OREANDA-NEWS. September 28, 2010. Fitch Ratings has affirmed Mangistau Electricity Distribution Company JSC (MEDNC) at Long-term foreign currency Issuer Default Rating (IDR) 'BB'; Short-term foreign currency IDR 'B', Long-term local currency IDR 'BB+' and National Long-term Rating 'AA-(kaz)'. The Outlook is Stable, reported the press-centre of KASE.

At the same time, its foreign currency senior unsecured debt has been affirmed at 'BB' and its local currency senior unsecured debt at 'BB+'.

MEDNC's ratings are linked to those of Kazakhstan (Long-term foreign currency IDR 'BBB-'/ Long-term local currency IDR 'BBB'; both on Stable Outlooks), but notched down to reflect little indication having been given by MEDNC's parent, JSC Samruk-Energo (S-E; indirectly 100% state-owned) that it will provide timely financial assistance to MEDNC in case of need. Fitch views the standalone business and financial profile of MEDNC as commensurate with a weak 'BB-' rating.

MEDNC's credit profile is supported by its near-monopoly position in electricity transmission and distribution in the Region of Mangistau ('BB+'/Stable), one of Kazakhstan's strategic oil & gas regions (representing an estimated 17% of the country's oil production). It is also underpinned by prospects for economic development and expansion in the region, in relation to both oil & gas and transportation; the cost-plus-based tariff mechanism under which it operates; expected Fitch-adjusted gross debt to EBITDA of around 4x which is comparable to peers; and limited foreign exchange risk.

The ratings are constrained by MEDNC's small scale of operations limiting its cash flow generation capacity, high exposure (above 70% of revenue) to a single industry (oil & gas) and, within that, high customer concentration (the top three customers represented over 60% of FY09 revenue). The latter is somewhat mitigated by good credit quality and state ownership of the customers, and customary prepayment.

MEDNC's liquidity is adequate, comprising solely cash (the company does not have any available credit lines). At FYE09, most of MEDNC's debt was represented by five unsecured fixed-rate bonds (for a total of KZT3.3bn) issued under its KZT9.8bn debut domestic bond programme registered in 2005. The bonds mature at the rate of one each year between 2010 and 2014; the first (KZT500m) was repaid on 6 September 2010 from available cash (KZT1.56bn as of 30 June 2010).

The rest of the debt is represented by 25-year interest-free loans provided by MEDNC's customers to co-finance new network connections. Fitch expects post-capex, post-dividend cash flow to be negative in 2010 and 2011.

Following a domestic IPO completed in July 2008, S-E's stake in MEDNC was reduced to 75% plus 1 share of the total issued share capital (78.59% of voting shares). MEDNC raised KZT775.9m to co-finance its investment programme. While S-E is not actively pursuing a further reduction in its stake, MEDNC is not viewed as strategic - and a further sale is possible. The ratings are based on the assumption that S-E will retain a majority share in MEDNC, close to the current level.