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. Last Updated: 07/27/2016

S&P Raises LUKoil Credit Rating




Credit rating agency Standard & Poor's on Thursday boosted LUKoil's rating to CCC- from CC, marking the first S&P rating hike for any Russian issuer since the financial crisis began in August.


Standard & Poor's said it lifted the rating after LUKoil met its $3.5 million payment on a $350 million convertible bond Tuesday. The agency had lowered LUKoil's rating Aug. 17 when the Russian government declared a 90-day moratorium on repayment of foreign debt.


"This moratorium could have prevented LUKoil from paying the coupon due Nov. 3 ... as this coupon was paid fully and on time, the CreditWatch listing is no longer justified," Standard & Poor's wrote in a statement.


In addition to raising LUKoil's rating, S&P raised the stock's outlook to "negative" from CreditWatch. Issuers carrying a CreditWatch outlook are thought to be in danger of defaulting.


The rating hike is significant as it is the first since Aug. 17 and possibly the first since December 1997, when S&P lowered the outlook on Russia's sovereign rating to negative from stable, said Cynthia Stone, director of Standard & Poor's Moscow office.


"From that time generally the ratings have been trending in a downward direction," Stone said. Fallout from the Asia crisis that began in October 1997 started to hit Russia late last year, putting pressure on the ruble and exposing glaring inadequacies in Russia's state finances.


The boost should, in theory, lower LUKoil's cost of borrowing, although few foreign investors have been willing to lend money to Russian institutions since August.


A LUKoil spokesman said the rating change was good news but criticized the rating agency's policy of not allowing a corporate rating to exceed the sovereign rating.


"Unfortunately, these ratings are made so that the rating of the company cannot be higher than that of the country," spokesman Dmitry Dolgov said. "I think this is not quite correct. There are many companies that are working well today in Russia."


LUKoil's CCC- rating now equals that of the Russian Federation. Russia's rating has fallen steadily since S&P first awarded it a BB- in October 1996. The biggest fall came Aug. 17, when it was lowered from a B- to a CCC.


LUKoil's S&P rating has also declined steadily from the original BB- it was assigned in July 1997.