Moody's affirms Transneft

Moody's Investors Service said it affirmed the A2 local- and foreign-currency issuer ratings of OAO AK Transneft in view of Transneft's reviewed investment plans and assigned a provisional A2 rating to TransCapitalInvest Ltd.'s proposed seven-year loan participation notes.

The outlook is stable.

The rating of the notes is equivalent to the senior unsecured issuer rating of Transneft, given that TransCapitalInvest is issuing the notes for the sole purpose of financing a loan to Transneft.

The ratings reflect the application of Moody's joint default analysis rating methodology for government-related issuers.

Transneft recently revised upwards by a significant amount its capital expenditure for the next several years due to increased costs for pipes, additional environmental stipulations and considerations for additional pipeline projects, Moody's said. Moody's said this increase and its impact on the company's free cash flow and debt significantly reduces Transneft's headroom in 2007 and 2008. However, Moody's said it believes the company has sufficient financial flexibility and cushion in its balance sheet to keep its metrics within the mentioned limits.

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