Presentation for investors

Transcription

1 1 Presentation for investors

2 Executive summary Purpose of this presentation is to briefly introduce you on the latest developments of ICA, provide an update on its financial performance and to discuss business strategy, financial policy and financial projections 100% Government owned through KazMunaiGas and KazTransGas with tangible evidence of government support Monopoly operator for gas transmission in Kazakhstan with no plans to allow competition or privatization Only feasible route for gas transit from Central Asian producers to European consumers Crucial link for Gazprom s imports from Turkmenistan and Uzbekistan Trust Management Agreement in low risk business Notwithstanding the global economic downturn, ICA is continuing to demonstrate strong financial performance and sound financial position ICA is undertaking certain actions to weather downturn and is accordingly progressing important strategies and initiatives, which include revision of the capex programme, improving ICA s liquidity management. 2

3 Kazakhstan: Strong Market-Oriented Macroeconomic Environment GDP Growth (%) 2014: Economic Review ,8 56,1 77,2 103,8 130,9 132,3 149,05 186,2 191, Population 17.16m GDP per capita 12, 277 USD GDP growth (real) 4.3% Trade balance/gdp 14% 0 9,6 9,7 10,6 8,5 3,2 1,1 4,9 7,5 5,6 2,1 8, External Debt/ GDP 69.7% Nominal GDP (US$ bn) Real GDP (% change) Gross International Reserves and Inflation Evolution of Tenge against US Dollar ,5 95, ,4 58,7 46,7 47,6 38,6 20,8 8,9 8 18,8 6,7 7,5 8,4 9,5 6,2 6,7 7,4 6 6,1 6, Gross international reserves (US $ bn) Inflation(% change; end-period) ,35 148,4 147,4 146,8 149,2 153, ,9 125,4 122,6 120, Exchange rate KZT: US $ (average) 3

4 Ownership Structure - 100% (Indirectly) Government Owned Government of Kazakhstan 100% JSC Sovereign Wealth Fund Samruk- Kazyna 100% JSC NC KazMunaiGas 100% JSC KazTransGas 100% JSC Intergas Central Asia Government support Government Control Government stake 100% capital and 100% control Consideration towards company s interests Control over investment and dividend policy Implicit government support in negotiations with off-takers, suppliers and transit countries Supportive Regulatory Environment Unique status of exclusive agent for Kazakh gas exports It is the Government policy that all new major pipeline projects be led by KazTransGas Prudent Shareholder with Long- Term Strategic Vision Key strategic role of ICA as a sole operator of natural gas pipeline infrastructure in Kazakhstan Approval of key financial and financing parameters of KazTransGas History of reinvesting earnings into business development and modest dividends 4

5 Group Structure An Overview KazMunaiGas (KMG) KazMunaiGas is the National Oil and Gas Company of Kazakhstan, which is wholly-owned by the Sovereign wealth fund JSC («Samruk-Kazyna»), which is in turn 100% owned by the Government KMG is in charge of all the government s commercial activities in the oil & gas industry, including prospecting, development, production, transportation, services, holding the monopoly over oil & gas pipelines in Kazakhstan and controls 60% of crude production and 100% of gas transportation KMG plays an active role in approving strategic decisions and business plans of KazTransGas KazTransGas (KTG) KazTransGas was established in accordance with the Resolution of the Government of the Republic of Kazakhstan No. 173 dated February 5, 2000 KTG is a 100% subsidiary and one of the three main businesses of the KMG Group The main goal of KTG is to manage the state s strategic interests in the gas industry of the country and there are no plans for privatization KTG achieved the status of the national operator of gas and gas-supply. 5

