Standard & Poor’s Ratings Services has raised its corporate credit rating on Russian gas company OAO Gazprom to ‘BB-‘from ‘B+’, reflecting the general improvement in Gazprom’s liquidity situation. The outlook is stable.
“Thanks to a series of unsecured long-term bond issuances completed in 2002 and 2003, Gazprom has managed to extend its debt maturity profile, reduce its short-term financial obligations, and decrease its reliance on secured debt,” says Standard & Poor’s credit analyst Eric Tanguy.
The rating on Gazprom continues to reflect, however, the continuing losses of the company’s domestic operations, its dependence on high international hydrocarbon prices to generate sufficient cashflow to finance substantial capital expenditures, and a liquidity situation that remains slightly weak. The ratings are also constrained by the continuation of a strongly adverse pricing regime in Russia, despite the country’s improving economic conditions, as well as by Gazprom’s vulnerability to the price volatility of European oil products, significant financial leverage, and planned major capital expenditures.
These factors are tempered by Gazprom’s role as the owner and operator of essentially all exploration, production, processing, transportation, and export assets in the natural gas sector of the Russian Federation (foreign currency: BB/Stable/B; local currency: BB+/Stable/B), as well as Gazprom’s privileged position as a supplier to the large and growing western European market.
Generating some 8% of Russia’s GDP, Gazprom accounts for about 20% of Russia’s budget income and one fifth as foreign exchange revenues. The significant influence of Gazprom’s largest single shareholder, Russia, over the company’s operations is also factored into the rating.
Standard & Poor’s expects that Gazprom will withstand pressure to divest parts of either its production or transmission operations and that its debt level will stabilise, despite sustained capital spending.
“Any future ratings change will hinge primarily on improvements in domestic price conditions, beyond the 20% hike expected in 2004,” adds Tanguy. “Given Russia’s improving fiscal and economic environment, increases in the domestic prices for natural gas should be easier to accommodate once national elections are over.”