TEXT-Fitch ups Tatneft to 'BB+'
(The following statement was released by the rating agency)
June 20 - Fitch Ratings has upgraded OAO Tatneft's (Tatneft) Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BB'. The Outlook on the Long-Term IDR is Stable. Fitch has also affirmed the Short-Term IDR at 'B'.
The rating upgrade reflects progress in construction of the Taneco refinery, relatively conservative capex spending plans post-2012 and the expected gradual deleveraging.
Taneco refinery commenced commercial operations in December 2011. Further development of the Taneco refinery includes mainly construction of the hydrocracker unit (expected completion in 2013) and an increase in the refining depth. Fitch considers the reduced completion risk and the addition of the refining capacity (especially following further investment to increase its complexity) as positive changes to Tatneft's business profile. Fitch expects that the planned capex spending for Taneco development between 2012 and 2014 will be internally financed and will significantly decrease post-2012 compared to levels noted between 2009 and 2012.
Fitch understands that Tatneft put on hold its earlier plans to double Taneco's capacity mainly due to the tax changes introduced in the Russian Federation ('BBB'/Stable) on 1 October 2011 (the so called '60-66' tax regime). Lower resulting capex spending and, therefore, respective expected leverage, are likely to support Tatneft's credit metrics.
Tatneft's FFO gross adjusted leverage in fiscal year 2011 (FY11) decreased to 1.1 times (x) from 1.5x in FY10, and Fitch expects further deleveraging over 2012-2015.Under Fitch's base case scenario using a relatively conservative oil price deck of USD95/bbl in 2012, the company would likely need to refinance part of the upcoming debt maturities. Nevertheless, Fitch believes that the resulting leverage levels would still compare well with the company's Russian peers and support the rating upgrade to 'BB+'.
The agency notes that Tatneft's ratings are constrained by its smaller scale of operations compared with the major Russian oil and gas producers, its mature oil reserves with a high sulphur content, and by relatively high lifting costs. As a result of these factors, Tatneft's earnings per barrel are lower compared with most of its Russian peers. This is partially mitigated by the long estimated hydrocarbon reserves life of over 33 years, which is higher than for Fitch-rated Russian oil companies.
Fitch views the headroom for a further rating upgrade in the medium term as limited. Rating downgrade may follow if the FFO gross adjusted leverage is consistently above 2x, while the FFO coverage ratio is below 10x.
Liquidity at end-March 2012 was adequate with a short-term loan balance of RUB35.7bn against an unrestricted cash balance of RUB28.1bn. Fitch assumes Tatneft will be able to refinance part of maturities falling due until end-March 2013 and expects a positive free cash flow in 2012.
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