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UPDATE: Gazprom, Rosneft May be Cut by Moody's

April 1, 2014 12:24 PM EDT
(Updated - April 1, 2014 12:29 PM EDT)

Moody's Investors Service has today placed on review for downgrade the Baa1 ratings of the Government-related Issuers (GRI) OJSC Gazprom (OTCBB: GZPFY)) and OJSC Oil Company Rosneft (OTCBB: RNFTF), and the Baa1 ratings of their respective guaranteed debt-issuing subsidiaries. Concurrently, Moody's has placed on review for downgrade the Baa2 ratings of Gazprom Neft JSC, a subsidiary of Gazprom, and Baa1 ratings of Rosneft International Holdings Limited (RIHL), a subsidiary of Rosneft, and the respective ratings of their guaranteed debt-issuing subsidiaries.

Gazprom's Prime-2 short-term rating is not affected by this review and remains unchanged

These rating actions follow Moody's placement of Russia's Baa1 government bond rating on review for downgrade on 28 March 2014. For additional information, please refer to the related announcement: https://www.moodys.com/research/Moodys-places-Russias-Baa1-government-bond-rating-on-review-for--PR_294200

RATINGS RATIONALE

The placement of Gazprom's and Rosneft's senior unsecured issuer ratings on review for downgrade reflects Moody's view that the ratings of the companies are closely aligned with that of the sovereign, and that they remain sensitive to changes in sovereign creditworthiness. As noted previously, Moody's views Russia's weak institutional strength assessment as an impediment to rating Gazprom and Rosneft above the sovereign's rating level.

The placement of Gazprom Neft's Baa2 and RIHL's Baa1 senior unsecured issuer ratings on review for downgrade reflects these companies' close operating and financial linkage with their respective parents' ratings.

At this point, Moody's expects that the ratings of Gazprom and Rosneft will not differ from the rating of the sovereign at the end of the rating review, and that their subsidiaries' ratings will maintain their current positioning relative to their respective parents

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure on all four companies' ratings is unlikely at present, given the review for downgrade. Moody's could confirm the ratings if it were to confirm Russia's government bond rating at the current level, provided that there is no material deterioration in the companies' operating and financial performance and liquidity.

Conversely, Moody's would downgrade the ratings of all four companies as a result of a downgrade of Russia. In addition, a re-assessment of the probability that the government will provide extraordinary support to the company in the event of financial distress could cause negative pressure on the ratings of Rosneft and RIHL, considering the lower stand-alone credit assessment of Rosneft (BCA at ba1). Moody's also notes the reliance of Rosneft and RIHL on refinancing over the next 18 months.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was the Global Integrated Oil & Gas Industry published in November 2009. Other methodologies used include the Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.


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