Azernews.Az

By Aynur Jafarova

The recent devaluation of tenge by 19 percent will significantly knock the credit metrics of Kazakhstan's rated energy and transport companies.

The remarks were made by Fitch Ratings agency on February 17.

"This is because of the currency mismatch between their debts and revenues, and because most Kazakh companies do not use hedging to reduce their exchange-rate risk exposure," Fitch said.

The rating agency calculated that over 75 percent of the debt of the Fitch-rated Kazakh energy and transport companies is denominated in foreign currencies, but most of their cash flow is generated on the domestic market in the local currency.

Exposure to exchange-rate risk varies across companies and largely depends on their borrowing policies, the agency said.

"We believe that Kazakhstan Electricity Grid Operating Company (KEGOC), Kazakhstan Temir Zholy, and Samruk-Energy have the highest exposure to foreign-currency risk. As a result, we expect their financial profiles to deteriorate the most. We expect the devaluation to increase their gross leverage metrics by about 0.5x on average in 2014 and reduce the coverage ratios by about 3.5x," Fitch Ratings stressed.

The agency also said exporters generating foreign-currency revenue, such as Kazatomprom, or local utilities with no foreign-currency debt, like MEDNC, are likely to fare better.

Fitch expects their credit metrics to worsen marginally in 2014 as a result of the devaluation.

The ratings of most Kazakh utilities and transport companies benefit from state support and are therefore unlikely to change as a result of the worsening financial profiles, Fitch experts believe.

"However, the forecasted deterioration of KEGOC's and Samruk-Energy's financials may lead to a breach of leverage covenants. This would require the companies to renegotiate their covenants, or the state to provide support to prevent them from being breached. We expect this support to be forthcoming if needed," the agency said.

Fitch also believes that the adverse impact of the tenge devaluation may be exacerbated by a potential increase in interest rates in the domestic debt markets, and inflationary pressures.

"Regulated tariffs may limit the ability of companies to offset higher costs," Fitch said.

The Kazakh National Bank has decided to devalue its tenge currency by 19 percent, to about 185 tenge per dollar. The bank had targeted an exchange rate of 145-155 tenge per dollar in the past few years, with a mid-point of 150.

Experts believe that the devaluation of tenge will lead to an increase in the prices of many goods, including food products, and imported goods that occupy a large share in the consumer basket of Kazakh citizens.

There is also a risk that public services in the country will become more expensive. The devaluation of the tenge by 20 percent will also increase inflation by 3.3 percent.

The devaluation of tenge will also have some positive results. It is expected to support trade balance and improve the foreign trade position of the country and have a positive effect on the revenues of the country's state budget. Also, the nominal amount of the country's GDP will increase by an additional 6.5 percentage.

The devaluation of tenge may also give impetus to the development of the national economy. Companies exporting products abroad may benefit from the fall of the Kazakh currency, and it might have a positive impact on the situation of large domestic manufacturing companies whose products are exported.