Russian Tatneft Raises Its Rating

Standard & Poor's Ratings Services has revised its outlook on Russian oil company Tatneft to positive from stable.

At the same time, Standard & Poor's affirmed its single-'B'-minus long-term corporate credit ratings on the company.

The Tatneft ratings are supported by large exports, a moderate financial policy, and significant asset size, offset by its exposure to oil price risk, a lack of asset diversification and integration into refining, mature key fields, a very high proportion of short-term debt, and the influence of the Republic of Tatarstan, analysts say.

Tatneft is the fifth-largest oil company in Russia by crude production (24.6 million metric tons in 2001) and by reserves, with 2001 EBITDA of $1.1 billion.

The key positive factors are as follows: large and sustainable crude and products exports (51 percent of revenues in 2001) that provide a stable stream of foreign currency revenues and access to non-Russian financing, and improve margins and cash flows; a relatively moderate financial policy focused on reducing debt and extending maturities, with limited growth ambitions through external acquisitions or high capital expenditures; and a considerable asset size (766 million metric tons of proved reserves at December 31, 2001, as audited by Miller and Lents Ltd) Tatneft is exposed to the operating, monetary, and fiscal risks of the Russian Federation (BB-/Stable/B) and Tatarstan, where essentially all its assets are located.

Similar to other Russian oil companies, Tatneft faces non-transparent regulation of the domestic oil sector, a limited capacity of oil exports infrastructure, and domestic crude prices being much lower than the international level.

Other key risks include: the constraints caused by the significant influence of Tatarstan, which is the effective controlling shareholder with a 31.3 percent stake; and production costs trailing behind the industry average.

The positive outlook reflects Standard & Poor's expectations that Tatneft will benefit from an improving economic and financial environment in Tatarstan, as a result of its controlling shareholder's improving creditworthiness.

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