Sept 26 - Fitch Ratings says that OJSC OC Rosneft's ('BBB'/Stable) credit metrics
provide sufficient headroom to raise up to USD15bn of additional debt for the potential
acquisition of a 50% stake in TNK-BP International Ltd ('BBB-'/Stable) while
maintaining its current rating. More material leveraging up of the balance sheet without
demonstrated flexibility of Rosneft's dividend policy and capex programme would be likely to
result in a downgrade, most probably limited to one notch, hence enabling the company to
maintain an investment-grade rating.
Fitch estimates that Rosneft's current capital structure could absorb a maximum
of USD15bn additional debt at the current rating level. This would lead to
stretched credit metrics with FFO adjusted gross leverage ratios, based on
Fitch's conservative projections, hovering around 2x in 2013-14 (1.5x in 2011
and forecast at 1.7x in 2012) approaching the agency's negative rating action
guideline of above 2x on a sustained basis. While this would put pressure on the
current 'BBB' rating, it is unlikely to result in a downgrade if the company
could demonstrate a commitment to de-leveraging. This estimate is based on
Fitch's base case oil price deck of USD105/bbl for 2012 and USD90/bbl for 2013
and the assumption that TNK-BP will distribute at least 50% of its net profit as
Rosneft's financial profile benefits from a cash position of USD7.3bn and
treasury shares valued at USD8.9bn at end-H112. Although the financing structure
of the potential acquisition is uncertain, this additional liquidity should
provide some extra cushion against the potential sizable debt burden if the
acquisition is successfully executed.
A more aggressive capital structure, for example resulting from a fully
debt-funded acquisition or additional debt well in excess of the USD15bn
threshold, coupled with limited flexibility of Rosneft's dividend policy and
capex plans, is likely to result in leverage levels well above 2x and thus a
downgrade. Fitch does not expect the downgrade in this case to exceed one notch,
which should enable the company to maintain an investment-grade rating. However,
if the post-acquisition leverage ratios exceed 3x, stronger negative rating
momentum may mount. In this case, Fitch will re-assess the degree of state
support and whether it is sufficient to underpin investment-grade ratings.
If the acquisition takes place, Fitch will treat the acquired stake based on the
equity method and exclude it from Rosneft's reserves and production calculation.
In addition, Fitch does not expect any changes to TNK-BP's ratings following the
potential acquisition of a 50% interest by Rosneft.
Rosneft has so far only expressed its interest in considering the acquisition of
a 50% stake in TNK-BP put up for sale by BP plc ('A'/Positive). Fitch will need
to understand the acquisition price, the funding details (eg proportion 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 agency will
also need to assess the efficiency and coherency of Rosneft's cooperation with
the remaining shareholder of TNK-BP (Alfa-Access-Renova) in determining TNK-BP's
strategy and financial policy.