Fitch: PKN Orlen on negative watch

Fitch Ratings said it has placed PKN Orlen SA's senior unsecured BBB and short-term F3 ratings on Rating Watch negative.

PKN is Poland's leading downstream oil company. The rating action follows the Czech government's decision Wednesday to accept PKN's offer for the acquisition of a 62.99% stake in Unipetrol AS, a leading oil company in the Czech Republic.

The Czech government's decision concludes the privatization tender process for Unipetrol, initiated in 2003, and which is subject to the signing of the final sale agreement. PKN will reportedly pay $480 million for the stake in Unipetrol, the purchase of receivables of Ceska konsolidacni agentura from certain entities directly or indirectly owned by Unipetrol, as well as the purchase of CKA's 9.76% stake in Spolana AS, a chemical company within the Unipetrol group.

Fitch deems PKN's acquisition may have negative implications for its credit profile given Unipetrol's weak and volatile profitability and high leverage (gross debt/annualized EBITDA of around 6.6x in June 2003 compared to PKN's 1.2x in December 2003). Additionally, Unipetrol's business profile is weaker than that of PKN, given its higher exposure to a more volatile petrochemicals segment and weaker domestic market position.

As a result of the Unipetrol acquisition, Fitch said PKN's debt is expected to increase on the back of the acquisition price and consolidation of debt held at the Unipetrol group ($945 million at the end of the first half of 2003), putting pressure on PKN's ratings.

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