Russia’s largest oil company, Kremlin-controlled Rosneft, posted IFRS results for the fourth quarter of 2016, with revenues up by 9% quarter-on-quarter to $23.5bn.

The company’s revenues in the reporting quarter were supported by both the output of Rosneft and the recently acquired Bashneft oil company, which was fully consolidated into Rosneft’s report.

VTB Bank commented on February 23 that Rosneft’s revenues were in line with the bank’s forecast and 2% above the consensus market expectations.

“Although headline financials came close to our and consensus estimates, we are concerned by growing net debt and weaker FCF [Free Cash Flow] generation,” Renaissance Capital commented on February 22. Rosneft’s FCF was negative in the fourth quarter of 2016 at -$2bn due the seasonal jump in capex.

Rosneft’s Ebitda stood at $5.2bn or 2% below the consensus for the fourth quarter, with the costs growing by 7% and outperformed the conservative forecast of the bank.

The company’s net income of $824mn in the fourth quarter was 5% below the consensus, being pressured by the minority interest (including Bashneft) and heavy tax burden. Rosneft’s effective tax rate stood at 48% versus VTB’s expectation of 23%.

However, while by Rosneft’s own estimates the net debt at the end of 2016 grew only marginally to $31.2bn from $26.1bn in the reporting quarter, Renaissance Capital estimates that including prepayments on supplies the net debt stood at $78.3bn.

VTB Capital also noted that “the company has disclosed issued sureties to banks in the amount of $9.5bn within hydrocarbon trading contracts”, which “could theoretically be treated as debt”.

Renaissance Capital reduced the Target Price for Rosneft to $6.4/GDR (from $7.4/GDR) mostly due to higher than expected net debt. The bank warns that without signs of deleveraging (not expected for another one to two quarters), an unlikely material impact from acquisitions and higher dividends may cause Rosneft’s stock to lag behind that of its peers.

However, Renaissance Capital sees upside potential from possible tax breaks that Rosneft requested at the end of 2016 for depleted fields in West Siberia.