West, East Give Conflicting Ratings To Gazprom

Depending on your point of view, either Gazprom and other Russian energy companies are strong credit risks or faring as badly as their government, beset by low oil prices and harsh Western sanctions.

On Feb. 5, the US financial services company Standard & Poor's downgraded its ratings on 14 Russian companies, most notably Gazprom. And yet China's rating agency, Dagong Global, has just awarded Gazprom an AAA rating, its highest.

S&P's action came 11 days after it downgraded the Russian government itself to one step below investment grade, or "junk" status. Two other rating agencies, Fitch and Moody's also downgraded Russia's government bond rating to junk or near-junk status.

"We have reviewed our ratings on Russian corporations in the commodity exports, telecommunications and infrastructure and utility sectors," S&P said in a statement. "We are consequently lowering our ratings on 14 companies and subsidiaries, affirming the ratings on 10 companies and subsidiaries, and revising several outlooks to negative."

S&P's most notable targets were Russian energy companies. It said it took action against Gazprom, its oil affiliate Gazprom Neft, Rosneft, Transneft and Novatek because all have strong links to the Russian government and therefore their ratings cannot be higher than the Kremlin's.

"For Gazprom and its subsidiary Gazprom Neft, this is largely because of likely negative intervention from the government, which these financially strong companies could be subject to if the sovereign runs into financial difficulty," the ratings agency said.

Novatek also was downgraded in part because it is specifically named in the sanctions imposed last year by the European Union and the United States, limiting its access to Western capital. Rosneft fell because it has a credit profile weaker than Gazprom's, Gazprom Neft's and Novatek's. Transneft's rating fell in line with the earlier downgrade of the Russian government.

Lukoil's rating was affirmed because of strong foreign currency reserves, though S&P said, "[W]e could change our approach if the company's hard currency liquidity resources declined while its hard currency short-term maturities increased."

In contrast, on Feb. 2 Dagong Global, China's rating agency, gave Gazprom an AAA rating, its highest, and its president, Guan Jianzhong, said the downgrades by the Western ratings agencies were "politically motivated."

"I believe there are no preconditions for these downgrades," Jianzhong told TASS, explaining that Russia's economic development is normal and that any troubles are the result of outside factors such as the Western sanctions.

Dagong cited Gazprom's "extremely strong wealth creation capability, and the very low degree of deviation between its available repayment sources and wealth creation capability." The Chinese agency also said Gazprom's credit rating over the next one to two years was "stable."

Further, Jianzhong said, Russia's recent "shift to the East" will lead to growth because it will find it many customers in the Asia-Pacific region. "This will allow Gazprom to stabilize and improve its mid-term and long-term profitability," he said.

By Andy Tully of Oilprice.com