Moody’s views Intergas Central Asia’s offer to buy back bonds as credit neutral

By bne IntelliNews October 28, 2015

Moody’s Investors Service said it views as credit neutral Intergas Central Asia's (‘Baa3’, stable) announcement on October 22 that it had made an offer to the holders of its 6.375% of notes due in 2017, which were formerly issued by Intergas Finance BV (‘Baa3’, stable), to buy back up to $270mn of the notes for cash.

Moody’s views this transaction as “credit neutral given the uncertainty as to the amount of notes, which the noteholders decide to tender and also taking into account that this deal is in line with both the rating agency’s expectation and the company’s commitment to redeem these notes at maturity”, the agency said in a statement.

The company has been accumulating cash for its notes redemption and as of June 30, 2015 had about $110mn of cash and short-term deposits and about $173mn of long-term deposits (at the exchange rate as of June 30, 2015), mainly kept in Kazakh banks.

“Apart from the positive impact of deleveraging on the company's credit metrics, this transaction would allow the company to reduce its exposure to Kazakh banks, which are highly exposed to foreign-currency lending or have limited buffers to absorb the expected deterioration in their asset quality following the recent and pronounced depreciation of the tenge,” the statement said. “The company will not incur losses if it decides to terminate early its deposit agreements, while coupon savings on its to-be-redeemed notes will bring extra savings.”

On October 22, the company, together with Intergas Finance BV, launched invitations to holders of the outstanding $540mn 2017 Notes, issued by Intergas Finance BV in 2007 for the total amount of $600mn for the purpose of financing a corresponding loan to the company, to tender their notes for purchase by the company for cash. Noteholders who tender their notes at, or prior to the early tender November 4 deadline, and do not subsequently withdraw, will be eligible to receive a purchase price of $1,020 per $1,000 in principal amount of such notes and an early tender premium of $20 per $1,000 principal amount of notes subject to acceptance by the company. The offer expires on November 19 and has a settlement date of November 25, although the company retains the right to extend the above mentioned dates.

The notes outstanding comprised 98% of the company’s debt as of June 30, 2015. Intergas Central Asia has financial covenants on its Eurobonds and term loans of dividends/net income and net debt/net capitalisation, respectively, not exceeding 0.5x. The company is in compliance with these covenants with actual values at below 0.3x for both covenants as of June 30, 2015. Moody’s doesn’t expect the company to exceed these thresholds as of December 31, 2015.

The company’s plans of deleveraging amid the volatile macroeconomic environment in the country is a “positive factor” for the company’s credit portfolio, the Almaty-based Halyk Finance investment bank said in a note. The company’s Eurobonds are trading at a 3.4% yield at $104.4 per share, “almost corresponding to the buyback price plus premium”, Halyk Bank noted. “We believe the spread between Samruk-Energo’s Eurobonds due in December 2017 and Intergas Central Asia’s 2017 Eurobonds at 190 basis points is high,” the note said. “We estimate the fair spread to be at 50-60 basis points, given the difference between the ratings of the companies at one notch and difference in maturity at seven months.”

Intergas Central Asia (ICA) is the main wholly owned subsidiary of gas-transporting national company KazTransGas (KTG, ‘Baa3’, stable), a state-owned holding whose main objective is to manage the state’s strategic interest in Kazakhstan’s gas industry. KTG is, in turn, a subsidiary of another state-owned holding, JSC KazMunayGas NC (KMG, ‘Baa3’, stable), which is in charge of the country's energy assets. KMG is 100% owned by the government of Kazakhstan (‘Baa2’, stable) via its Samruk-Kazyna national wealth fund, which is not rated, Moody’s added.

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