6 Group Structure An Overview Intergas Central Asia Intergas Central Asia, JSC ( ICA ) was incorporated in June 1997 and currently, being a member of KazTransGas group of companies (a subsidiary of the NC KazMunayGas) has the primary responsibility to operate and manage the gas transportation networks of Kazakhstan granted to ICA under the terms of the Trust Management Agreement. The principal activities of Intergas Central Asia focus on operation and maintenance of the main gas transportation system securing transmission of natural gas to domestic consumers and international gas transit. Notably, Intergas Central Asia controls and manages the main gas pipeline transportation system of the Republic of Kazakhstan with the total length of gas pipelines in excess of 11,000 km. Given the on-going reconstruction the throughput capacity of the pipelines has been invariably increasing. Within Kazakhstan, ICA is responsible for transportation of natural gas through 10 main gas pipelines serviced by 22 compressor stations equipped with 284 gas compressor units of various types and models. The most important in terms of transmission volumes is the main gas pipeline Central Asia-Center ( CAC ) with the aggregate length of 4,892 km in one-line estimation. In addition, ICA operates three underground gas storages ( UGS ), the biggest being Bozoi UGS located in Aktobe region. Others are Poltoratskoye UGS located in the Southern-Kazakhstan region and Akyrtobe UGS in Zhambyl region. Underground gas storages are used to smooth the seasonality of gas demand supplying extra natural gas in winter and during the periods with lower gas imports. 6

7 Organisational Structure of KTG JSC «KazTransGas» Main pipeline transmission of natural gas Domestic distribution and supply of natural gas Gas and Gas Condensate Production Trade Gas Operations Service companies JSC «Intergas Central Asia», 100% JSC KazTransGas Aimak, 100% Amangeldy Gas LLP, 100% KTG Intergas Finance B.V., 100% KTG-Bishkek, 100% JSC KTG-Almaty, 100% KTG- Tbilisi, 100% KTG-Onimderi, 100% Corporate University Samruk- Kazyna, 5.5% JV Asian Gas Pipeline, 50% JV Beineu- Shymkent Gas Pipeline, 50% 7

8 Intergas Central Asia An Overview ICA Overview ICA Revenues (millions USD) Principal business is transportation of natural gas and, to a lesser extent: management, maintenance and operation of the gas transportation system storage of natural gas and provision of technical services to third parties sales of natural gas to related parties Only route for gas transit between Central Asian producers and European consumers Robust and consistent cashflow generation 2014 total revenue: USD mn KZT/USD as of 31 December: Transportation 97% Other 3% Domestic Export 14.83% Transportation 14.32% International Transit 70,84% Transportation services: Transmission Revenues Breakdown 2014 Russian Gas 15.52% Kazakh Gas (domestic) 14.32% Kazakh Gas (outside) 14.83% Central Asian gas (transit) , Russian gas (transit) Kazakh gas (to outside of the country) Kazakh gas (within the country) Kyrgyz gas (transit) Total transportation revenues Revenues from sales of gas Revenues from technical services , Revenues from gas storage Total revenues Revenues growth rate, % 5% 5% 4.3% -29% -2.2% 3.2% -3.2% By Transportation By Orientation By Client Kyrgyz Gas 0.7% Central Asian Gas 55.24% Other 27.3% Gazprom 68.9% * All conversions assume an exchange rate of 1 USD = KZT, which was the closing rate of exchange as at 31 December 2007 on the KASE 8 as reported by the NBK

9 Gas pipeline system of ICA Source: ICA 9

10 Gas Pipeline System of ICA Pipeline System Pipeline Year(s) of Construction Length Current Throughput Capacity Transported volumes in 2014 Capacity used in 2014, % Central Asian System CAC Pipeline parallel pipelines total 4088 km in length 60.2 bcm per year bcm 31.9% CAC Pipeline distance parallel pipelines total 189 km in length 28.0 bcm per year bcm 23.2% Makat-Northern Caucases Pipeline km 22.0 bcm per year bcm 57.7% Okarem-Beineu Pipeline km 7.2 bcm per year bcm 32.3% Uralsk System Soyuz km Orenburg-Noyopskov Pipeline km bcm per year bcm 49.0% Aktobe System Bukhara-Ural Pipeline parallel pipelines each 1,423km in length 8.03 bcm per year bcm 44.2% Bukhara-Ural Pipeline distance 42.9 Zhanazhol-Aktobe Pipeline km 21.9 bcm per year bcm 71.1% km bcm per year bcm 90.9% Zhanazhol-CS 13 Pipeline km 5.2 bcm per year bcm 41.4% South System Kartaly-Rudnyi-Kustanai Pipeline Akshabulak-Kyzylorda Pipeline km 1.6 bcm per year bcm 54.4% km bcm per year bcm 55.7% Gazli-Shymkent km 4.38 bcm per year Bukhara Gas - Tashkent ,585 km 5.84 bcm per year bcm 76.8% Bishkek-Almaty Pipeline Note: The table shows throughput capacities and transmission volumes by each gas pipeline route. Some of the pipelines listed in the table are connected in sequence. Total transmission gas volumes by ICA for 2014 amount to bcm. Source: ICA 10

