Russian Oil Company Rosneft CreditWatch Status Revised To Positive On Planned TNK-BP Acquisition
October 25, 2012 Standard & Poor's
• On Oct. 22, Rosneft announced that it had agreed in principle to buy a 50% stake in TNK-BP from BP PLC and another 50% stake from Russian consortium AAR.
• We are revising the CreditWatch implications on the 'BBB-' rating on Rosneft to positive from negative.
• This reflects the possibility of a one-notch upgrade if an increased likelihood of extraordinary government support to an enlarged entity offsets the potential negative impact of the transactions on Rosneft's financial profile.
• We expect to resolve the CreditWatch once we know whether the transactions will proceed, either fully or partially, how they will be funded, and the implications for the likelihood of extraordinary government support.
MOSCOW (Standard & Poor's) Oct. 24, 2012--Standard & Poor's Ratings Services said today it had revised the CreditWatch status on the 'BBB-' long-term corporate credit rating on Russian state-owned OJSC Oil Company Rosneft to positive from negative.
This follows Rosneft's announcement that it has agreed in principle to purchase a 50% stake in TNK-BP International Ltd. (BBB-/Watch Pos/A-3) from BP PLC (A/Positive/A-1) for $17.1 billion in cash and 12.84% of treasury shares, and to buy the other 50% from the Russian consortium AAR for $28 billion. We understand that Rosneft strongly intends to acquire 100% ownership of TNK-BP. This differs from our previous assumptions, which we based on Rosneft's statement that it was only interested in a 50% stake, which wouldn't allow it to fully control and consolidate TNK-BP. Nonetheless, Rosneft has stated that both transactions are independent of each other and subject to Board and regulatory approvals.
The CreditWatch outcome will depend on whether we consider the uplift for potential government support outweighs the negative impact that such a large purchase may have on Rosneft's leverage and liquidity.
Should Rosneft achieve control over TNK-BP, we believe this may increase its chances of gaining extraordinary state support in case of need because the company will become a clear leader in the Russian oil industry by reserves and production and one of the largest hydrocarbon companies globally. We understand that after the transaction, the government will control about 69% in Rosneft and believe a reduction of the government's stake below a controlling one will be very unlikely.
If Rosneft becomes the government's key tool in the strategically important oil industry, we believe this may increase the government's incentive to provide extraordinary support if needed. We will evaluate any indication of changes in government policy and any tangible signs of financial support for the transaction from the government. This may trigger a one-notch uplift to the rating in line with our methodology for rating government-related entities.
Nevertheless, if the transaction proceeds, either fully or partially, we believe the increased pressure on Rosneft's leverage and liquidity could weaken its stand-alone credit quality.
Although the acquisition will increase Rosneft's asset size and diversification, and may also bring tangible operational synergies, the business risk profile is unlikely to be higher than "satisfactory". This is because most assets will continue to be in Russia and therefore subject to risks in that country, notably a heavy and potentially changing tax burden and the government's high dependence on taxes from the oil and gas sector to balance its budget.
We expect to resolve the CreditWatch positive status depending on whether and when the transaction either fully or partially proceeds. Currently, the company expects to close the transaction in the first half of 2013.
Company — Rosneft
Full namePJSC Rosneft
IndustryOil and gas