Tuesday, January 17, 2006
OAO Gazprom Rating Raised To 'BB+'
17/01/2006 (10:42) RZD NEWS – Standard & Poor's Ratings Services said yesterday that it raised its long-term corporate credit rating on Russia-based gas company OAO Gazprom to 'BB+' from 'BB', in view of an increase in state support, and following the $7 billion purchase of the company's treasury stock by the Russian state-owned special-purpose vehicle Rosneftegas. The outlook is positive. The rating upgrade reflects the cash payment from Rosneftegas, which, together with higher export prices, has allowed Gazprom to limit increases in year-end parent debt to about $23 billion (closer to $28-$30 billion including subsidiary debt). In particular, this helped the company to prepay $8 billion of the $13 billion loan raised to finance the acquisition of Sibneft by the end of 2005. "We also expect Gazprom to benefit from a greater degree of state support as its links with the government become stronger, and in view of recent improvement in the sovereign credit quality," said Standard & Poor's credit analyst Elena Anankina. The foreign currency ratings on the Russian Federation were raised to 'BBB/Stable/A-2' on Dec. 15, 2005. As the key government-related entity in Russia's strategic oil and gas sector, Gazprom enjoys a strong hold on new hydrocarbon projects in the country; and substantial bargaining power in structuring consortiums for oil and gas projects with international partners, as well as negotiating gas supply and transit contracts. The Russian government has demonstrated a policy of increasing its presence in the country's key oil and gas sector through state-owned entities--a position illustrated by the increase of its holding in Gazprom to 50% from 39%, in 2005. The situation with regard to the recent dispute on gas transit and supply terms with Ukraine (foreign currency BB-/Stable/B; local currency BB/Stable/B) also evidences the close links with, and support from, the Russian government. Accordingly, our corporate credit rating on Gazprom currently includes one notch of state support. Gazprom remains subject to general political and emerging market risks related to Russia, however. The unpredictable nature of Russian government policy, potential investment mandates and still very low regulated domestic gas prices (averaging $36/mcm in 2005), together with substantial financial debt levels, remain key constraints on the rating on Gazprom. At June 30, 2005, Gazprom had $22.7 billion of consolidated on-balance-sheet debt, $2.7 billion in guarantees, and about $1 billion of postretirement liabilities. "A one-notch upgrade of the long-term corporate credit rating on Gazprom is possible, based on continued evidence of state support, or on likely further improvement of its stand-alone credit quality," said Ms. Anankina. Gazprom's debt maturity profile should benefit from the expected financing of the short-term Sibneft acquisition debt, and higher free cash flow generation in light of an increase in gas prices for 2006. Increases in debt, ambitious further acquisitions, or a higher share of short-term debt or annual debt maturities, could limit upside potential for the ratings.