Both ratings are under Credit Watch with negative implications, runs the statement.
The agency lowered Yukos's long-term credit rating from BB to CCC after the court ruled to ban its property management, apart from the main products (in particular, shares of subsidiaries and Sibneft) as a guarantee measure on the tax claims totalling $3.5 billion, which Yukos intends to challenge in court. The company's rating has dropped from ruAA- down to ruB on the Russian national scale.
The agency has reduced Sibneft's long-term credit rating from B+ to B after the court banned the use of Yukos assets, which include 92% of Sibneft shares. Sibneft's rating remains on Credit Watch with negative implications, where it was placed on October 31, 2003. Sibneft has been downgraded from ruAA to ruA on the national scale.
"The drop in the Yukos rating and its possible further decrease with negative implications reflect S&P concerns regarding the risk of Yukos losing its property rights to the main assets generating monetary flows, and the growing uncertainty in regard to its liquidity," said credit analyst of S&P Yelena Anankina. "This rating decision also points to the increasing political pressure on the company, which can undermine Yukos positions in litigations regarding the tax claims (the case is to be considered in court in May)." In case of a stressful scenario (if the case is lost), Yukos may face the need to urgently sell its major production assets with the subsequent bankruptcy procedures or virtual nationalisation of its assets.
According to the press release, Sibneft's rating is negatively affected by the aggressive style of its corporate management (for example, the attempts to unwind Yukos' merger with Sibneft with the help of legal pressure and regulation), and also its aggressive financial policy, i.e. large-scale dividend payments in 2001, 2002 and 2003, and active use of risky schemes of tax optimisation.
On the other hand, the agency's experts point out Sibneft's high operational indices (oil extraction made 19.4% in 2003, and EBITDA-based profitability accounted for 32% in the first six months of 2003). They do not rule out that the rating might grow if the problems of the company's financial policy, its property, control and management are solved.
Yukos does not really control the management, assets and monetary flows of Sibneft, as could be seen in Yukos's failed attempts to elect its representatives to Sibneft's board. Therefore Yukos's rating affects Sibneft's rating but is not formally its 'ceiling,'" said Yelena Anankina.
