May 30 - Fitch Ratings says that the resignation of Mikhail Fridman as Chief Executive Officer of the TNK-BP Group is the latest in a series of signs that some form of separation between the joint venture’s partners - BP plc (‘A’/Stable) and Alfa-Access-Renova (AAR) - appears to be growing.
This latest round of corporate governance issues at TNK-BP could be an indication that the partnership may be in difficulty. The agency does not view this latest dispute as having an immediate impact on the company’s creditors, for example, through the disruption of coupon or interest payments. While Fitch is not taking any rating action now, clearer messages about how the company will be managed from now on are needed to prevent possible negative rating action.
Ineffective corporate governance is the agency’s main concern. TNK-BP’s board of directors has not met since December 2011 as it lacked quorum after two independent directors resigned. Fitch acknowledges the appointment of an independent director on 21 May 2012; but nonetheless, still views the effectiveness of TNK-BP’s board of directors as weak under Fitch’s ‘Evaluating Corporate Governance’ Criteria. When looking at issuer-specific governance characteristics, the agency focuses on overall board and management effectiveness.
Fitch is concerned that the latest CEO resignation is a sign that the company’s shareholders and management are facing a crisis. TNK-BP stated in a press release dated 28 May 2012 that following Mikhail Fridman’s resignation it will be managed by a group of executives who hold powers of attorney related to their areas of responsibility. While this may be an effective interim measure, it is unlikely to be sustainable in the medium to long-term and not commensurate with the long-term governance practices of an investment grade company in Fitch’s view.
An ineffective, stalemate board of directors and management board could negatively impact the company’s strategic decision making abilities, which in turn, could eventually impinge on the company’s business profile and credit ratings. During the last major shareholder dispute in August 2008, Fitch placed TNK-BP’s ratings on Rating Watch Negative (RWN) citing concerns that weak corporate governance could delay key investment and strategic decisions or result in a more aggressive financial policy. Fitch could take similar action if the agency views these risks as increasing.
TNK-BP International Ltd. is a BVI-registered parent of a number of exploration and production, refining and marketing companies with assets and operations primarily in Russia and also in Ukraine. TNK-BP group is one of the largest vertically integrated companies in Russia and has the third-largest oil reserves and production volume in the country. Ownership and control is split between BP plc and Alfa Group (25%), Access Industries (12.5%) and Renova (12.5%), collectively referred to as AAR.