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Moody’s affirms Gazprom, Gazprom Neft ratings

October 21, 2014, 23:27 UTC+3 LONDON
Outlook negative
1 pages in this article

LONDON, October 21. /TASS/. Moody's Investors Service on Tuesday affirmed the Baa1 ratings of the government-related issuer (GRI) state-controlled energy giant Gazprom and the Baa2 ratings of its subsidiary Gazprom Neft JSC, and the respective ratings of their guaranteed debt-issuing subsidiaries, the ratings agency said.

The outlook on all ratings is negative, it said.

“These actions follow the weakening of Russia's credit profile, as reflected by Moody's downgrade of Russia's government bond rating to Baa2 from Baa1 on 17 October 2014,” Moody’s said.

“The affirmation of Gazprom's issuer rating reflects Moody's view that the strength of the company's business, operating and financial profile, as well as its importance for the government, position its rating one notch above the sovereign rating at Baa1,” it said.

The key strengths of Gazprom's franchise, according to Moody’s, are that the company has “the world's largest natural gas reserves (18% of global and 70% of Russian gas reserves)” and that it has a “unique business profile as Russia's largest producer and monopoly exporter of gas, and owner and operator of the world's largest gas transportation and storage system.”

The strong points also include Gazprom’s “market position as Europe's largest gas supplier together with Norway's Statoil ASA”, “strong financial metrics and free cash flow generation, underpinned by contracted foreign currency-denominated revenues and modest leverage” and “the economic, political and reputational importance of the company to the Russian state.”

Moody’s said Gazprom “demonstrates strong lobbying power with the government, and enjoys a relatively favorable taxation and regulatory regime, as well as moderate demands on its liquidity in the form of dividend distributions stipulated by the government for state-owned corporates.”

The ratings agency said that the above-mentioned characteristics, in its view, reduce the probability of the government's negative intervention in current economic conditions, and somewhat “insulate the company's operations from potential sovereign stress,” adding that “Gazprom has a strong liquidity profile.”

“The affirmation of Gazprom Neft's (98% owned by Gazprom) Baa2 rating reflects the company's close operating and financial linkage with its parent's ratings, supported, inter alia, by the presence of a cross default clause, which includes Gazprom Neft, in Gazprom's debt documentation and its strong positioning in the Baa2 rating category,” Moody’s said.

The international ratings agency noted that Gazprom Neft was put on the US and EU sectoral sanctions lists, “a development that effectively undermines the company's access to external financing, at least in the western financial and capital markets, as well as its ability to continue cooperating with western partners on complex development projects”, whereas Gazprom is not subject to such sanctions.

Moody’s said its negative outlook on all ratings reflects its view that the two companies' ratings are “sensitive to changes in the sovereign creditworthiness, notwithstanding the current differential between Gazprom's and the government's ratings.”

Moody’s downgraded the Russian government’s debt rating on October 17, 2014 to Baa2 from Baa1.

The key reasons for the downgrade, it said, were Russia's “increasingly subdued medium-term growth prospects, exacerbated by the prolongation of the Ukraine crisis, including through the impact of expanded international sanctions” and “the gradual, but ongoing erosion of the country's foreign-exchange buffers due to capital flight, Russian borrowers' restricted international market access and low oil prices.”

The West announced new sectoral sanctions against Russia in late July, and later extended them, over Moscow’s position on Ukrainian events, in particular, what the West claimed was Moscow’s alleged involvement in mass protests in Ukraine’s war-torn southeast.

Russia has repeatedly dismissed Western allegations that it could in any way be involved in hostilities in the southeast of Ukraine.

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