YUKOS downgrade: bad news but insolvency excluded

The lowering of YUKOS's credit rating by Standard & Poor's and Moody's is bad news, but the company's insolvency is ruled out, says an analytical survey by United Financial Group (OFG). According to the analysts, the Russian Tax Ministry's claim of more than RUR 99bn (about $3.5bn), is unlikely to lead to the insolvency of the company. According to OFG analysts, YUKOS could take the following measures to avoid insolvency: to sell its assets to a large Russian or foreign oil company, to issue additional shares, and negotiate debt restructuring.

For their part, analysts at Veles Capital believe that the main danger for YUKOS and Sibneft is now not in the economic but in the political sphere. In their opinion, if political pressure on the company continues, the existence of YUKOS and Sibneft would be under threat. They say YUKOS is in a more serious position, but they recommend keeping the company's stocks, given YUKOS's current value compared to its main rivals. As for Sibneft shares, Veles Capital confirms its previous recommendation to sell the company's stocks.

Analysts at BrokerCreditService think the downdrade would not affect YUKOS's operational activities because the company does not plan large borrowings.

Yesterday, Standard & Poor's Ratings Services lowered its long-term corporate credit rating on YUKOS to 'CCC' from 'BB-', following the court decision to ban it from selling or pledging assets, except for products, in connection with a $3.5bn tax claim that YUKOS is challenging in court. In a related action, Standard & Poor's also lowered its long-term corporate credit rating on the Russian oil company Sibneft, in which YUKOS has a 92 percent stake, to 'B' from 'B+'.

On the same day, Moody's Investors Service downgraded the senior implied and issuer ratings of YUKOS Oil Company from Ba1 and Ba2 to B1 and B2 respectively. The rating agency is keeping the ratings under review for possible further downgrade.

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