Standard & Poor's placed the embattled oil giant on its Credit Watch list on April 27, 2004, and downgraded its rating to CCC. "The [low] rating and the placement on the Credit Watch List reflect S&P's fears that the rejection of the appeal may lead to a liquidity crisis at the company," Yelena Anankina, an analyst with Standard & Poor, pointed out.
According to the rating agency, now that Yukos' appeal against a tax claim has been rejected, there is a stronger probability of stress scenarios, such as the declaration of a formal default on financial obligations by creditors or by the company itself (in which case the company will have to immediately repay its debt in full, as the credit contracts prescribe), the launch of bankruptcy proceedings, the forced sale of key assets (in case the court removes the ban on their disposal), or effective nationalization of the assets.
The tax claims will be impossible to settle with the company's money only, despite the substantial monetary inflows owing to the favorably high oil prices on the world's commodity markets now. Neither can they be settled by selling off the assets as Yukos was banned from using its property by an April 2004 court decision, S&P experts argue.
They believe that the threat of a liquidity crisis adds to the risk created by the uncertainty about the ownership rights on Yukos' key money-generating assets, as well as about whether the Tax Ministry will file more claims against the company and how it should be managed under mounting political pressure.
Having said that, Yukos' subsidiaries can go on operating at a profit or sell their assets off, thereby generating monetary flows to settle the debt and the tax claims.
Standard and Poor's believes that Yukos' future will in no small measure depend on what kind of policy the Russian government will choose to pursue toward that company.
"We will be closely watching [the story unfold] to see if government bodies or the company itself make a decision to initiate bankruptcy proceedings or reach an amicable agreement on the lawsuit, as well as whether the company gets permission to sell off assets to settle its tax and business debts," Ms Anankina said. The S&P agency will also be following the developments to see if the creditors declare a formal default and if the company is able to continue servicing its debt, she added.