11 Update on Concession Agreement The Decree of the President of Kazakhstan dated May 22 nd of 2013 and the Government Resolution dated May 25 th of 2013 provide that the Concession Agreement dated June 14 th 1997 shall be terminated and assets of transportation system as a result of termination of the Concession Agreement shall be transferred into ownership of JSC National Welfare Fund Samruk Kazyna (SK) pursuant to the Exchange Agreement On July 31 st of 2013 the Exchange Agreement was executed between the Republic of Kazakhstan, represented by the Committee and SK under which transfer of assets must be executed in accordance with the termination provisions in the Concession Agreement On August 19 th of 2014 ICA received consent solicitation from bondholders for terminating Concession Agreement On December 5 th 2014 the Trust Management Agreement was concluded between ICA, Committee and SK and became effective prior to termination of the Concession Agreement Under the Trust Management Agreement ICA has an exclusive right to operate the natural gas transportation system in Kazakhstan Step-by-step transfer of concession assets to the charter capital of SK, KazMunaiGas, KazTransGas and ICA which will be the ultimate recipient of concession assets. Concession assets, including improvements and new investments will be transferred to ICA s balance sheet Concession assets including capital repairs and investments are estimated at fair value of KZT 207bln ICA is not obligated to make concession payments to the Government ICA has no obligation to make minimum amount of investments as contained in the Concession Agreement, but must provide safe operations to maintain and upgrade the transportation system under the Trust Management Agreement 11

12 Tariffs & ARNM Methodology (Cont d) International gas transmission: Tariffs are not subject to regulation and are delivered through negotiation Tariffs are set in US dollars and ICA has the ability to negotiate directly with its counterparties In July 2001, the VAT rate on international transit was reduced to zero from 20% based on intergovernmental agreements In 2015, Intergas and Gazprom have reached an agreement to keep the Central Asian gas transit tariff at the level of 2009 of $1.70 for 1000 m 3 for 100km. In 2011 tariff for the Russian gas transit has been increased by 17.6% to the level of $2.00 for for 1000 m 3 for 100km. Domestic gas transportation: Domestic tariffs are regulated and set with political considerations in mind The methodology and the approval process for domestic gas transportation tariffs are established by one of Kazakhstan s main regulatory bodies, ARNM (Agency for Regulation of National Monopolies) ICA and the rest of the KTG Group benefit from the Government in principal supporting future increases in domestic (regulated) tariffs. Despite extended maintenance of low level tariffs, tariffs for domestic transportation have doubled for legal entities and residential clients. About 14.3% of ICA s revenues is exposed to regulated tariffs Currently ICA is applying to Antimonopoly Agency for setting new higher domestic tariffs for the next five years Main principles of the ARNM tariff methodology: Cover all economically feasible expenses Cover all taxes and other payments to the state budget Ensure minimum rate of return necessary for company s sustainable operations 12

13 Main Counterparties Gazprom is the main recipient of gas transmitted by KTG/ICA under the Russian, Uzbek and Turkmen gas transit contracts The contracts for gas transportation are signed by ICA and the owners of the gas. The owner of Russian, Uzbek and Turkmen natural gas is Gazprom. New contract between Gazprom and ICA has been signed for 5 years ( ). The tariff for gas international transit is set in accordance with the agreement between ICA and Gazprom The 5-year contracts signed with Gazprom has stipulated the following volumes in 2014: Gazprom Volumes Breakdown for 2014 (bcm) Transit Volumes Breakdown by customers for , ,6 Russian gas Turkmen Gas Uzbek Gas Contracted volumes Factual volumes TCO 2.77 bcm KazTransGas 1.75 bcm KazRosGas 6.51 bcm Domestic 9.92 bcm Gasprom 63.9 bcm Counterparty regions are becoming stronger Turkmenistan strongly depends on gas exports and demand for its gas remains strong. Gas exports are the key source of hard currency proceeds, and the Kazakhstani route is the strategic export route available to them. ICA is providing technical maintenance of Line A and B of the Asian gas pipeline and plans to make technical service of Line C with projected gas transmission volumes up to 55 bcm annually, including maintenance of compressor stations ICA makes technical operations of first thread of Beiney-Bozoy-Shymkent gas pipeline with transportation volumes 5bcm annually 13

