RusEnergy

04.29.2005 RBC News - International raters Moody's Investors Service has upgraded the senior implied rating of LUKoil to Ba1 from Ba2, also lifting to Ba2 from Ba3 LUKoil's senior unsecured issuer rating. Moody's said the move primarily reflected ongoing solid underlying performance which in the first nine months of 2004 generated EBITDA of $5.2 billion against $4.4 billion for the same period in 2003. It also reflected the company's position as Russia's largest oil company, vast upstream reserves and strong downstream integration. Visible improvements in corporate governance were weighed since A3-rated ConocoPhillips acquired a 7.6 percent stake last September, raising this to 10 percent in January, alongside gradual improvements in LUKoil's operational performance and efficiency. LUKoil will benefit from the upgrade, experts say. "Rating reviews are unlikely to have any significant impact on the oil company's share prices since Russian investors pay more attention to other factors. But in the long run, LUKoil could greatly improve its borrowing opportunities," Ivan Guminov, analyst at Pallada Asset Management, told RBC Daily. About 18 months ago, he recalled, LUKoil issued about $6 billion worth of bonds at seven percent interest - almost the same yield as Gazprom's bonds had, though Gazprom enjoyed a far better rating at that time. "Now, when their ratings are almost the same, we can expect that the oil company will borrow on even better terms - for example on the market of Eurobonds," Guminov said. Some analysts say the Moody's upgrade reflected company efforts to reduce the amount of its secured loans. They do not rule out that LUKoil might borrow additionally to replace secured loans with unsecured. Yelena Anankina at Standard & Poor's thinks, however, this would not affect the company's position on the market. "We use a different method to decide on corporate ratings. We do not make significant distinctions between secured and unsecured obligations," she said. "We think the advantage of lenders who had given secured loans is not obvious in Russia where any existing assets can be accepted as security. But most Russian oil companies took loans on the security of their future oil exports. It is a big question whether Russian courts will see such debts as unsecured," Anankina said. Experts judge it more advantageous for LUKoil to issue ruble-denominated bonds. "Interest rates are attractive both for issuers and on the Eurobond market, though to a lesser extent," said Anna Matveyeva at Troika Dialog, adding that this was due to expectations of U.S. rate hikes. If LUKoil wants to borrow on good terms, it has to hurry, those watching say. "Now is a good time for domestic borrowing. But this should be done quickly, at best in early May, as the situation could worsen in the summer. Now, the market remains attractive to borrowers, it's full of cash," Matveyeva said. Even if LUKoil borrowed in the summer, it would not be too bad, she argued. "If it issues, say, three-year bonds, the yield could be 7.6 percent," the analyst noted. LUKoil officials neither confirmed nor denied those speculations.