Fitch Affirms Rompetrol Group at 'B+', Outlook Negative

05.23.2011 ZF English

Fitch Ratings affirmed Netherlands-based The Rompetrol Group's long-term foreign currency Issuer Default Rating (IDR) of 'B+', while removing it from Rating Watch Negative, where it was placed on September 16, 2010. The rating outlook is negative.

The rating action reflects the reduced short-term risk of a rating downgrade due to the ongoing litigations with the Romanian government regarding the September 2010 conversion of EUR516 million bonds of The Rompetrol Group's main subsidiary Rompetrol Rafinare (RRC.RO), Fitch said in a statement Monday.

It said the company was placed on Rating Watch Negative due to the expected negative impact of the decision by Romania's National Agency for Fiscal Administration (ANAF) to establish a precautionary seizure upon some assets of Rompetrol Rafinare.

"Together with intensified government pressure on The Rompetrol Group, this created negative pressure on the rating ahead of the planned bond conversion on 30 September 2010. The government challenged the company's plan to convert the bond into equity instead of repaying the unredeemed bonds to the state (ie the sole holder of the bonds)," Fitch added.

"The main negative scenario, incorporated in the negative outlook, is a situation where Rompetrol Rafinare, as a result of the litigation and discussions with the state, repurchases the 44.7% stake in Rompetrol Rafinare obtained by the Romanian state within the bond-to-equity conversion. This would result in a substantial cash outflow for The Rompetrol Group and could lead to a rating downgrade if the company raised new debt for such a potential transaction," the ratings agency said.

The Rompetrol Group's rating is based on a bottom-up approach in line with Fitch's parent and subsidiary rating linkage methodology. The rating reflects the company's standalone credit profile, assessed at 'CCC', and a three-notch uplift for parental support from Kazakhstan-based oil and gas company KazMunaiGaz National Company (rated 'BBB-, with stable outlook).

Fitch noted that The Rompetrol Group's cash flow has been negatively affected by the continued weak conditions for oil refining in Europe. It reported negative funds from operations in 2009 and 2010. "Its gross debt stood at USD1.3 billion at end-2010, comprising mostly subordinated shareholder loans (70% of total debt). The Rompetrol Group's credit ratios compare unfavorably with its refining and marketing peers rated by the agency," Fitch added.