OREANDA-NEWS. Fitch Ratings says it is too early to tell what the impact of the arbitration court ruling on Joint Stock Oil Company Bashneft (Bashneft, BB/Rating Watch Negative (RWN)) released 30 October 2014 will be for the ratings of the company, its parent Sistema Joint Stock Financial Corporation (Sistema, BB-/RWN) and Sistema's other subsidiaries, OJSC Mobile TeleSystems (MTS, BB+/RWN) and OJSC MTS Bank (MTS Bank, B+/RWN). The ratings of these entities remain on RWN. Fitch will aim to resolve the RWN by mid-March 2015.

The Moscow Arbitration court ruled on 30 October 2014 to effectively nationalise AFK Sistema's stake in Bashneft. The ruling will become effective in one month, and Sistema will technically have one month to appeal. Sistema has issued a press release saying it does not agree with the ruling and is considering an appeal.

The ruling does not contain a request to return all dividends paid out to Sistema after the acquisition, which is potentially positive for both Sistema and MTS. However, Fitch understand the prosecutors retain flexibility to revisit this issue at a later stage. The uncertainty over the likely outcome of this litigation is reflected in the RWN.

While the consequences of the whole situation around Sistema and Bashneft are still unclear, in our view, the ruling makes it unlikely that Bashneft remains a part of Sistema.

Assuming the potential appeal does not succeed, the long-term implications for Bashneft remain vague. For example, it is not clear whether the state would attempt to change the management team, which has proved efficient in boosting the company's oil production over the past five years, or if the company's relatively aggressive dividend policy will change. Also, it is possible that at some stage Bashneft may be de-privatised. In any scenario, Bashneft's creditworthiness could be affected by its relationship with a new owner, whether this is the state or a private company.