S&P Cuts Rompetrol To 'B', Puts It On Watch Negative On Political Risk

"The downgrade reflects our concerns over the increased country and political risks between the company and the Romanian government as well as continued very weak operating performance," said Lucas Sevenin, Standard & Poor's credit analyst.

The rating agency's action comes after the Romanian authorities froze several of the assets belonging to Rompetrol's main asset Petromedia, following disagreements over a EUR570 million bond debt.

"The CreditWatch status reflects the uncertainty in terms of any future resolution of the dispute and unforeseen unilateral actions the government might take," S&P said in a statement.

S&P also lowered the stand-alone credit profile on Rompetrol to 'CCC+', after the company's refinery Petromedia reported an EBIT loss of $78 million and net loss of $119 million for the first six months of 2010.

"We will also evaluate the continued incentive for Rompetrol's parent, Kazakhstan-based JSC NC KazMunayGas (KMG; BB+/Stable/--), to provide timely financial support to its subsidiary following the Romanian government's seizure of assets," the rating agency said.

On September 10, Romania's fiscal authority ANAF seized several plots of land, facilities, and subsidiaries' shares owned by Petromidia, because of a dispute over a EUR570 million convertible hybrid that was issued by Petromidia in 2003 and due September 30, 2010.

Romania's government holds the hybrid (convertible bond) and claims it must entirely be redeemed in cash. However, Rompetrol said it has the option to convert most of the debt into shares.

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