Moody's places Rosneft, TNK-BP on review for downgrade

MOSCOW – Ratings agency Moody's on Wednesday placed Rosneft and TNK-BP on review for downgrade following Rosneft's agreement to buy the joint venture between BP and a group of Russian oligarchs.

State-owned Rosneft on Monday unveiled a deal to buy TNK-BP, Russia's third-largest oil producer. It is buying the 50 percent stake of British oil company BP for $17.1 billion in cash and a 12.84 percent share of Rosneft. It is buying the other half for $28 billion from a group of Russian billionaires.

Monday's deal would make Rosneft the world's largest oil company in terms of production, ahead of ExxonMobil Corp.

Moody's warned Rosneft and TNK-BP on Wednesday that the deal, estimated by Rosneft to be worth $61 billion, could hit both companies' credit ratings. The agency said its further action would depend on the structure of the deal's financing as well as Rosneft's strategy regarding TNK-BP's corporate governance and dividend payments.

Moody's, however, said that the deal with BP could be very positive for the Russian company, offering Rosneft "an opportunity for efficiencies and cash flow savings as well as new opportunities for the cross-sharing of best practices."

Moscow-based Sberbank CIB investment bank warned in a morning note that following the completion of the deal Rosneft "will be saddled not just with debt, but also with a huge investment program that is eating up all its cash flow, even at the current high oil prices."

Analysts, however, see potential benefits for Rosneft from the deal. Sberbank on Wednesday expressed hope that BP as a new major shareholder could manage to persuade Rosneft to walk out of unprofitable projects such as oil production in Venezuela or a $10 billion upcoming construction of a petrochemical plant.

Rosneft's stock was up 3.5 percent and TNK-BP higher by 2.6 percent early afternoon at the MICEX stock exchange in Moscow.