Standard & Poor’s Ratings Services has raised its long-term corporate credit rating on Russian oil company OAO Tatneft, which is based in the Republic of Tatarstan, to ‘B’ from ‘B-‘, following the improving financial profile of Tatarstan and Tatneft’s gradual debt reduction. The outlook is stable.
The long-term foreign currency issuer credit rating on Tatarstan was raised to ‘B-‘ from ‘CCC+’ and, along with the improving operating environment in Russia and the gradual reduction in Tatneft’s debt, this has led to an improvement in the credit profile of the company.
“Tatarstan’s improving budgetary performance and low debt burden have helped reduce the republic’s immediate need for Tatneft’s financial support,” says Standard & Poor’s credit analyst Elena Anankina. “The rating on Tatneft continues to be constrained, however, by the close and non-transparent influence of the republic, as well as the company’s below-average profitability, low downstream integration, and weak liquidity position.”
The full benefit of Tatneft’s participation – in cooperation with other Tatarstan entities – in the Nizhnekamsk refinery construction in Tatarstan can only be realised after the second stage is commissioned, no earlier than 2006-2007, and if the shareholding structure is finalised.
Any progress by Tatneft in extending its maturity profile and lowering its share of pledged exports, along with operational optimization and cost cutting, would be viewed positively.
Any further upgrade potential is limited, however, unless the Republic’s dependence on the company declines, the links between the two entities become more transparent, or the republic is upgraded. In particular, Standard & Poor’s will continue to monitor developments with the Nizhnekamsk shareholding structure and Tatneft’s ability to benefit from its investments in the refinery construction. Standard & Poor’s believes that Tatneft’s ability to further reduce its debt will largely depend on realised oil prices.