Tashkent, Uzbekistan (UzDaily.com) -- Standard & Poor’s Ratings Services (S&P) affirmed its ’BB+’ long-term corporate credit and ’kzAA-’ Kazakhstan national scale ratings on both Kazakhstan Temir Zholy (KTZ) and its 100% subsidiary JSC Kaztemirtrans (KTT).

At the same time, the ratings on KTZ and KTT were removed from CreditWatch with negative implications, where they were placed on 16 June 2009. The outlooks on both KTZ and KTT are stable. Before the CreditWatch placement, the outlooks were stable.

The ’BB+’ rating on the senior unsecured bonds issued by Kazakhstan Temir Zholy Finance B.V. was affirmed and removed from CreditWatch with negative implications, and the ’4’ recovery rating is unchanged.

"The affirmation and removal from CreditWatch reflects our expectations of a "very high" probability of timely and sufficient extraordinary financial support from the state for KTZ, KTT’s 100% parent and Kazakhstan’s national railway company," said Standard & Poor’s credit analyst Sergei Gorin.

This is based on S&P assessment of KTZ’s:

• "Very important" role in Kazakhstan’s economy as a national railroad company, playing a key role in Kazakhstan’s national transport sector; and
• "Very strong" link with the Kazakh government, illustrated by the state’s ongoing support, which includes state subsidies to the passenger transportation segment and guarantees on some of KTZ’S debt, as well as government cofinancing of the investment burden in rail infrastructure and 100% ownership with no privatization risk in the short to medium term.

At the same time, there is a degree of uncertainty of how exactly the mechanisms of government support would operate in Kazakhstan’s economic environment. This uncertainty is reflected in S&P one-notch deviation from S&P standard correlation for entities with a "very high" likelihood of extraordinary support.

KTZ’s stand-alone credit profile reflects S&P view of the company’s "fair" business risk profile and "significant" financial risk profile. In S&P view, the stand-alone credit profile is constrained by the company’s obsolete assets and aggressive investment program and Kazakhstan’s opaque regulatory regime. Ongoing rail-sector restructuring, the risk of commodity traffic volatility, and competition from oil pipelines further constrain the company’s stand-alone credit profile.

These risks are mitigated by the company’s vertically integrated business model, which combines monopoly rail infrastructure and profitable freight transport operations; a strong market and competitive position in the national transport sector; and strong ongoing government financial support.

The stable outlook reflects that on the sovereign.

"A positive track-record of government support to government-related entities could buoy the ratings on KTZ in the future," said Mr. Gorin.

A stronger-than-expected operational and financial performance, together with successful cash accumulation for the upcoming maturities and a strengthening of the banking sector could create upside potential for the ratings.

If in S&P view KTZ’s liquidity position deteriorates or if there are indications of lower state support, S&P could lower assessment of the company’s stand-alone credit profile and/or lower the corporate credit ratings on the company.