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Moody's changes outlook on TNK-BP's Baa2 ratings to negative

June 15, 2012 Moody's Investors Service
London, 14 June 2012 -- Moody's Investors Service has today changed the outlook on the Baa2 ratings of TNK-BP International Ltd to negative from stable following the announcement by its shareholder BP (A2 stable) that it may sell its stake in the company.

RATINGS RATIONALE

The change of outlook reflects Moody's view that a stable outlook is no longer reflective of the risks to TNK-BP's credit standing and financial policies from a potential share sale. The change of outlook also factors in changes in the company's governance that have taken place recently. As well as BP's recent announcement that it may exit the partnership, Moody's notes that persistent shareholder disputes at TNK-BP have already translated into changes in the company's top management structure and board of directors composition. In the rating agency's view, these developments represent a degree of corporate governance risk that may eventually negatively affect the company's financial profile. At the same time, Moody's recognises that the transaction should result in the resolution of a long-standing shareholder dispute at TNK-BP, and a more efficient shareholding structure.

Moody's notes that there is a high degree of uncertainty with regard to the timeline, size and composition of a transaction, if it were to go forward. Although the rating agency does not believe that this will have any immediate negative implications for TNK-BP's operational or financial metrics, the negative outlook reflects the possibility of a negative rating migration over the medium term following a change in the ownership structure, or as a result of a protracted shareholder conflict.

WHAT COULD CHANGE THE RATING UP/DOWN

Given the negative outlook on TNK-BP's ratings, Moody's does not currently expect positive rating pressure.

Moody's will take a decision on whether to stabilise the outlook or downgrade TNK-BP's ratings once the final parameters of the transaction are clear. The rating agency's assessment will focus on the following
factors: (i) the sustainability of the new shareholder structure, given that this 50/50 joint venture has a history of troubled corporate governance; (ii) the new shareholders' joint capability to provide a similar level of technical efficiency and reserves management that TNK-BP currently enjoys; (iii) the potential effect of the transaction on the company's financial policies, particularly the scale of its shareholder distributions and leverage; (iv) any change in TNK-BP's scale of operations as a result of the transaction; and (v) the overall shareholder strategy for the asset.

In addition, a downgrade of the ratings could result from severe delays in the resolution of the current situation, or from any escalation in the severity of the disputes between the two shareholder groups.

Company — RN Holding
  • Full name
    Open Joint Stock Company RN Holding
  • Registration country
    Russia
  • Industry
    Oil and gas