S&P Rates Pipeline Co OJSC AK Transnefteproduct B+; Otlk Pos
May 18, 2006
Standard & Poor's Ratings Services said today it assigned its 'B+' long-term corporate credit rating to Russia-based oil product pipeline operator OJSC AK Transnefteproduct (TNP). The outlook is positive.
At the same time, Standard & Poor's assigned its 'ruAA-' Russia national scale rating to TNP.
The ratings reflect key risks associated with the company's large new pipeline project "the North". The project requires investment of up to $1.3 billion, which will constitute TNP's major capital expenditures until mid-2007 and of which a significant part will be debt financed. As a result, the currently unleveraged financial profile will deteriorate in 2006-2007. The company's favorable maturity profile supports liquidity, however, and TNP is expected to start generating positive free operating cash flows from the pipeline before debt repayment begins. The project is subject to execution risk, but is so far progressing successfully.
"Standard & Poor’s considers that the ratings on TNP could be raised by one notch within the next 18 months to two years if the North project is commissioned successfully," said Standard & Poor's credit analyst Tatiana Kordyukova.
Upward rating movement is subject to transportation starting within the expected timeframe and without material deviation from initially assumed investments, operating characteristics, capacity utilization, and cash flow generation.
"We will closely monitor the final phases of the project's implementation and the operating performance of the new pipeline, together with the impact of expected positive cash flow generation on TNP’s financial profile," Ms. Kordyukova added.
Any change at the implementation stage would limit upside potential, as would lower-than-expected transportation tariffs and a subsequent delay in the recovery of the company’s credit metrics.
Company — Transnefteproduct
Full nameopen joint stock company Transnefteproduct