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S&P: JSC Gazprom Neft Upgraded To 'BBB-' On Stronger Stand-Alone Credit Quality; Outlook Stable

January 10, 2008 | Cbonds

Standard & Poor's Ratings Services said today it raised its corporate credit rating on Russian oil company JSC Gazprom Neft to 'BBB-' from 'BB+', after the company publicly confirmed the purchase of a 50% stake in Russian oil producer JSC Tomskneft. The outlook is stable. At the same time, Standard & Poor's affirmed its 'ruAA+' Russia national scale rating on the company.

"The upgrade reflects Gazprom Neft's strengthening stand-alone credit quality because of a more diversified business profile and still-robust financials," said Standard & Poor's credit analyst Elena Anankina. "It also reflects greater clarity about Gazprom Neft’s financial policy and about the commitment of Gazprom Neft's 76% parent, OAO Gazprom, to expand its oil activities."

The use of a $2.2 billion syndicated bank loan raised by Gazprom Neft in mid-2007 has been confirmed and will part fund the $3.6 billion Tomskneft acquisition. The financing is at the company level, without much reliance on the support of Gazprom (BBB/Stable/--). This has led to a change in our rating approach, which is now bottom up rather than top down. As a result, the rating on Gazprom Neft reflects a 'BB+' stand-alone credit quality, to which we add one notch for parental support.

The stake in Tomskneft will help Gazprom Neft to diversify and increase its asset base. Tomskneft will, however, be managed jointly with another 50% shareholder, Russian state-owned company OJSC Oil Company Rosneft (BB+/Positive/--), which increases Gazprom Neft’s reliance on joint ventures. We will monitor the joint venture arrangements at Tomskneft, as well as at the Slavneft joint venture with TNK-BP Ltd.

"Standard & Poor's expects that Gazprom Neft will maintain strong financial metrics given the continuing high oil price environment," Ms. Anankina added.
Capital expenditures and investments are, however, likely to increase, reflecting the company's need to invest in new fields to offset declines at other major fields.

An equalization of the ratings on Gazprom Neft with those on Gazprom could arise if Gazprom exercises its option to buy the 20% stake in Gazprom Neft from ENI (potentially in 2008-2009); if the company’s strategic importance to Gazprom is further strengthened or Gazprom Neft's operational and financial integration within the Gazprom group increases; or if there is parental support for future acquisitions, either directly or through dividend reductions--for instance, we will monitor whether Gazprom Neft’s dividends are reduced following the debt increase for the Tomskneft acquisition. Rating downside could emerge from sizeable debt-financed acquisitions if these are not offset by parental support.

Company: Gazprom Neft

Full company nameGazprom Neft (former Sibneft PJSC)
Country of riskRussia
Country of registrationRussia
IndustryOil and gas

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