S&P downgrades TNK-BP amid exit

By Catherine Belton in Moscow

Published: August 7 2008 03:00 | Last updated: August 7 2008 03:00

Standard and Poor’s has become the second international ratings agency in two days to take action against BP’s Russian oil joint venture, TNK-BP, after its chief financial officer quit blaming an escalating shareholder row.

S&P said it was downgrading the venture’s long-term corporate credit and senior unsecured debt ratings from double B+ to double B with a negative outlook because of heightened governance concerns and the protracted battle for control. Moody’s Investor Service on Monday downgraded its outlook on TNK-BP Baa2 ratings from “stable” to “developing”.

James Owen’s resignation as chief financial officer this week has compounded fears over governance risks at the company. Robert Dudley, chief executive, left Russia nearly two weeks ago, citing a campaign of sustained harassment against him and visa problems, which BP claimed were engineered by its Russian partners in the venture. The partners have denied connection to the pressure but have been seeking to oust Mr Dudley in a battle for control.

“It is a question of governance and of risks,” said Karl Nietvelt, analyst at Standard and Poor’s. “We see the methods being used to oust people and within the Russian context of weak institutions you have to question what is next.”

BP has insisted Mr Dudley can continue to run the company from his – still secret – location abroad. But one person close to the company said Mr Dudley’s departure added to fears that senior management, including Mr Owen, would not be able to monitor procedures as closely as before.

Mr Owen’s departure will mean BP has only one senior executive it can rely on inside the country in TNK-BP’s five-man core executive committee. The other members are two Russian billionaire shareholders who also hold executive posts, Viktor Vekselberg and German Khan.

People close to the company see the pressure continuing to mount.

TNK-BP said it was “disappointed” by the downgrade.

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S&P downgrades TNK-BP amid exit