Moody's ups PetroKazakhstan notes to Ba3

Moody's Investors Service raised the rating of PetroKazakhstan Finance B.V.'s $125 million 9.625% guaranteed notes due 2010 to Ba3 from B1. The rating outlook is stable.

The rating is based on the guarantee of the principal operating subsidiaries of PetroKazakhstan Inc., whose senior implied and issuer ratings have also been raised to Ba3 due to improvements in the group's underlying performance.

Moody's said the rating upgrade to Ba3 reflects PetroKazakhstan's improved fundamentals and credit profile founded on its increasing reserve base and growing low-cost production, as well as its strengthened cash flow and improved financial flexibility. While unsustainably high oil prices have underpinned the latter, lower anticipated transportation costs and the company's relatively conservative financial parameters support the upgrade.

At the same time, however, Moody's remains concerned about the company's short reserve life and the need for it to develop new reserves in the near term to maintain and increase production levels, about the company's likely acquisitiveness and its ongoing exposure to Kazakh country risk.

The Ba3 debt rating reflects the comparatively low amount of debt in PetroKazakhstan's capital structure which is more senior than the notes. Moody's indicates that the guaranteed notes could be notched down, if the level of secured debt were to rise materially.

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