OAO Rosneft (ROSN), Russia’s largest oil producer, was downgraded by Fitch Ratings on concern debt will rise through 2017.
The company’s long-term issuer default ratings were lowered to BBB-, the lowest investment grade, from BBB with a stable outlook, Fitch said in a statement. “Net leverage will increase sharply” to three times funds from operations, it said.
Rosneft’s total debt soared to $72.6 billion after it spent $55 billion to acquire TNK-BP this year, becoming the world’s largest traded oil producer. The company’s subsequent acquisitions of Itera, Taas Yuriakh, Alrosa’s gas assets and a stake in SeverEnergia will further drain cash flows, Fitch said.
“Rosneft has ambitious development plans, both in upstream and downstream,” the ratings service said today. “Capex will remain high, resulting in negative free cash flow before dividends in 2014.”
State ownership gives the energy company a “one-notch uplift” in ratings, Fitch wrote. Even so, the scale of Rosneft’s oil production, at about 40 percent of Russia’s total output, may strain that support should crude prices slump for a prolonged period, it said.
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