The affirmation reflects the agency's view of KTO's unchanged stand-alone credit profile (SACP) of 'bb+', the company's strategic importance for its parent,
national oil champion KazMunayGas (KMG), as well as our assessment that there is a high likelihood that KTO would receive timely and sufficient support from the government of Kazakhstan if needed.
"KTO's strategic importance to the KMG group is underpinned, in our view, by the company's role as the main oil pipeline network operator in the country,
transporting almost half of oil volumes produced in the country. This also leads us to consider KTO's role for the government as very important and the link between the company and the government as strong, albeit indirect," reads the report.
However, the rating on KTO remains constrained by the rating on its parent, KMG (BB-/Stable/--). The experts do not expect to rate KTO above the parent, which
closely controls KTO's strategy and operations, owns several interrelated business segments, and holds significant debt at its level.
KTO maintains good financial flexibility, thanks to its adequate cash position, flexibility to defer most of its new projects, and available
borrowing capacity. In 2018-2019, we expect KTO to continue generating strongly positive free operating cash flow on the back of the recent tariff increases for transit and export that the company announced.
The KTO group has no debt at the company level. As of March 31, 2018, there was debt of $541.5 million at the level of the Kazakhstan-China Pipeline (KCP), KTO's 50-50 joint venture (JV) with China National Oil and Gas Exploration and Development Corp. KCP generates healthy cash flows and KTO
expects the JV will be able to serve its debt. The track record confirms that KTO has not funded KCP and has no intention to provide financial support in the future. "We therefore do not include 50% of the JV's debt in the calculation of KTO's S&P Global Ratings-adjusted debt figure. We are also therefore revising our view of KTO's financial risk profile to minimal from modest," reads the report.
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