14 Gas transportation volumes dynamics In 2014 ICA transported total volumes of bcm of gas International gas transit volumes accounted for 73.5% of the all gas transported International gas transit volumes have been dropping mainly by Central Asian gas transit due to lower gas purchases from Gazprom For period Central Asian gas volumes amounted with range from 14,6-19,7 bcm annually with Gazprom payment obligation for 22.4 bcm specified in contract Despite Gazprom s statement for decrease of Central Asian gas transit to 5 bcm, ICA and Gazprom will plan to stick to take-orpay condition of 80% agreed volumes for 14 bcm for ICA forecasts annual increase of domestic gas transportation due to gas demand growth in domestic market For period , Russian gas transit volumes are estimated at 52 bcm, Central Asian gas transit amount to 16 bcm Gas transportation volumes (mln m3) П 2016П 2017П 2018П 2019П Российский газ Среднеазиатский транзит Казахский газ на экспорт Казахский газ на внутр рынок *Source: Business Plan of ICA for

15 Relationship with Gazprom Five year contract with Gazprom was signed in 2011 with take-or-pay condition in respect to 80% of projected volumes. Take-or-pay condition for 80% of projected volumes apply to both Turkmen and Uzbek gas. The contract specifies following volumes: Central Asian gas (Turkmen and Uzbek gas) - 28,0bcm; Russian gas: 52,0bcm. In 2015, Intergas and Gazprom have reached an agreement to keep international transit tariff in the order $1,70 for 1000m 3 for 100km. In February 2015, due to lower demand in Europe, Gazprom announced it is cutting gas purchase from Central Asia in 2015, including reduction of gas transit from Turkmenistan for 4,0 bcm and Uzbekistan for 1,0 bcm. Currently Intergas and Gazprom are negotiating over Central Asian gas transit terms and volumes for To shorten its feasible 2015 losses, Gazprom has offered ICA a new transportation structure with updated volumes under which transmission volumes of Central Asian gas will amount to 14,0 bcm in 2015 and 2016 respectively, with maintaining take or pay condition. Basically, it is a split of contracted 28,0 bcm for ICA is currently implementing the measures to compensate its losses: - Increase domestic tariffs twice from KZT 1380 for 1000m 3 to 2500 for 1000m 3 which will provide additional revenue for domestic transportation up to $70 million; - Increase domestic transit by transporting domestic gas to Southern Kazakhstan and China via system of reverse gas flow; - Increase revenue from technical maintenance of gas pipeline provided to Asian gas pipeline and Beineu Bozoy Shymkent gas pipeline for approximately $15-20 million; - Reduce capital expenditures of more than $40 million; - Cut operating expenses for amount of $40 million, including reduction in payroll expenses of $16 million due to layoff of workers up to 30%. Despite unfavourable conditions in European gas market ICA is in sound position and able to accumulate enough cash to repay its eurobonds. 15

16 Medium-Term Contract with Gazprom will Provide Greater Stability to ICA s Credit Profile Main Conditions of Gazprom s Contracts Main Implications 1. Transit from Turkmenistan and Uzbekistan to the Russian border Transmission tariff remained at the level of 2011 USD 1.70 for 1000 m 3 per 100 km. Contract has been signed for 5 years ( ) 80% of transmission volumes is guaranteed by take or pay condition Gazprom s own production has for years remained stable Enhancement of throughput capacity of gas transportation system The tariff increase negotiated with Gazprom was specifically to enable ICA to undertake major investment projects that will benefit both companies 2. Transit through northwest of Kazakhstan Transmission tariff remained at the level of 2011 USD 2.00 for 1000 m 3 per 100 km. 16

