S&P: Magyar Olaj - es Gazipari unaffected

Standard & Poor's said its ratings on Hungary-based Magyar Olaj- es Gazipari Rt. (BBB-/stable) are unaffected by the company's announced that it has entered into a call option with Hungarian state privatization and holding company APV Rt. to buy back a block of 10% of its share capital, which would cost more than $1.2 billion. This is in addition to the 6.8% of shares on which Magyar Olaj already had a call option from Slovbena.

Magyar Ojaj also announced a new 2006-2010 strategic plan, which is more heavily weighted toward expansion in riskier exploration and production than previously factored into S&P's ratings.

The agency said it believes Magyar Olay has sufficient financial headroom within the current ratings to withstand these changes, however, and expects that management will adhere to its financial policy targets.

Depending on how share buy-backs and future investments are financed, current financial flexibility could be eroded significantly, and any unexpected material acquisition in higher-risk countries could put pressure on the ratings, the agency said.

The ratings remain underpinned, however, by the company's ability to generate free operating cash flow and the favorable medium-term refining industry outlook, as well as management's commitment to adhere to financial policy targets.

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