Moody's Confirms TNK Ba2/Ba3
11 Nov 2003
Moody's has today confirmed the Ba3 senior unsecured debt and foreign currency issuer ratings of JSC Tyumen Oil Company ("TNK") and the Ba2 senior implied rating of TNK International, the guarantor of TNK's rated debt, which had been under review for possible downgrade following the company's successful bid for a 50% stake in Slavneft. The rating outlooks for the companies are positive. Moody's said that the rating confirmation and switch to positive outlook reflects the strong cash flows generated by TNK International which have enabled the group to maintain strong interest coverages and dynamic leverage measurements despite its higher debt burden, and the prospect that BP's Russian assets which have been contributed to TNK International's parent company, TNK Industrial Ltd, in the TNK-BP merger, will add considerably to the cash flows supporting TNK International's guaranteed debt. Furthermore, and most significantly, Moody's believes that BP's input into its joint venture will have a material long-term beneficial impact on the way the group performs and is managed in the future. This may over time enable the group to achieve a higher rating. The creation of TNK-BP and the involvement of BP as a strategic partner will, in Moody's view, have a number of positive impacts on the group which are reflected in the positive rating outlook. Such benefits are likely to include significant improvements to the group's operational efficiency as well as corporate governance and financial transparency, effects which have already begun to become apparent in the few months since BP has become involved. Firstly, Moody's expects that BP will bring material operational benefits as its upstream experience is brought to bear on TNK's reserves. The new group aims to improve the level of seismic work and reservoir management through enhanced technology, as well as increasing well-productivity and operating efficiency through introducing BP's performance culture. In view of the group's high reserve to production ratio, Moody's sees TNK-BP's capacity for output growth and expects production to continue rising within the constraints of Russia's export capacity. TNK-BP will also focus on maximising unit profitability of crude produced through the optimisation of export sales routes, an aspect in which TNK has proven its ability. Moody's believes that TNK-BP is well-positioned in Russia's downstream market and expects the group to develop a position over the longer term in the gas market subject to its anticipated liberalisation. Secondly, BP's managerial influence will improve the standard of corporate governance and financial discipline. The new group has set out in its shareholder agreement a clear governance structure under its new Board of Directors, committee structure and executive management framework. Strict guidelines have been set regarding capital expenditure and third-party transactions, dividend policy (set at minimum 40% of net profit) and debt structure.
Source: Moody's Investors Service
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