent project development and reducing financial risk. It will also benefit from the strong probability of extraordinary state support.

Kazatomprom's BCA remains solidly positioned at ba2, given Moody's expectation that the company's leverage will not exceed 2.5x debt/EBITDA (including dividends received from jointly controlled and minority-owned entities) over the next 12-18 months on the back of the company's sustainable operating performance. The latter is underpinned by the company's sizable market share, its low cost position supported by the weak tenge, as well as its long-term customer contracts. Kazatomprom's solid liquidity position will continue to benefit from positive free cash flow generation, long-term debt profile and committed bank facilities.

RATIONALE FOR NEGATIVE OUTLOOK

The negative outlook on Kazatomprom's rating mirrors that on the sovereign and reflects the fact that a downgrade of Kazakhstan's sovereign rating will result in a downgrade of the company's ratings.

WHAT COULD CHANGE THE RATING DOWN/UP

Kazaromprom's rating could be downgraded if (1) there were a further downgrade of Kazakhstan's sovereign rating; (2) there were a revision downwards of Moody's assessment of the probability of the Kazakhstan government providing extraordinary support to Kazatomprom in the event of financial distress; or (3) Moody's were to believe that in the weak market environment the company's financial profile would deteriorate below rating guidance, with leverage exceeding 2.5x, and cash flow from operations/debt weakening below 20% materially on a sustained basis.

Currently there is little likelihood of upward pressure on Kazatomprom's rating, given the negative outlook. Moody's could change the outlook on the rating to stable if it were to change the outlook on Kazakhstan's sovereign rating to stable, provided there is no material deterioration in company-specific factors, including operating and financial performance and liquidity.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Global Mining Industry published in August 2014. Other methodologies used include the Government-Related Issuers methodology published in October 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

The Joint-Stock National Atomic Company Kazatomprom is responsible for the development of Kazakh nuclear resources. Kazatomprom's main activities include the mining, production and sale of uranium, beryllium, tantalum, niobium; and the production of hydrofluoric acid. The Kazakhstan-government-owned National Welfare Fund Samruk-Kazyna is Kazatomprom's sole shareholder. In the 12-month period to June 2015, Kazatomprom reported revenue of KZT318.2 billion ($1.7 billion).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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.

Ekaterina Botvinova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
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United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms Kazatomprom's Baa3 rating; negative outlook
No Related Data.
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