S&P may upgrade Lukoil

Standard & Poor's said it placed Russian-based Lukoil OAO's BB long-term corporate credit and senior unsecured debt ratings on CreditWatch with positive implications and affirmed the company's ruAA Russia national scale rating.

The CreditWatch placement reflects the possibility of an upgrade, most likely by one notch, in the coming months. Any upgrade will depend on the agency's assessment of management's stance toward future mergers and acquisitions and its financial debt management and policy targets, notably the possibility of future debt increases, given the company's maximum 30% leverage level.

S&P said the ratings on Lukoil reflect the company's standing as Russia's largest oil major in terms of production, exports and reserves, as well as its partial downstream integration outside of Russia.

The ratings are tempered by the group's below-peer-level free cash flow generation so far and only average financial policy ratio target, which could potentially allow for significantly more debt in case of an acquisition. The company is also exposed to Russian oil-industry-related and political-influence risk, the agency said.

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