Standard & Poor's rises caution flag on YUKOS, Sibneft

Standard & Poor's, the credit rating agency, has placed YUKOS' longterm BB credit rating on its watch list with a negative outlook. S&P made this known today to the Agency for Conflict Situations. At the same time, the longterm credit rating of Siberia Oil Company (Sibneft) (92% of shares owned by YUKOS) was transferred from the watch list with a positive outlook and placed on the watch list with a developing outlook.

'The rating decision reflects Standard&Poor's concern that the arrest placed on the 44% of the shares of YUKOS indirectly owned by the chairman of the company management, Mikhail Khodorkovsky, and others raises creditor's risks in view of the threats to the property rights and to the system of corporate governance of YUKOS and Sibneft, said Elena Anankina, a credit analyst for S&P. The arrest of stock deepens the uncertainty caused by the continuing criminal and tax investigations of key company shareholders and the recent arrest of Khodorkovsky. The arrest of stock also raises concern about inadequately defended property rights in the Russian Federation, whose political and legal spheres are unpredictable and not transparent and where the application of law shows an increasingly elective character.

'Removal of YUKOS and Sibneft from the watch lists will require evaluation of the risks to management, finances and operations that may arise from the investigations and tactics of the general prosecutor. In the course of our analysis, we will pay special attention to the degree of interference in the activities of the management of YUKOS and Sibneft and to the ability of management to control its finances and other assets,' Anankina added.

Heightened attention is to be paid to natural-resource licensing arrangements, property rights of key affiliates, tax matters, ability to enter financial markets, liquidity and possible changes in the financial policy and corporate and management structures of the two companies. After finalization of the merger of the companies, Sibneft's rating is most likely to depend on YUKOS' rating, whose name is expected to become YukosSibneft, as well as to the relative positions of Sibneft creditors to the creditors of the mother company.

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