17 Tariffs & ARNM* Methodology ICA Tariffs Domestic transportation legal entities residential clients Units $/182.35tenge/1000 m 3 $/182.35tenge/1000 m 3 2,80 2,80 5,99 5,99 6,69 7,57 7,57 1,14 1,14 1,48 1,48 1,55 7,57 7,57 Export transportation $/1000 m 3 /100 km 1,70 1,70 2,00 2,50 2,50 2,00-2,80 2,00-3,20 International transit Russian gas $/1000 m 3 /100 km 1,70 1,70 2,00 2,00 2,00 2,00 2,00 Uzbek gas $/1000 m 3 /100 km 1,70 1,70 1,70 1,70 1,70 1,70 1,70 Turkmen gas $/1000 m 3 /100 km 1,70 1,70 1,70 1,70 1,70 1,70 1,70 Gas storage $/182.35tenge/1000 m 3 / per month 0,04 0,04 0,33 0,33 0,33 1,3 1,1 ARNM: Agency for Regulation of Natural Monopolies 17

18 Well Defined Strategy Strategy: ICA s strategy is driven by the government s aim and goals for the gas industry and for ICA to continue to maintain its unique position as the sole route between Central Asian producers and European customers Fundamental strategy documents: Transformation program of group company National Welfare Fund Samruk-Kazyna; Development strategy realization Plan (Road map) 5-year rolling Business Plan updated annually with budgets Business Plan Key Goals Maintain and enhance reliability and performance of existing pipeline; Increase the throughput capacity of existing pipeline system to support expected growth in export volumes; Adopt the latest information technologies for management of the pipeline network; Develop new pipeline systems to diversify customer base Implementation ICA has already invested over USD 1.5 billion in maintaining reliance; Direct future investment towards upgrading the transit capacity and evaluating possibilities of new routes; Feasibility of new transit routes, including a route from CAC pipeline to southern Kazakhstan and China ICA plans to capture 100% share in market for technical maintenance of gas pipeline and thus receive status of national operator for maintenance of gas pipeline 18

19 Capital Expenditures CAPEX Program & Requirements ICA Maintenance CAPEX Development (millions USD) capital investment strategy includes Maintaining and enhancing reliability and performance of existing pipeline while increasing throughput capacity Further investment dependents on growth of transportation volumes No pipeline capacity expansion until firm agreements on tariffs and volumes are achieved Conditional projects Significant modernisation and re-construction of existing network, including upgrading technology & telecom systems Upgrading the CAC (Central Asia Center) pipeline Financing from internally generated funds and external sources In 2014 capital expenditures are fully financed from cash flow operations Capex for 2015 is estimated at about $100mln compared to resulted Capex for amount of $200mln in E ICA Capex ICA Maintenance Cash flow from Operations Source: ICA financials and Business Plan for

20 Capital Structure and Debt Profile Equity capital: ICA has ordinary and preferred shares, with the latter paying an annual dividend of a minimum 1% of nominal value ICA paid shareholder dividends for 2013 in amount of 40% of net income which is KZT mln for ordinary share Based on ICA bonds documentation Dividend/Net Income can not exceed 0.5 A small dividend payment was made for 2013 of KZT mln in respect to the preferred shares which have limited impact on cash flow Prudent debt management strategy: Debt portfolio: ICA s long term debt is mainly for operational purposes (increase of throughput capacity for the gas transmission network, the most profit generating asset) Bond repurchases financed by the company s cash took advantage of favorable market conditions and attractive pricing: In December 2008 ICA redeemed USD 71 mln of USD 250 mln Bond due 2011 In February 2009 redeemed USD 60mln of USD 600 mln Bond due 2017 USD 179 mln Bond matured and has been successfully repaid on November 4, 2011 Source: ICA Long-term debt portfolio includes (all unsecured): HSBC facility (Hermes): $56.4mln, outstanding $14mln USD bond due 2017: 600mln, outstanding $540mln In 2008 ICA established Accumulation Fund for Eurobonds debt repayment in which ICA accumulates free cash as set in debt repayment schedule. Cash is invested into the highly liquid financial instruments such as cash at bank accounts and deposits, also ICA considers investing in very low risky securities such as government notes In accordance to the schedule for repayment of bonds each year $180mln has to be accumulated from As of end 2014 ICA cash reserves amounted to $180mln for bond repayment 96% of debt portfolio is fixed rate Currently outstanding debt is denominated in USD 23

