OREANDA-NEWS. Fitch Ratings has affirmed Joint Stock Company Central-Asian Electric-Power Corporation's (CAEPCo) Long-term foreign currency Issuer Default Rating (IDR) at 'BB-'. The Outlook is Stable.

The rating reflects CAEPCo's vertical integration, benign regulatory regime and stable regional market position (despite overall small size) with access to cheap regulated coal supplies. However, CAEPCo's ageing assets require significant renewal and the planned investment programme will likely result in negative free cash flow (FCF) and elevated funds from operations (FFO) gross adjusted leverage of about 2.8x on average over 2014-2016 based on Fitch's conservative assumption.

CAEPCo is one of the largest privately owned electricity generators in Kazakhstan. It is integrated across the electricity value chain with the exception of fuel production and transmission, which gives the company access to markets for its energy output and limits customer concentration. CAEPCo's revenue and EBITDA are dominated by generation services, which accounted for about 46% and 91%, respectively, in 2013. Electricity and heat distribution represents about 18% of revenue and 6% EBITDA, while low marginal sales makes 36% of revenue and only 3% of EBITDA in 2013.

The heat distribution business is loss-making due to high heat loss and regulated end user tariffs, which Fitch assumes are kept low for social reasons (heat generation is reported within overall generation and cash flow accretive), a situation that we assume will persist but with gradual improvement.

RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating action include:
- A stronger financial profile than forecast by Fitch due to, among other things, higher than expected growth in electric and heat tariffs and/or generation electricity supporting FFO gross adjusted leverage below 2x and FFO interest coverage above 7x on a sustained basis would be positive for the ratings.
- Increased certainty regarding the post-2015 regulatory framework could also be supportive of the ratings.

Negative: Future developments that could lead to negative rating action include:
- A substantially above inflation increase in coal price and/or tariffs materially lower than our forecasts, leading to FFO gross adjusted leverage persistently higher than 3x and FFO interest coverage below 4.5x would be negative for the ratings.
- Committing to capex without sufficient available funding, worsening overall liquidity position may also be rating negative.