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Rating Action:

Moody's downgrades 8 Russian non-financial corporates

20 Jan 2015

Ratings remain on review for downgrade

London, 20 January 2015 -- Moody's Investors Service has today downgraded the ratings of seven Russian non-financial corporates and their supported subsidiaries to Baa3 from Baa2, and one additional non-financial corporate to Ba3 from Ba2. These ratings remain on review for downgrade.

For a list of the eight affected Russian non-financial ratings, please refer to the end of this press release.

Today's action follows the weakening of Russia's credit profile, as reflected by Moody's downgrade of Russia's government bond rating to Baa3/Prime-3 (P-3) from Baa2/Prime-2 (P-2) on Friday 16 January and its placement of the rating on review for further downgrade. Concurrently, Moody's downgraded the foreign-currency bond ceiling to Baa3/P-3 from Baa2/P-2 and local-currency bond/deposit ceilings to Baa2 from Baa1. Russia's foreign-currency deposit ceiling remains unchanged at Ba1/NP. For additional information, please refer to the related announcement https://www.moodys.com/research/--PR_316487.

The ratings of the non-financial corporates affected by today's announcement remain on review for downgrade because of (1) the current review for downgrade of the sovereign debt rating; and (2) the companies' resilience to increased risk arising from the prevailing negative operating conditions, as described in Moody's earlier rating action on 45 Russian non-financial corporates (see "Moody's reviews for downgrade ratings of 45 Russian non-financial corporates", 23 December 2014.

RATINGS RATIONALE

The weakening of Russia's credit profile, as captured by Moody's downgrade of the sovereign to Baa3 from Baa2 has prompted the rating actions on these eight non-financial corporates as they face an increasingly challenging domestic operating environment.

The key drivers behind the downgrade of Russia's sovereign rating are Moody's (1) expectation that the substantial oil price and exchange rate shock will further undermine the country's already subdued growth prospects over the medium term; and (2) nearer-term concerns over the negative impact of the erosion in official foreign-exchange buffers and fiscal revenues on the government's financial strength. Both these factors are also leading to heightened systemic risks for Russia's corporates.

According to Moody's, the severe -- and likely to be sustained -- oil price shock, coupled with Russian borrowers' highly restricted access to the international market due to ongoing sanctions, is undermining economic fundamentals and increasing financial stresses on both the public and private sectors, contributing to the challenges for Russian corporates. Moody's expects real GDP contractions of around 5.5% in 2015 and 3% in 2016, bringing real growth over the 10 years through 2018 to virtually zero. Moody's believes that even for corporates without foreign-currency refinancing needs, the likely continued severe deterioration of the operating environment might lead to a substantial weakening in their credit profiles.

FACTORS TO BE CONSIDERED IN THE RATING REVIEW

Moody's will continue its review of Russian corporates, including those not affected by this action but placed on review for downgrade on 23 December 2014, for their resilience to the increased risk arising from the prevailing negative operating conditions in the domestic market.

In addition, Moody's will also consider adjusting its assumptions regarding the Russian government's willingness to provide support to Russian corporates in the event of need. This consideration reflects the risk that the government's supportive stance towards a particular corporate may weaken if it faces requests for support from many entities and sectors. It also reflects the rising, albeit still low, risk that domestic Russian entities will be unable to access foreign currency to service their foreign-currency debt obligations, given recent and prospective pressure on Russia's foreign-currency reserves.

While Russia's foreign-currency reserves remain substantial, if they continue to diminish rapidly, the government may consider rationing the provision of foreign currency to the economy, including the financing of non-financial corporates, in an adverse scenario.

WHAT COULD CHANGE RATINGS UP/DOWN

Moody's believes there is little likelihood of any upward rating pressure for the corporates affected by today's announcement, unless operating conditions improve materially. The rating agency may consider confirming the ratings of the affected companies in the event that the economic environment stabilises or the companies show sufficient resilience to potential further deterioration of the macroeconomic environment.

The rating agency may take negative rating actions on the affected corporates in the event of (1) continued deterioration of the operating environment; (2) a deeper and more protracted decline in economic activity in Russia than previously anticipated; and (3) an increase in the likelihood that the Russian government is forced to consider rationing the provision of foreign currency to the economy.

LIST OF AFFECTED RATINGS

Downgrades:

..Issuer: Federal Passenger Company OJSC

.... Issuer Rating (Foreign Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

.... Issuer Rating (Local Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: Gazprom Neft JSC

.... Issuer Rating (Foreign Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: GPN Capital S.A.