21 Liquidity & Debt 17 th March 2015 Deposit Spread by Banks (thousands KZT) Cash Millions Tenge Millions USD $ Consolidated Cash 763,1 4, Debt profile Sesna Bank Asia Credit Bank Delta Bank Temir Bank Halyk Bank Alliance Bank ATF Bank Borrower Creditor Facility amount, $mln Interest rate, % Amount of indebtedness, $mln Security Maturity date ICA London Stock Exchange - Eurobonds 600 6,375% May-17 ICA HSBC Plc/Citigroup 56,4 ICA KTG 6M Libor + 0,3% 14,4 21 Euler Hermes Insurance Guarantee and KTG guarantee Citibank Kazakhstan/Citibank N.A. Nassau 200 Libor + 2,0% 19,5 KTG guarantee Citibank, Natixis and ING 400 Libor + 1,5% 400 ICA guarantee 30-Mar-17 Unlimited term 26-Feb- 2018

22 Intergas Income Statement* Sales EBITDA Net Income $ mn ,5 903,8 932,2 663,8 648,9 669,6 648,1 $ mn , ,0 601,5 342,9 259,8 294,8 306,8 $ mn , ,5 138,6 88,2 105,2 108, Coefficients ROE (%) 24.3% 26.7% 10.9% 6.64% 7.19% 5.34% Operation margin (%) 53.3% 50.4% 32% 23.3% 26.76% 41.29% *Source: Financials & Business Plan of ICA for KZT/USD Exchange rate is for 2008, for 2009, for 2010, for 2011, for 2012, for 2013 and for

23 Intergas Balance Sheet and Cash Flows Statements* Net Funds from Operations $ mn ,6 446, ,0 225,4 234, ,3 179, , Assets $ mn , ,2 038,82 040, Financial Debt $ mn ,5 825, ,9 761, ,4 594, , Ratios EBITDA Interest Coverage (x) Total Debt/EBITDA (x) Total Debt/Total Capitalization 40.28% 36.73% 30.96% 30.94% 29.94% 21.44% Net Debt/Net Total Capitalization 22.13% 18.16% 23.18% 29.38% 29.49% 21.26% FFO/avg. total debt 71.81% 59.74% 39.76% 35.23% 46.19% 56.78% FFO interest coverage (x) EBITDA/Capex (x) * Source: Financials & Business Plan of ICA for * KZT/USD Exchange rate is for 2007, for 2008, for 2009, for 2010, for 2011, for 2012, for 2013 and for

24 Intergas Covenant compliance of KMG KMG Financial Covenants Credit metrics Total Debt/EBITDA < 3.5 (x) Net Debt/Net Capitalization <0.5 (x) Current Assets/Current Liabilities > 1 (x) Operational liquidity > 1 (x) EBIT/Interest > 2 (x) Source: ICA Financials * KZT/USD Exchange rate is for 2007, for 2008, for 2009, for 2010, for 2011, for 2012, for 2013 and for

25 Credit Ratings Standard & Poor's Moody's Fitch Kazakhstan Sovereign Rating BBB/Negative ( ) Baa2/Positive ( ) BBB+/ Stable ( ) JSC KazMunaiGas BB+/Negative ( ) Baa2/Positive ( ) BBB/Stable ( ) JSC KazTransGas BB+/Negative ( ) Baa3/Positive ( ) BBB-/Stable ( ) JSC KazTransOil BB+/Negative ( ) Baa3/Positive ( ) BBB/Stable ( ) JSC Intergas Central Asia BB+/Negative ( ) Baa3/Positive ( ) BBB-/Stable ( ) ICA's rating reflects its: (i) monopoly position in gas transmission within Kazakhstan for international transit, export and domestic supply; and (ii) moderate leverage profile and strong financial metrics ICA is a natural monopoly and has political significance beyond its domestic importance because it fully controls the transit of Central Asian gas to Gazprom and, ultimately, to Europe. Moody s, August 8,