TEXT-S&P: KMG, KMG EP rtgs unchanged on ManistauMunayGas buy

(The following statement was released by the rating agency)

Jan 13 - Standard & Poor's Ratings Services said today that its ratings and outlooks on 100% Kazakhstan-owned oil and gas holding company JSC NC KazMunayGas (BBB-/Negative/--, KMG) and its 58%-owned subsidiary JSC KazMunaiGas Exploration Production RDGZ.KZ (BB+/Stable/--, KMG EP) remain unchanged following KMG's announced acquisition (subject to regulatory approvals) of 50% plus two shares of Kazakhstan's largest independent oil producer and refiner, MangistauMunayGas.

This is because our rating on KMG is based on a top-down approach and is equal to the foreign currency rating on the sovereign and one notch below the local currency rating on the sovereign. Our rating on KMG EP, KMG's largest and most cash-rich subsidiary, is one notch below that on the parent. We believe the acquisition will not affect either entity's stand-alone credit quality, because the transaction is in line with KMG's strategy. It will be financed with the group's existing large cash balances (we've never adjusted KMG's debt for surplus cash) and will leave the group with a comfortable liquidity position. As of Sept. 30, 2008, KMG had only $1.6 billion in short-term debt, compared with $3.2 billion in cash at the level of the parent group and $5.2 billion at the level of subsidiaries (mostly KMG EP). Nevertheless, KMG's total debt is material and its near-term credit metrics will be only fair, due to lower oil prices.