Fitch assigns Central-Asian Electric Power Corporation 'BB-'

12:30, 29 June 2013

ASTANA. June 29. KAZINFORM Fitch Ratings has assigned Kazakhstan-based integrated energy company JSC Central-Asian Electric Power Corporation (CAEPCo) Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'BB-', Short-term foreign currency IDR of 'B' and a National Long-term Rating of 'BBB+(kaz)'. The Outlooks on the Long-term IDRs and National Rating are Stable.

According to the Fitch's report, the ratings reflect CAEPCo's vertical integration, relatively benign regulatory regime, access to cheap coal and good regional market position, despite its overall small size. However, CAEPCo's ageing assets require significant renewal and the planned investment programme could result in persistent negative free cash flow and elevated funds from operations (FFO) adjusted leverage levels of around 3x through 2017 based on Fitch's rating case forecast.

Fitch believes CAEPCo's substantial capex programme over the next five years will likely result in negative free cash flow over the same period, and require a significant degree of debt funding given likely continued dividend payments. "This will likely result in a sustained increase in FFO adjusted leverage to around 3x from 2.2x at Fiscal Year 2012. The capex programme is aimed at modernising over 50 percent of CAEPCo's ageing 1960s and 1970s generation capacity by 2015, as well as upgrading its distribution network. Capacity expansion will be moderate at around 15 percent to 2015 but additional benefits will be reduced losses and increased fuel efficiency," the report said.

Fitch views CAEPCo's short term liquidity as adequate supported by KZT10billion of cash at Fiscal Year-End 2012 and circa KZT26 billion of available facilities, including the facilities recently arranged with EBRD (AAA/Stable). At FYE12, three-quarters of debt was long-term and short-term debt was KZT2.5 billion. Fitch expects negative free cash flow for 2013 given capital expenditure commitments, Kazinform refers to trend.az.

According to the report, the on-going capital expenditure programme will likely require significant additional debt funding of during the next five years, given potential continued dividend payments. "Of this, total loans in the amount of KZT21 billion have been entered into with EBRD (European Bank for Reconstruction and Development) in May 2013. CAEPCo has proven access to domestic and some international lenders, as well as domestic bond market," the report said.

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