On August 8, Fitch maintained Samruk-Energy's (SE) long-term foreign currency issuer default rating of BBB on Rating Watch Negative (RWN) due to the "uncertainty regarding the state's willingness to support the SE's credit metrics while encouraging its acquisitive and capital-intensive strategy".
Fitch could downgrade the SE's rating if there is any weakening of ties between the state and the company. Fitch will re-assess these ties after the determination of the final funding structure for the acquisition of EGRES-1. Recall that SE purchased a 50% stake in EGRES-1 for T221bn, which was mostly financed by a debt (T200bn) from Samruk-Kazyna. However, the agency stated that a half of the acquisition debt may be converted into equity and the remaining half - into subordinated bonds. The final details of the transaction are not disclosed yet.
Fitch forecasts that as a result of an intensive capex program of T494bn in 2014-2018 the funds from operations adjusted gross leverage will be above 6x. Free cash flow is expected to remain negative during the same period, despite solid and stable cash flows from operations thanks to tariff increases and stable dividends flow from its joint ventures.
Our view. We view Fitch's decision as neutral to the company's bonds. We view the current level of yields of SE's Eurobonds as fair as they are trading at the same level as Eurobonds of Intergas (May 2017, Fitch BB+, Moody's Baa3, S&P BB+) and 25bp tighter than Eurobonds of Kazakhstan Engineering (Dec 2016, Fitch BBB-, Moody's Ba2).
We do not have Samruk-Energy under research coverage yet.