TEXT-Fitch on Rosneft deal

Oct 17 - Rosneft's credit rating may be stretched if it acquires a 50% stake in TNK-BP International, as reported in the press today, Fitch Ratings says. We would expect to review the ratings of both companies if a deal goes ahead, though the outcome is still unclear as no official announcement has been made. Rosneft is reported to have agreed to pay USD28bn for the 50% stake in TNK-BP which currently belongs to AAR, TNK-BP's Russian shareholders. Our initial assessment is that Rosneft's credit metrics provide sufficient headroom to raise up to USD15bn of additional debt to partially fund the acquisition while maintaining its current rating. Additional debt well in excess of the USD15bn threshold, if coupled with only a limited change to Rosneft's dividend policy and capex plans, would be likely to result in sustained FFO leverage levels well above 2x and thus a downgrade. In this scenario, we would not expect any downgrade to exceed one notch, which would enable the company to maintain an investment-grade rating. However, if the post-acquisition leverage ratios exceeded 3x, there would be greater pressure on the rating. In this case, Fitch will re-assess the degree of state support and whether it is sufficient to underpin investment-grade ratings. Rosneft had also previously expressed interest in buying BP's 50% stake in the joint venture. It is unclear if Rosneft would be interested in acquiring the whole of TNK-BP, but doing so would likely result in much higher leverage and potentially additional negative rating action. We would not expect any immediate changes to TNK-BP's ratings following the potential Rosneft deal. However its credit profile would be weakened if the deal were funded by levering-up TNK-BP. Any changes to its exploration and development plans may also have an impact. We will need to understand the acquisition price, the funding details (such as the split of debt and equity), future dividend policy at Rosneft and TNK-BP and any amendments to Rosneft's capex plans as a result of the potential acquisition. The disposal by BP of its stake in TNK-BP would probably not have any negative impact on BP's ratings under our approach, as we would expect BP to receive a fair market price that it could reinvest in other assets.