AKIPRESS.COM - Standard & Poor's Ratings Services lowered its long-term corporate ratings on Kazakhstan's national railroad company, Kazakhstan Temir Zholy (KTZ), and its core subsidiary, freight-wagon owner JSC Kaztemirtrans (KTT), to 'BB+' from 'BBB-'. The outlook is negative.

S&P has also lowered its Kazakhstan national scale ratings on these entities to 'kzAA-' from 'kzAA'.

At the same time, S&P lowered its rating on KTZ's senior unsecured bonds, including those issued by its financing subsidiary, Kazakhstan Temir Zholy Finance B.V., to 'BB+' from 'BBB-'.

The downgrade primarily reflects S&P's expectation that KTZ's adjusted debt to EBITDA will increase to more than 5x by year-end 2015 and will not improve to a level that S&P considers commensurate with a higher rating in 2016.

The increase in leverage is largely due to the devaluation of the Kazakhstani tenge since mid-August 2015 by more than 30%, which resulted in an increase in KTZ's debt, of which more than one-half is foreign-currency nominated.

Additionally, KTZ's railway transportation volumes have been declining throughout 2015 at about 15% on an annual basis, reflecting a drop in commodity exports, primarily to China and Russia.

Flat tariffs and low cost flexibility have further translated into a decline in KTZ's EBITDA margin, by about 10% in the first half of 2015.

As a result, we expect that Standard & Poor's-adjusted debt to EBITDA will increase to more than 5.0x and that funds from operations (FFO) to debt will fall to less than 12% by year-end 2015. 

Standard & Poor's negative outlook on KTZ and KTT mirrors the outlook on Kazakhstan.