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Fitch upgrades Rosneft to BBB-, outlook positive

Fitch Ratings upgraded Monday Russia's state-controlled oil company Rosneft's long-term foreign and local currency ratings from BB+ to BBB-, with a positive outlook. Rosneft buys Yukos offices from tender winner.

“The upgraded IDR (Issuer Default Ratings) reflects Rosneft's strengthened competitive position, following a series of acquisitions predominantly in the refining and distribution segments, making it one of Russia's leading integrated oil and gas companies,” the agency said in a statement. Rosneft has bought most of the key production and processing units of bankrupt oil firm Yukos in 16 state auctions, including Yuganskneftegaz, Siberia-based Tomskneft and Volga-based Samaraneftegaz. “The acquisition of refining and distribution assets has greatly enhanced the company's business profile and vertical integration,” said Valentina Goryunova, a Moscow-based Director in Fitch's Energy & Utilities ratings group.

Fitch also said “the positive outlook foresees a measurable reduction in the company's total debt level over the medium-term as the company refinances its debt, restructures its tax liabilities and favorably resolves any outstanding third-party claims.” Rosneft said in June its oil output expanded 8.7%, year-on-year, in the Q1 of 2007 to 147.92 million barrels, and the company expected to produce over 100 million metric tons (733 million barrels) of oil in 2007, taking into account former Yukos assets. Rosneft's revenues in 1Q 07 increased 12.2%, to $8.22 billion, the company said.

Rosneft said Monday it had acquired offices and other non-core Yukos assets from Prana, which bought the assets after winning the May 11 auction. The price of the deal has not been disclosed. At the auction for the bankrupt oil giant's high-tech 22-story building in downtown Moscow, the previously unknown company outbid a Rosneft subsidiary by raising the initial price by more than 300% to almost $4 billion. The other assets include research centers and managing companies, among them Yukos-M, hundreds of millions of dollars on the bank accounts of one of firms, gasoline stations in Moscow and the surrounding region, 500,000 metric tons of oil products, hundreds of millions of dollars in non-refunded VAT, and a debt of over $1 billion.

“Yukos-M managing company owns assets, which are part of a network of oil producing enterprises and refineries earlier acquired by Rosneft,” the company said. The anti-monopoly service had initially threatened to block Prana's deal until its ownership structure was clarified, but eventually gave its authorization. Igor Artemyev, the service head, said the competition regulator was aware of the company's ownership structure, but declined to specify it, citing commercial secrecy. The business daily Kommersant earlier suggested the company was linked to another state-controlled energy giant, Gazprom.

Rosneft also said it had sold 50% of its stake in a Siberia-based former Yukos production unit to state-run Vneshekonombank foreign trade bank. “The sides agreed to share the management and decision-making in the Tomskneft oil company, including the rotation of its top officers,” Rosneft said. Rosneft bought 100% in Tomskneft, which holds 20 oil production licenses in the region, at a May 3 auction for Yukos assets, which also included two refineries, for 176 billion rubles ($6.8 billion). (