Fitch revises KazakhGold’s rating watch to Positive

mineral resources

Fitch revises KazakhGold’s rating watch to Positive

By SRI ⋅ July 2, 2009 ⋅

(Fitch Ratings) - Fitch Ratings has today revised the Rating Watch on KazakhGold Group Limited’s (KazakhGold) Long-term Issuer Default (IDR) and senior unsecured ratings of CC to Positive from Negative.

The Recovery Rating for the senior unsecured debt is RR4.

This follows Polyus Gold’s announcement on 12 June 2009 of a firm intention to make an offer to acquire 50.1 percent of KazakhGold in a cash- and-share transaction at a total value of approximately $265 million and a recent meeting with KazakhGold’s management to discuss the company’s near-term corporate and operational strategy. While final terms of the offer document are yet to be disclosed and it is uncertain if the offer will succeed, Fitch views announcement of a firm intention to make an offer as a major step in resolving KazakhGold’s operational and financial difficulties.

Fitch expects Polyus Gold to publish the offer document by 10 July 2009. KazakhGold’s shareholders will then have 21 days to accept or reject the offer. Hence, the agency expects to resolve the Rating Watch by early August. Fitch reiterates that Polyus Gold’s much larger business and stronger balance sheet may enhance KazakhGold’s credit profile, resulting in a multiple-notch upgrade. In FY08, Polyus Gold delivered revenue and EBITDA of approximately $1.1 billion and $347 million, respectively, with a net cash position of $399 million.

In revising KazakhGold’s Rating Watch, Fitch has balanced the positive effects of the possible acquisition against the remaining uncertainties surrounding the possible final terms and conditions of the transaction, and the resulting effect on bondholders. The agency notes that KazakhGold’s corporate transparency remains an issue.