Fitch Places Bulgaria's Petrol AD 'B-' Rating on Watch Negative

"The rating action is driven by concerns over a sizeable share repurchase undertaken by the company in Q2 '08, which was not in accordance with the planned use of proceeds from the asset disposal to [its competitor] Lukoil Bulgaria, and concerns that the management is not acting consistently with its strategy as laid out to Fitch earlier this year," the rating agency said in a statement late on Tuesday.

In April, Petrol said it would sell 75 petrol stations and an oil storage depot to the Bulgarian unit of Russia's oil giant Lukoil in a deal worth a combined 237 million euro.

According to Fitch, Petrol has carried out a share buyback worth 90.7 million levs ($65.2 million/46.4 million euro) which it said immediately benefited shareholders to the detriment of bondholders and was "a quasi-dividend payment, although the company says it is a temporary investment of disposal proceeds."

"The sizeable losses on derivative transactions in Q2 '08, as well as increased loans granted to related parties outside the Petrol AD group of 20.3 million levs, are an additional cause for concern and are also not in accordance with planned spending of disposal proceeds," Fitch said.

The rating agency added that the Rating Watch Negative also reflects the fact that it is still awaiting detailed responses to "a series of questions posed to the company post the Q2 '08 results announcement in early September."

Fitch expects to receive additional information from the company in the next two weeks, in particular information relating to the volume replacement process for oil products, following which it may resolve the RWN.

"Fitch continues to be concerned about the company's corporate governance especially with regard to sizeable related-party transactions, including inter-company loans, debt guarantees and purchasing of company shares by Petrol AD's subsidiaries," Fitch said in the statement.

Petrol (www.petrol.bg) is 69.1%-owned by Bulgaria's Petrol Holding group.

Shares of the company closed 4.53% lower at 8.0 levs on the Bulgarian Stock Exchange on Wednesday in a volume of 450 stocks.

(1 euro = 1.95583 Bulgarian levs)