OREANDA-NEWS. Fitch Ratings has revised the Outlook on Kazakhtelecom JSC's (Kaztel) Long-Term Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at 'BB'. The agency has also upgraded the National Long-term rating to 'A+(kaz)' from 'A(kaz)' and assigned a Positive Outlook.

The Outlook revision to Positive reflects the company's improving liquidity, narrowing mismatch between predominantly domestic revenues and FX debt, improving cash flow, a successful launch of mobile operations and therefore lower execution risks associated with further mobile expansion.

Kaztel is a strong fixed-line incumbent, with a near monopoly position in the traditional telephony and high broadband market share, operating in a benign regulatory environment. The company re-entered the mobile mass market with its LTE service in 2014, providing it with a quad-play capability. Mobile roll-out and shareholder distributions have pushed funds from operations (FFO) adjusted gross leverage higher but Fitch do not expect this to significantly exceed 2x.

Kaztel is likely to maintain its dominant positions in the fixed-line segment, helped by benign regulation and a shortage of alternative networks. Kaztel estimated its fixed-line telephony market share at a high 93% at end-2013. Fixed-to-mobile substitution is a key threat, and this will drive modest fixed-line disconnections and pricing pressures in the voice segment, in our view. Expected interconnect rate cuts may exert additional pressure on traditional fixed-line revenue in the medium term but should not trigger any significant changes in the competitive environment.

RATING SENSITIVITIES
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
-A protracted rise in gross leverage to above 2.5x total debt/EBITDA and 3x funds from operations (FFO)-adjusted leverage (end-2013: 1.4x), and/or a material increase in refinancing risks

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:
- A sustained decrease in gross leverage to below 1.0x total debt/EBITDA and 1.5x FFO-adjusted leverage and successful development of the mobile segment demonstrating strong operating and financial performance