Moody's changes outlook to positive on ten Kazakhstani GRIs following outlook change on sovereign

    Moody's Investors Service has today changed to positive from stable the outlook on the Baa3 ratings of seven corporate government-related issuers (GRIs) operating in the oil and gas sector, namely: KazMunayGas NC JSC (KMG) and its subsidiaries Kazmunaigas Exploration & Production (KMG EP), KazMunaiGaz Finance Sub B.V., KazTransOil JSC (KTO), KazTransGas JSC (KTG), Intergas Central Asia (ICA), and Intergas Finance B.V. Moody's has also changed to positive from stable the outlook on the Baa3 rating of the country's railway transportation company JSC National Company Kazakhstan Temir Zholy (KTZ), Kazakhstan Temir Zholy Finance B.V., and on the Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating (PDR) ratings of its fully owned subsidiary JSC Kaztemirtrans (KTT). Concurrently, Moody's affirmed these ratings.
    The outlook on the Baa3 ratings of JSC Kazatomprom and Kazakhstan Electricity Grid Operating Company (KEGOC) remained unchanged at stable.
    
    RATINGS RATIONALE
    
    The action reflects Moody's view that the affected companies have strong linkages with the government and would benefit from the government's strengthening ability to provide support in the event of financial distress. Moody's notes that one of the factors positively affecting the government's rating, namely the favorable GDP growth outlook for Kazakhstan, driven by enhanced hydrocarbons production, is also likely to promote improvements in the affected companies' business profiles.
    
    The rating agency also believes that the government's financial strength, driven by, inter alia, an increase in the National Oil Fund's assets and a reduction of external debt, alleviates the risk of government's interference and potentially excessive demands on the GRIs' financial flexibility.
    
    RATIONALE FOR STABLE OUTLOOK ON Baa3 RATINGS OF JSC KAZATOMPROM AND KEGOC
    
    The outlook on the Baa3 ratings of JSC Kazatomprom remains stable given the low correlation between the company's and the government's ratings. The outlook on the Baa3 rating of Kazakhstan Electricity Grid Operating Company (KEGOC) remains stable primarily due to its relatively low baseline credit assessment (BCA).
    
    WHAT COULD CHANGE THE RATINGS UP/DOWN
    
    Given the high support assumption embedded in the ratings of Kazmunaygas NC and its subsidiaries, as well as KTZ, the ratings and outlook of these issuers are likely to move in line with the sovereign rating, subject to other components of the ratings remaining unchanged (such as BCAs, support and dependence assumptions).
    Moody's assumption of strong state support for KTT is based on the rating agency's expectation that the state support would be provided to KTT indirectly, i.e. by the company's parent, KTZ. Nevertheless, given that KTT is an integral part of KTZ, its ratings are likely to follow that of KTZ, provided there are no material changes in KTT's ownership structure and its role within the KTZ group.
    A reduction in Moody's assessment of government support for the companies, or a weakening of their BCAs, could trigger downward pressure on their ratings.