....BACKED Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa3 from (P)Baa2; Placed Under Review for further Possible Downgrade

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: IRKUT Corporation, JSC

.... Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD; Placed Under Review for further Possible Downgrade

.... Corporate Family Rating (Foreign Currency), Downgraded to Ba3 from Ba2; Placed Under Review for further Possible Downgrade

.... Corporate Family Rating (Local Currency), Downgraded to Ba3 from Ba2; Placed Under Review for further Possible Downgrade

..Issuer: LUKOIL International Finance B.V.

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: MMC Finance Limited

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: OAO LUKOIL

.... Issuer Rating (Foreign Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

.... Corporate Family Rating (Foreign Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: OJSC MMC Norilsk Nickel

.... Issuer Rating (Foreign Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

.... Issuer Rating (Local Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: OJSC Oil Company Rosneft

.... Issuer Rating (Local Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: Rosneft Finance S.A.

....BACKED Senior Unsecured Medium-Term Note Program (Foreign Currency), Downgraded to (P)Baa3 from (P)Baa2; Placed Under Review for further Possible Downgrade

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: Rosneft International Finance Limited

....BACKED Senior Unsecured Medium-Term Note Program (Foreign Currency), Downgraded to (P)Baa3 from (P)Baa2; Placed Under Review for further Possible Downgrade

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: Rosneft International Holdings Limited

.... Issuer Rating (Foreign Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

.... Issuer Rating (Local Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: Russian Railways Joint Stock Company

.... Issuer Rating (Foreign Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

.... Issuer Rating (Local Currency), Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

..Issuer: RZD Capital PLC

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2; Placed Under Review for further Possible Downgrade

Outlook Actions:

..Issuer: Federal Passenger Company OJSC

....Outlook, Remains as Rating Under Review

..Issuer: Gazprom Neft JSC

....Outlook, Remains as Rating Under Review

..Issuer: GPN Capital S.A.

....Outlook, Remains as Rating Under Review

..Issuer: IRKUT Corporation, JSC

....Outlook, Remains as Rating Under Review

..Issuer: LUKOIL International Finance B.V.

....Outlook, Remains as Rating Under Review

..Issuer: MMC Finance Limited

....Outlook, Remains as Rating Under Review

..Issuer: OAO LUKOIL

....Outlook, Remains as Rating Under Review

..Issuer: OJSC MMC Norilsk Nickel

....Outlook, Remains as Rating Under Review

..Issuer: OJSC Oil Company Rosneft

....Outlook, Remains as Rating Under Review

..Issuer: Rosneft Finance S.A.

....Outlook, Remains as Rating Under Review

..Issuer: Rosneft International Finance Limited

....Outlook, Remains as Rating Under Review

..Issuer: Rosneft International Holdings Limited

....Outlook, Remains as Rating Under Review

..Issuer: Russian Railways Joint Stock Company

....Outlook, Remains as Rating Under Review

..Issuer: RZD Capital PLC

....Outlook, Remains as Rating Under Review

The principal methodology used in rating IRKUT Corporation, JSC was Global Aerospace and Defense Industry published in April 2014. Other methodologies used include the Government-Related Issuers published in October 2014.

The principal methodology used in rating OJSC Oil Company Rosneft and Rosneft International Finance Limited was Global Integrated Oil & Gas Industry published in April 2014. Other methodologies used include the Government-Related Issuers published in October 2014.

The principal methodology used in rating OAO LUKOIL, LUKOIL International Finance B.V., Gazprom Neft JSC, GPN Capital S.A., Rosneft International Holdings Limited and Rosneft Finance S.A. was Global Integrated Oil & Gas Industry published in April 2014.

The principal methodology used in rating OJSC MMC Norilsk Nickel and MMC Finance Limited was Global Mining Industry published in August 2014.

The principal methodology used in rating Federal Passenger Company OJSC was Global Passenger Railway Companies published in March 2013.

The principal methodology used in rating Russian Railways Joint Stock Company and RZD Capital PLC was Global Surface Transportation and Logistics Companies published in April 2013. Other methodologies used include the Government-Related Issuers published in October 2014.

Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The person who approved Gazprom Neft JSC, GPN Capital S.A., OJSC Oil Company Rosneft, Rosneft International Finance Limited, Rosneft International Holdings Limited and Rosneft Finance S.A., OAO LUKOIL and LUKOIL International Finance B.V. credit ratings is David Staples, MD-Corporate Finance, Corporate Finance Group, Journalists 44 20 7772 5456, Subscribers 44 20 7772 5454.

The person who approved OJSC MMC Norilsk Nickel, MMC Finance Limited, Russian Railways Joint Stock Company, RZD Capital PLC, Federal Passenger Company OJSC and IRKUT Corporation, JSC credit ratings is Jean-Michel Carayon, Senior Vice President, Corporate Finance Group, Journalists 4420 7772 5456, Subscribers 44 20 7772 5454.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Julia Pribytkova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades 8 Russian non-financial corporates
No Related Data.
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