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. Last Updated: 07/27/2016

S&P Downbeat on Slavneft Deal

Standard & Poor's on Friday gave a thumbs down to last week's $1.86 billion joint purchase of Slavneft by Sibneft and TNK.

The international ratings agency revised its outlook for Sibneft to "negative" from "developing" and lowered its Russian rating for the company because of the acquisition, which it said weakens the financial profiles of both companies.

S&P said that Slavneft is financially weaker and less efficient than both Sibneft and TNK, and taking on its $680 million debt load "offsets the positive impact of the improved asset diversification and cash-flow base of both companies' business profiles."

S&P said it was also concerned about the uncertainties over how Sibneft and TNK will divvy up Slavneft.

Sibneft and TNK said after winning the Slavneft auction Wednesday that they planned either to split Slavneft's assets between them or to have one company absorb Slavneft and offer equity to the other. But on Friday, Sibneft insisted that it was better placed to grab Slavneft outright.

"Consolidating Slavneft into Sibneft is the preferred and most practical option," Sibneft first vice president Alexander Korsik said on a conference call with investors.

Analysts have also said they believe Sibneft was better placed to consolidate Slavneft because the unlisted TNK would get liquid shares in Sibneft in exchange.

Korsik said his company would have to issue additional shares if the two sides agreed to a merger of Slavneft and Sibneft.

He also said Sibneft's long-term and short-term debt would rise by 57 percent by the end of 2002 due to the Slavneft purchase, to $2.2 billion from $1.4 billion six months ago.

TNK chief financial officer Iosif Bakaleinik said during a web conference that the acquisition, which cost would boost TNK's current $1.9 billion debt burden to about $3 billion, but added that it could be pared back to $2 billion in 2003 if oil prices remain high.

Bakaleinik said TNK's net profit under U.S. generally accepted accounting principles stood at $830 million in the first nine months of 2002 and net sales at $4.13 billion. He gave no comparative figures.

He reiterated that TNK would show double-digit growth in 2003, raising oil output by 11 percent to 820,000 barrels per day and spending $700 million on capital expenditure.

TNK International combines oil firms Tyumen Oil and Onako and is controlled by two groups of shareholders -- Alfa Group and Russian-U.S. joint venture Access/Renova.

Sibneft produces 520,000 bpd from its fields in western Siberia. Slavneft, No. 9 in Russia, produces 320,000 bpd. Sibneft said it was counting on Slavneft's healthy west Siberian reserves, which it estimates at 2.2 billion barrels, to show healthy growth as well in the next few years. (MT, Reuters)