ASTANA, Kazakhstan, January 6. Moody's Investors Service (Moody's) has upgraded Kazakhstan Temir Zholy JSC's (KTZ aka Kazakhstan Railways, national company) long term issuer rating to Baa2 from Baa3, with stable outlook, Trend reports.
According to Moody's, this rating upgrade reflects the accumulated sustainable improvements in KTZ's standalone credit profile demonstrated by its track record of robust operating and financial performance and stronger credit metrics amid supportive external conditions.
The rating action also incorporates the company's high importance for the state and its efforts to diversify the economy away from hydrocarbon sectors, which translates into sizeable ordinary support, accommodating tariff policy and prudent supervision over KTZ's strategy and financial policy.
At the same time, the rating reflects the company's large capital spending program, which is designed to meet strong demand for railway transportation and improve its asset base.
KTZ's cargo turnover increased by 5.1 percent in 2022 and 7.5 percent in the first nine months of 2023, and will grow by 7-9 percent a year in 2023-24, mainly driven by transit and export operations. The company benefits from increased transportation activity between Russia and Asia and across the Trans-Caspian International Transport Route – also known as the Middle Corridor. As Moody's noted, demand for railway freight transportation is likely to remain at the elevated level due to structural diversion of cargo flow in the region, and may be curbed only by infrastructure bottlenecks.
In addition, the tariff regulation has been supportive recently. The average cargo tariff increased by 13 percent in 2021, 6 percent in 2022 and 18 percent in 2023 which helps offset relatively high inflation and finance extensive capital spending. However, future tariff increases are likely to be less pronounced.
As a result, KTZ demonstrates strong revenue growth and good profitability. Its revenue increased by 13 percent in 2021, 16 percent in 2022 and 26 percent in the first nine months of 2023, and may grow by 15-18 percent in 2024. Moody's-adjusted EBITDA margin is solid at 28-33 percent in 2020-23, compared with 25 percent in 2017-19, and is likely to be sustained at 28-30 percent over the next 12–18 months.
Moody's also acknowledges the reduction of foreign currency debt to 37 percent in the KTZ's total portfolio as of September 2023 from 56 percent in 2021. This supports the company's credit quality, reducing its susceptibility to currency volatility.
The remaining portion of foreign currency debt is covered by natural foreign currency hedge through transit revenue denominated in hard currency.
