Standard & Poor’s Ratings Services has raised its long-term corporate credit rating on TNK International Ltd to ‘BB-‘ from ‘B+’, and removed the rating from CreditWatch, where it was placed on February 11, 2003. The outlook is positive.
At the same time, Standard & Poor’s assigned a ‘BB-‘ long-term corporate credit rating to TNK-BP, a newly created legal entity holding 100% of TNK. The two entities’ asset bases are almost identical: TNK generated some 99.4% of the parent group’s operating cash flow in the first six months of 2003.
“The ratings acknowledge TNK-BP’s standing as Russia’s third largest oil company in terms of reserves, production, and exports, tempered by its moderate cost structure and leveraged financial profile,” says Standard & Poor’s credit analyst Eric Tanguy.
“No direct financial support from the group’s new 50% shareholder, BP PLC (AA+/Stable/A-1+) has been factored into the ratings. However, the ratings acknowledge the business support provided by a highly rated shareholder with strong industry expertise, experienced management teams, and a generally prudent financial policy,” adds Tanguy.
Following the recent integration of Sidanco into TNK, TNK-BP is Russia’s third largest oil company. In 2002, TNK-BP produced 1.115bn barrels per day (mbpd) from its proved reserves, which totalled 9.4bn barrels at year-end. Most of the company’s currently producing upstream assets are located in Russia. For the first six months of 2003, production grew by 10% to 1,229 mbpd and crude and products exports represented over 75% of total production.
Standard & Poor’s expects that TNK-BP’s financial profile will improve in the near future as the company uses a portion of its free operating cashflow to reduce debt. Its business profile is also expected to benefit from costs synergies between TNK and Sidanco, flows optimisation among the group’s operating subsidiaries, and the gradual integration of 50% of Slavneft’s asset base.
The rating on TNK-BP will continue to be dependent on the group’s cashflow generation capacity, which should show good resilience to any significant crude price decrease and to ongoing cost inflation. The ratings will also depend on the group’s willingness to adjust capital expenditures and dividends so that they are funded from self-generated cashflows rather than from additional debt.