Fitch Ratings Affirms TNK International; Withdraws Issue Ratings.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 23, 2002

Fitch Ratings has affirmed the senior unsecured rating of TNK International Ltd. (TNK) at 'B+'. In addition, Fitch withdraws the ratings of the proposed fixed-rate loan participation notes to be issued by OAO Tyumen Oil Company (OAO TNK), a subsidiary of TNK, following the group's announcement that the notes programme will be withdrawn.

The cancellation follows the withdrawal of the audit opinion on TNK's 2001 accounts by the group's auditors PricewaterhouseCoopers (PwC), given PwC's retrospective decision to apply acquisition cost rather than historic cost valuation for certain of the group's assets. Fitch does not currently regard the withdrawal of this audit opinion as a cause for wider concern. The only risks generated by the withdrawn audit opinion are; 1) the impact of a technical restatement may lead to a breach of financial ratio covenants, which Fitch understands from discussions with the company and its auditor is considered unlikely, and, 2) the risk that the restatement may delay the terming-out of TNK's short-term debt burden.

Neither PwC nor TNK has currently provided an estimate of the dollar-value net effect of this restatement. PwC have confirmed in writing, however, that the 'effect of this amendment will be a reduction in the cost of oil and gas properties and shareholder's equity of TNK International Ltd.'. PwC have further confirmed that 'the adjustments will not impact cash flow from operations or negatively impact income before minority interests', and that 'the amendment is the result of a technical adjustment. It is not a consequence of, for instance, a revenue recognition issue or an off-balance sheet transaction. There is no question of any intentional misstatement of the financial statements".

In its analysis, Fitch typically gives high priority to cash flow generation, in preference to purely balance sheet based credit metrics. The group's financial obligations, however, do contain a number of minimum net worth calculations, laid out in Fitch's research report dated March 2002. A ratio limiting debt to 50% of net worth had previously been renegotiated upwards to the standard ratio for lending facilities of net debt to 150% of net worth. This would have equalled a 'cap' of c. US$6 billion under the originally audited accounts, and compares to net debt of US$ 2.5 billion at year-end (YE) 2001. The covenant included within the bond of 75% may have come under pressure as a consequence of the restatement, though Fitch expects that this will be renegotiated for future issues.

Fitch does not regard the covenanted ratios with relation to net worth as of particular significance in absolute terms (their value typically lying in restricting the incursion of additional debt from the date of their inception), and does not regard the ratios currently applicable as a limiting metric for the current ratings of TNK. Should there be a breach of this covenant, this would require waivers to avoid an event of default under those facilities, and would reduce the ability of the company to proceed with the terming out of debt under the proposed bond issue. Fitch understands from the auditors, however, that the scale of the restatement is unlikely to provoke a breach of the relevant ratio-based covenant. Fitch will therefore examine the restatement, once it has been computed by the auditors, to assess the potential impact on covenant-related financial ratios and will comment further at that time. Should the restatement lead, against expectations, to a breach of financial ratio covenants, which remains without waiver from the relevant lending institutions, Fitch anticipates that the ratings would be placed on Rating Watch pending a resolution.