Slavneft worth the rating?

Russian oil companies disgraced themselves in eyes of  Standard & Poor's
Russian oil companies Sibneft and Tyumen Oil Company (TNK) who have not enjoyed yet the triumph of possessing the Slavneft company already reap the bitter fruits of their “success.” Firstly, both companies have quarreled with each other, disputing who of them will absorb the bought company. Secondly, while participating in the auction, they afford too big costs to them. At least, world financial circles estimate their today’s financial situation without enthusiasm.

The international rating agency Standard & Poor’s changed its forecast as for the Sibneft company (Siberian Oil Company) from “developing” to “negative.” As for TNK International Ltd., it is also not OK at all. It was excluded from the CreditWatch list to which it was put December 6, 2002 with a positive forecast. Standard & Poor's confirmed long-term credit ratings of Sibneft and TNK at the level B+. At the same time, according to national scale, the Sibneft rating lowered from ruAA to ruA+.

The international rating agency explains its decision with evident worsening of the two Russian companies finance profile as a result of buying by the Investoil company (it belongs to Sibneft and TNK  - share and share alike) 74.95 percent of the Slavneft stock. The control package of the Slavneft stock cost them $ 1.86 billion. While they also had to pay 207 million for 10.83 percent of shares which belonged before to Byelorussian Ministry of State Property. According to Standard & Poor’s, the total debt of Slavneft ($ 632 million at the end of 2001) was not included in these figures. Foreign analyzers suppose “the debt growth brings to zero the positive influence of the assets diversification and the money flows base’ increase upon the business characteristics of both companies.”

The Standard & Poor’s analyzers are also embarrassed with evident vagueness of the new Slavneft owners’ intentions as for the newly bought assets. The Slavneft demands in investments are significant. It is not excluded that the new owners will have a necessity to spend some means for buying the  minoritar stockholders share in the Slavneft branch establishments. And, against the background of all positive moments of the bargain, the Slavneft financial profile is weaker, while its operation effectiveness is lower than that one of its shareholder companies.

According to Standard & Poor’s, in 2001, the Slafneft profit share in its proceeds, before discharge of tax, made 18 percent, while the TNK profit share was 37 percent, and that one of Sibneft – 54 percent. Moreover, the newly bought assets integration would demand some time and much efforts from the owners.

The Standard & Poor’s analyzers suppose the consequences of the recent bargain are more painful for Sibneft: the latter is not as big as TNK. Therefore, Sibneft depends more on oil price fluctuation. At the end of 2002 (without taking into account the Slavneft debt), its debt is expected to make $ 2.5 billion.

While, confirmation of the long-term credit rating of TNK and the stable forecast, according to Standard & Poor’s, reflect positive consequences of the recent decrease of capital expenses and the dept volume. This allows to partly grade moderate increase of its debt to $ 2.5-3 billion.

Standard & Poor’s intends to carefully analyze the partners strategy towards the Slavneft assets, the bargain influence upon financial activities at the end of 2002 and further financial and operation characteristics of the partners, as well as upon the debt control policy in both companies.

Akhtyam Akhtyrov

Translated by Vera Solovieva

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Author`s name Margarita Kicherova