Fitch keeps Mazeikiu Nafta on Rating Watch Positive
According to company's web-site, the RWP reflects MN's pending ownership change as a result of Polish oil refining and marketing company Polski Koncern Naftowy ORLEN S.A.'s (rated 'BBB', Rating Watch Negative) planned acquisition of the Lithuanian company (please refer to announcement dated 26 May 2006 on www.fitchresearch .com).
In Fitch's view the recent fire at MN's Mazeikiai refinery, while unfortunate, does not presently warrant a rating action as it expects the company to substantially cover reconstruction costs and business disruption losses via insurance claims. Medium-to-long-term reconstruction will now likely be incorporated into PKN's capital expenditure plans for MN, further supporting the maintenance of RWP.
The fire has, however, caused significant damage to the refinery, including one of the vacuum pipe tower distillation columns. As a result, the company's only refinery is likely to operate well below its full capacity (at around 50% of capacity) for several months until the damaged installations are rebuilt. While the cost of reconstruction is expected to be covered by MN's property insurance, the company's profitability will deteriorate in the coming months due to decreased throughput. Business interruption insurance in place will cover only a part of lost profits due to standard deductibles. The company will most likely have to declare "force majeure" and suspend a significant part of its refined products exports due to lower fuel production resulting from the fire. Fitch will continue to monitor developments closely.
The fire is the second significant unexpected incident at MN (after suspended pipeline deliveries to MN from Russia) since existing controlling shareholder, Yukos International UK B.V., agreed to sell its 53.7% stake in the company to PKN for USD1.492 billion in May 2006. PKN has also agreed to purchase a 30.66% stake in MN from the Lithuanian government for USD852 million.
The acquisition has yet to be approved by the EU but is expected to close by Q107, upon which the RWP will be resolved.
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