Published: November 5, 2015
Modernisation and restructuring programme of the Kazakh rail operator
KTZ’s US$300mn syndicated loan signals secure funding available for compatriots.
The European Bank for Reconstruction and Development (EBRD) and a consortium of international commercial banks provided a US$300mn syndicated loan for the national railway company Kazakhstan Temir Zholy (KTZ) on 27 July. The loan is in support of a comprehensive modernisation and restructuring programme of the Kazakh rail operator.
The EBRD covers half of the financing package of US$300mn, while syndicating the remaining US$150mn to commercial banks, including Citibank London, Mizuho Bank, Société Générale, Sumitomo Mitsui Banking Corporation and the Bank of Tokyo-Mitsubishi.
“As a strategic partner of KTZ, the EBRD is interested in reforming and developing the railway sector,” Sholpan Nurbaeva, Director of the Finance Department of KTZ, tells EMEA Finance. “At the same time one of the agreement’s conditions is that KTZ should do its activity effectively, in accordance with contemporary technical, financial and business practice.”
The proceeds of the loan will be used to refinance KTZ’s 10-year $350mn eurobond maturing in 2016. When asked about future bond issues, Ms Nurbaeva said the company has no additional funding needs at the moment, adding “While KTZ focuses on financial stability and the ability to serve the debt, there is always a possibility of reviewing the refinancing of existing debt, depending on the market and the requirements in investment projects realization.”
KTZ is an experienced player in the international debt market. In 2014 the company raised CHF285mn (US$443mn) with a dual-tranche issuance comprising five and eight-year paper. The deal, run by Halyk Finance and Deutsche Bank, was the first public Swiss franc bond from an issuer in Kazakhstan. In 2012 the company raised US$1.1bn through a 30-year eurobond placed on the London and Kazakhstan stock exchanges with a coupon of 6.950%. Currently the company has five outstanding eurobonds with total volume of US$2.4bn.
“The syndicated loan is quite positive for KTZ since the company has timely refinanced its US$350mn 10-year eurobond due May next year, and has effectively extended its debt maturity, which in turn allows the national railway operator to stay well on track of its capex plan and complete the ongoing construction of new railway stations and logistics complexes,” Arnat Abzhanov, chairman of the management board at Halyk Finance says.
“At the same time, it also underlines the robust position of large companies in Kazakhstan like KTZ showing they can secure acceptable funding terms despite challenging market conditions – all in all a good signal for Kazakhstan’s market,” Abzhanov adds.
In this transaction, KTZ achieved very attractive loan terms, with rates of LIBOR +2.25% on the 8-year US$150mn EBRD tranche and LIBOR +1.8% on the remaining 5-year US$150mn tranche. Looking towards the company’s future funding activities, Abzhanov comments “now it is key for KTZ to put more focus on raising funds in the local currency, tenge. The EBRD’s 10-year 30bn tenge (approximately €120mn) loan to KTZ exactly one year ago, which was the largest local currency loan the EBRD has ever provided to a Kazakh company, was an important step in this regard”.
Headquartered in the Kazakh capital Astana, KTZ was founded in 1997 and converted into a joint stock company owned by the government in 2004. KTZ manages railway infrastructure and operates freight and a major part of passenger train services, operating 9,000 miles of railway tracks in Kazakhstan, and is the country’s largest employer with 143,000 staff.
No delays expected
KTZ is no stranger to modernisation and has been actively developing its assets, Nurbaeva says, “In order to achieve that [reforming and developing the railway sector], KTZ should implement ongoing railway reforms, a business model based on investments into railway infrastructure and recommendations on tariff levels, and the business-process transformation.”