Moody's lowers Yukos, Sibneft outlook

Moody's Investors Service lowered the outlook on Yukos Oil Co. to negative and on Sibneft to negative from positive. Moody's rates Yukos' senior implied at Ba1 and Sibneft's senior implied at Ba2.

Moody's said the action is in response to the uncertainties that continue to surround the future of Mikhail Khodorkovsky and his stake in the company.

Moody's said the negative rating outlooks reflect the as yet unknown impact of the arrest of Khodorkovsky by state prosecutors on charges of fraud and tax evasion and the freezing of Khodorkovsky's and other Group Menatep Ltd. shareholders' approximately 44% interest in the company.

Moody's said believes that this action is unprecedented and that the potential impact on the financial creditors of Yukos and bondholders of Sibneft is unpredictable.

Moody's believes that, at the very least, these events may make Yukos's ability to raise finance problematical, and will delay any plans new investors may have had to take share ownership in the group until there is clarity on the validity of Khodorkovsky's shareholding.

There are, moreover, other scenarios with more negative consequences for current and potential investors. Developments are uncertain, and Moody's believes that it could be some time before potential outcomes are realised.

At the same time, however, Moody's noted that Yukos continues to generate very substantial amounts of cash flow in the current high oil price environment, and has no difficulties in servicing its debt despite making significant payments to its own shareholders and those of Sibneft. Moody's expects that the group's 2003 pro forma interest coverage multiples and cash flow to debt measures will be strong. Moody's will continue to monitor events surrounding YukosSibneft closely.

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