Kazakhstan Electricity Grid Operating Co. (JSC)

The stable outlook on KEGOC balances our view of a high likelihood of extraordinary state support, sizable cash balances, and existing headroom in the metrics, with increasing capex needs, aged assets, uncertainty regarding the 2021-2025 tariff period, and potentially rising dividend payouts. Our base case envisages that the company is likely to maintain the headroom in its credit metrics, with FFO to debt comfortably above 30%. This view is underpinned by our expectations of positive FOCF despite annual capex rising to KZT40 billion-KZT50 billion, largely neutral electricity volumes, and only a moderate tariff increase capped by the CPI in 2021-2022. We could take a negative rating action if KEGOC's liquidity becomes stressed or if its debt leverage increases materially, with

...KEGOC's operating performance and financial metrics remain sound. Despite the COVID-19 pandemic, Kazakhstan Electricity Grid Operating Co. (KEGOC) increased transmission volumes by 2.5%-3.0% in 2020, thanks to export-oriented industrial customers. It also avoided any material working capital outlays and changes to its capex budget. Thanks to a generous tariff uplift in 2020 of 8.9% for transmission and 29% for distribution, coupled with cost control, we estimate that KEGOC's 2020 EBITDA has increased to about Kazakhstani tenge (KZT) 108 billion from KZT88 billion in 2019. KEGOC also managed to achieve very solid credit metrics in 2019-2020, with funds from operations (FFO) to debt of 45%-55%. We expect the company's FOCF to remain positive in 2021, and FFO to debt to be significantly above 30%, assuming no negative tariff developments, and despite a plan to increase in capex to KZT45 billion-KZT50 billion per year from KZT22 billion in 2019 and an estimated KZT37 billion in 2020. The main...

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