Gazprom: Shift From Stable To Positive

Standard & Poor's Ratings Services has revised its outlook on Russian gas monopoly Gazprom to positive from stable, due to the potential benefits of the Russian government's achievement of direct majority control over the group, Cbonds.info reported.

At the same time, Standard & Poor's affirmed its 'BB-' long-term corporate credit rating on the company.

Furthermore, the proposed senior unsecured $646 million notes to be issued by Gazstream S.A. for the sole purpose of financing a loan to Gazprom and Blue-Stream Pipeline Co. were rated ?BB-?. The issue benefits from an unconditional and irrevocable guarantee by Gazprom and therefore ranks pari passu with Gazprom?s senior unsecured debt. The issue proceeds will be used to refinance existing secured debt.

In addition to the increased support that might result from the government's purchase of the 10.7% treasury stock that will give it direct majority control over the company, favorable international gas prices for 2005 and beyond, and gradually increasing domestic gas prices are also positive rating developments. Furthermore, the group?s strong negotiating position for gaining access to gas projects undertaken by international and Russian oil companies should have a favorable financial impact as risks and funding requirements are shared or reduced.

Standard & Poor?s will evaluate the use of a $7 billion payment to be received by Gazprom as the government acquires majority control. This amount could be used for reducing net debt, financing capital expenditure, or making acquisitions. In the last case, the quality of such acquisitions and any debt implications will need to be monitored. The payment itself and its timing would depend on the implementation of the government?s plan to raise financing via Rosneftegas, the 100% government-owned entity whose most significant asset is Rosneft (B-/Watch Neg/--), which may be a complex and challenging task.