OREANDA-NEWS. Fitch Ratings has affirmed Russia-based Joint Stock Oil Company Bashneft's (Bashneft) Long-Term foreign currency Issuer Default Rating (IDR) at 'BB' with a Positive Outlook. The rating action follows Bashneft's acquisition of Western Siberia's Burneftegaz (BNG), a small oil producer with significant oil resources for USD1bn (RUB35.6bn), including debt

A full list of rating actions is provided at the end of this commentary.

While we believe that the transaction should benefit Bashneft's upstream in the medium term, it will also increase its leverage. We expect Bashneft's funds from operations (FFO) net leverage to approach 2.3x in 2016, up from around 1x at end-2013, leaving the company with little scope for further debtfunded acquisitions on its current ratings trajectory.

Bashneft is a second-tier Russian oil producer that accounts for 3% of oil production and 8% of oil refining output in the country, with assets located mainly in the Republic of Bashkiria. Its ratings reflect concentrated reserves, increasing leverage, high capex and generous dividends but also stable upstream and downstream operations and solid operating cash flows.

The Positive Outlook reflects Bashneft's progress with the development of the Trebs and Titov (T&T) oilfields in the north of Russia and our expectation that T&T will start generating positive free cash flows after 2017-2018. Bashneft's ratings include a two-notch discount to reflect Russia-specific and regulatory risks, in line with our approach to Russian issuers.