S&P upgrades outlook on Kazakhtelecom
Standard & Poor's Ratings Services revised its outlook on Kazakhstan's Kazakhtelecom JSC to positive and affirmed the 'BB' long-term corporate credit rating, the rating agency reported.
The national scale rating on Kazakhtelecom was raised to 'kzA+'
from 'kzA'.
"The outlook revision reflects that we could revise our assessment
on Kazakhtelecom's management and governance to "fair" from "weak"
if the company were to adhere to its recently approved strategy for
its mobile business. This improved assessment would also depend
upon higher predictability in its business and financial decisions,
which we think the company could achieve if it sticks to this
strategy," S&P said.
Kazakhtelecom is currently rolling out a nationwide 4G network,
which will require meaningful investment. In the base-case
scenario, the rating agency assumes that this will result in just a
moderate leverage increase for the company, which could remain
commensurate with a higher rating. However, based on its track
record, S&P still sees a risk that the company's capital
spending might become more aggressive, and, more importantly, that
it could engage in this long-term project without fully securing
long-term financing.
"We could raise the rating if the company demonstrates more prudent
investment and financial management, in line with its strategy,"
S&P said.
The agency believes that it will be fairly difficult for
Kazakhtelecom to win a meaningful share of the 4G market over the
next three years. The company's performance in the core fixed-line
business has been historically volatile, notably in terms of
profitability. Kazakhtelecom's public policy role requires it at
times to invest in projects with low profitability or long payback
periods. Over the past several years, Kazakhtelecom has maintained
a fairly high investment budget compared with its actual business
requirements, and in 2012-2013 the company took steps to stabilize
its operating performance. However, certain constraints, such as
the inability to meaningfully reduce its headcount, still
negatively affects the overall business risk score.
The positive outlook reflects the likelihood that S&P will
raise the rating on Kazakhtelecom to 'BB+' if the agency were to
revise the assessment of its management and governance to "fair"
from "weak".
The upgrade would also be dependent upon Kazakhtelecom's credit
metrics remaining at moderate levels, including a ratio of Standard
& Poor's-adjusted debt to EBITDA of below 2x, and maintenance of
adequate liquidity. Operating performance would also have to remain
within the boundaries of the base-case scenario, notably in terms
of profitability.
The rating agency could revise the outlook to stable if it saw no
progress in management and governance, or if Kazakhtelecom's debt
leverage were to increase well above the base-case scenario
expectations as a result of higher investments or extraordinary
dividend distribution.