Fitch Ratings has affirmed
The Outlooks are Stable.
RATING RATIONALE
The ratings reflect Fitch's assessment that under its Parent and Subsidiary Linkage Rating Criteria, BSGP's credit profile is the same as its immediate parent, JSC National Company QazaqGaz (NC QG, formerly KazTransGas JSC, BBB-/Stable). Consequently, BSGP is rated on a standalone basis.
BSGP has a strong market position, limited exposure to competition as well as a cost pass-through tariff framework and low maintenance capex requirements for the newly-built pipeline. Under the Fitch rating case (FRC), BSGP's adjusted net debt to EBITDA (leverage) averages 2.2x over the next five years. Counterparty risk stemming from NC QG's role as BSGP's sole shipper of the transported gas caps the rating at 'BBB-'/Stable.
KEY RATING DRIVERS
BSGP has a strong position as the only route for
Gas export volumes are based on the agreement between
Regulated Cost-Based Tariff - Revenue Risk (Price): Stronger
BSGP operates under a regulatory framework with five-year regulatory periods and a cost-based tariff for gas transmission, which is designed to recover all operational costs (including debt repayment) and provide a return (equal to weighted average cost of capital) on the regulated asset base. The tariff is uniform (covers internal, export and transit transportation) and in local currency. The tariff for the regulatory period of 2020-2024 was approved at end-2019.
The tariff can be adjusted down once a year, if actual transported volumes are above the plan or costs are lower than expected. Upward revision is unlikely and only possible in limited cases. Factors such as tenge depreciation, reduction in gas transportation volumes and increased costs cannot reasonably initiate tariff revision before the next regulatory period.
The tariff for the 2020-2024 regulatory period is based on conservative projections of gas transportation volumes. If volumes are higher than expected, tariffs will be adjusted down. This approach gives the company flexibility and a buffer in case of low volumes. The regulated asset base return also represents a significant buffer, as it constitutes 50% of allowed revenue due to the high value of the newly-built assets and high weighted-average cost of capital (around 12% for 2020-2024).
Newly-built Pipeline, Low Maintenance - Infrastructure Renewal and Development: Stronger
BSGP is a newly-built operational pipeline with an asset life of over 30 years, which is well beyond the tenor of the debt. The long asset life and modern facilities (most works finished in 2019) reduces the need for major maintenance and repairs in the early life of the assets.
Corporate-like Guaranteed Debt with FX Risk: Debt structure - Midrange
As of
Financial Profile
Under the FRC, projected Fitch-adjusted net debt to EBITDA (leverage) averages around 2.2x in the next five years with a maximum of 3.0x at the end of 2024. The Fitch base case (FBC) resulted in average leverage of 1.9x with a peak of 2.5x in 2024.
Fitch also ran stress scenarios, which indicated BSGP's resilience to opex stress, with average leverage at 2.1x. BSGP showed higher sensitivity to FX shock and volume stress, with average leverage reaching 3.8x and 4.0x, respectively.
Finance and operating leases are captured as an operating expense, reducing EBITDA.
PEER GROUP
BSGP is not directly comparable with any peer in Fitch's project finance portfolio. However, we considered the ratings of other oil and gas pipelines and EMEA ports and airports.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on NC QG;
Deterioration of the Standalone Credit Profile (SCP) accompanied by weaker parent-subsidiary linkages.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
BSGP's SCP is capped by its key counterparty NC QG;
Positive rating action on NC QG, provided that our analysis of parent-subsidiary linkage supports ratings equalisation.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
TRANSACTION SUMMARY
BSGP is a 1,454km long natural gas pipeline with 14 bcma capacity (expected to increase to 15 bcma by 2022), connecting the oil and natural gas fields in the west of
The pipeline was constructed under an agreement between
CREDIT UPDATE
During 2021, BSGP transported 12.8bcm, exceeding the initial plan. In 9M22 BSGP's transportation volumes were slightly lower yoy, which was mostly driven by lower production of commercial gas at
In
FINANCIAL ANALYSIS
The FBC assumes a five-year average gas transportation volume of 13.0bcma with tariffs at the level approved by the regulator for 2020-2024. We also inflate operational expenses by 5% compared with management's case. The FRC assumes a five-year average gas transportation volume of 12.4bcma with tariffs in line with the FBC. We also inflate operational expenses in FRC by 10% compared with management's case. Both the FBC and FRC assume capex in line with management's plan until 2023, afterwards we expect a significant increase in capex amid a potential increase in capacity to 18.0bcma. We assume dividend distributions in 2022 and 2023.
Fitch's stress cases are based on FBC assumptions with the adjustment of one factor. In the FX shock scenario, we employ 50% depreciation of the tenge, while the opex stress case assumes 15% higher costs. In the volume stress case, we assume gas transportation volume of 8.0bcma until 2024 and then increasing to 11.0bcma by 2026, which is the sum of the take-or-pay amount under contract with
Summary of Financial Adjustments
Finance and operating leases are removed from financial liabilities. Lease expenses are captured as an operating expense, reducing EBITDA.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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