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Moody's upgrades NKNK's Baseline Credit Assessment and affirms ratings at B1

February 27, 2008 | Cbonds

London, 26 February 2008 -- Moody's Investors Service today affirmed the
B1 ratings of Nizhnekamskneftekhim (NKNK) in conjunction with upgrading
its baseline credit assessment ("BCA"), which forms one of the four
rating inputs in accordance with Moody's methodology for
Government-Related Issuers ("GRIs"), to 15 from 16 which would map to a
B2 rating on Moody's global ratings scale. The other factors, support,
dependence and the rating of NKNK's major shareholder, the Republic of
Tatarstan (Russia), currently rated Ba1, remain unchanged. The final
ratings remain unchanged at B1, and therefore have been affirmed, given
that the differential between the sovereign and underlying BCA has
narrowed in the context of the support and dependency assumptions having
remained unchanged.

The change in the BCA -- which is expressed on a scale of 1 to 21, where
1 represents the lowest credit risk, and which measures the likelihood
that an issuer will require an extraordinary bailout -- was prompted by
the following positive developments: i) a substantial increase in the
company's size since the first rating assignment; ii) a reduction in the
degree of credit concerns pertaining to the investment programme
implementation (as of end 2007, the US$889 million programme was 60%
completed without major delays and cost overruns capped at 10% of
budget); iii) the launch of Polypropylene and Polystyrene plants with a
capacity of 180Ktpa and 100 Ktpa, respectively, and the increase of
Halobutyl rubbers production to 50Ktpa in 2006-2007 providing for an
increase in sales of higher value-added products by 11% to 59% of sales
in 2007; iv) the significant savings on energy costs achieved by
deploying the company's own power generation unit, covering up to 25% of
company's energy requirements; v) a decrease in leverage driven both by
debt reduction and EBITDA growth; vi) the demonstrated ability to defend
profitability margins despite the abandonment of the legacy preferential
pricing arrangements with suppliers and customers controlled by the same
shareholder (TAIF).

Moody's positively notes that the company's intention to increase its
capital via an additional stock issue for approximately US$1.0 billion in
the near to medium term might enhance the company's financial flexibility
and provide a base for capital expenditure undertakings beyond the
current investment programme. Moody's takes comfort in the Government of
Tatarstan and TAIF's confirmed undertakings to retain their respective
interests in the company by proportionate participation in the issue
should it materialise.

Based in Nizhnekamsk in the Republic of Tatarstan (Russia),
Nizhnekamskneftekhim (NKNK) is one of the key producers of monomers,
rubbers, plastics and other petrochemicals. Its 9 core production units
are located in one site. The company reported sales of RUR 53.0 billion
(approximately USD 2.0 billion) and EBITDA of RUR 7.6 billion
(approximately USD 252 million) in 2006. Approximately half of the
company's revenues are derived from export activities.

Company: Nizhnekamskneftekhim

Full company nameopen joint stock company Nizhnekamskneftekhim
Country of riskRussia
Country of registrationRussia
IndustryChemical and petrochemical industry


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