OREANDA-NEWS. July 10, 2009. Standard & Poor's Ratings Services said that it had lowered its long-term corporate credit rating on Kazakh oil and gas holding company JSC NC KazMunayGas (KMG) to 'BB+' from 'BBB-'. The outlook is stable, reported the press-centre of KASE.

At the same time, the ratings were removed from CreditWatch, where they were placed with negative implications on June 16, 2009.

The Kazakhstan national scale rating on the company was lowered to 'kzAA-' from kzAA'.

The issue ratings on US1.4 billion medium-term notes due 2013 and US 1.6 billion medium-term notes due 2018 issued by KazMunaiGas Finance Sub B.V. and guaranteed by KMG were lowered to 'BB+' from 'BBB-'.

"The rating action reflects our revised assessment of KMG's stand-alone credit profile, which we assess as 'B+', as well as our opinion that there is an "extremely high" likelihood of extraordinary government support for the company," said Standard & Poor's credit analyst Andrey Nikolaev.

According to an annual report of KMG subsidiary JSC KazMunaiGas Exploration Production (KMG EP), the companies of the KMG group are required by the Kazakh government to hold a majority of their financial assets with domestic banks. We understand that a substantial majority of group liquidity is held in such banks. The companies of the group report considerable deposits with Halyk Savings Bank of Kazakhstan (B+/Negative/B) and Kazkommertsbank (B/Negative/C). The group companies also have deposits with BTA Bank (D/--/D). This concerns us because, in our opinion, the liquidity and asset quality of these banks is under pressure.

In our view, the flexibility KMG and its subsidiaries have in managing these deposits is limited.

Mitigating our liquidity concerns and sustaining our confidence in the prospect of extraordinary government support is a very recent Kazakhstani tenge 190 billion (US 1.3 billion) 35-year subordinated bond issued by KMG in favor of  Samruk-Kazyna, a government holding company and KMG's 100% shareholder (announced on July 2, 2009).

In accordance with our criteria for government-related entities, our view of an "extremely high" likelihood of extraordinary government support is based on our assessment of KMG's:

- Critical role' in the economy of Kazakhstan as the largest exporter, tax-payer and spearhead of the Kazakh government's policy to increase the national presence in the oil and gas sector.

- Very strong' link with the Kazakh government, its 100% shareholder, which, however, requires the companies of the group to hold cash with domestic banks, the credit quality of which is below that of the KMG group

The stand-alone credit profile of 'B+' reflects our assessment of KMG's business risk profile as "fair" and financial risk profile as "aggressive".

The stable outlook reflects our expectation that KMG will continue to benefit from an "extremely high" likelihood of government support and will be able to maintain its stand-alone credit profile consistent with the 'B' category. It also reflects the stable outlook on the sovereign, which underpins our assessment  of its ability to support KMG.