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Rating Action:

Moody's downgrades Gazprom's foreign and local currency ratings to Baa3 and Baa2

20 Jan 2015

Ratings on review for downgrade

London, 20 January 2015 -- Moody's Investors Service has today downgraded OJSC Gazprom's foreign-currency ratings to Baa3 from Baa2 and local-currency ratings to Baa2 from Baa1. Concurrently, Moody's has downgraded to Prime-3 from Prime-2 the short-term foreign-currency ratings and affirmed the Prime-2 short-term local-currency ratings of Gazprom and its supported entities. All ratings are on review for downgrade.

For a list of the affected 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 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.

RATINGS RATIONALE

Today's rating action on Gazprom has been prompted by (1) the weakening of Russia's credit profile, as captured by Moody's downgrade of the sovereign to Baa3 from Baa2; (2) concerns that, given current economic conditions, the probability of negative government intervention has increased in Gazprom's business operations; and (3) the possibility that the company's operations may become less insulated from potential sovereign stress.

The key drivers behind Russia's downgrade 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.

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. 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. The deteriorating economic conditions have led Moody's to note its increased concerns over the potential for negative government intervention in Gazprom's operations.

FACTORS TO BE CONSIDERED IN THE RATING REVIEW

Moody's review for downgrade will assess Gazprom's resilience to the increased risk from the prevailing negative operating conditions in Russia.

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, thereby focussing on the sensitivity of Gazprom's ratings to changes in sovereign creditworthiness.

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 over coming months, 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 THE RATINGS UP/DOWN

Moody's believes there is little likelihood of any upward rating pressure for Gazprom at present, unless operating conditions improve materially. The rating agency would consider confirming Gazprom's ratings in the event that the economic environment stabilises or the company shows sufficient resilience.

Moody's could downgrade Gazprom's ratings as a result of a material deterioration in the company's operating environment and business profile, and/or a deterioration in sovereign creditworthiness.

LIST OF AFFECTED RATINGS

Downgrades:

..Issuer: OJSC Gazprom

.... Issuer Rating (Foreign Currency), Downgraded to P-3 from P-2; Placed Under Review for further Possible Downgrade

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

.... Issuer Rating (Local Currency), Downgraded to Baa2 from Baa1; Placed Under Review for further Possible Downgrade

..Issuer: OOO Gazprom Capital

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Baa2 from Baa1; Placed Under Review for further Possible Downgrade

..Issuer: Gaz Capital S.A.

....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

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

..Issuer: Gazprom ECP S.A.

....BACKED Senior Unsecured Commercial Paper, Downgraded to P-3 from P-2; Placed Under Review for further Possible Downgrade

Affirmations:

..Issuer: OJSC Gazprom

.... Issuer Rating (Local Currency), Affirmed P-2

Outlook Actions:

..Issuer: Gaz Capital S.A.

....Outlook, Changed To Rating Under Review From Negative

..Issuer: OJSC Gazprom

....Outlook, Remains as Rating Under Review

..Issuer: OOO Gazprom Capital

....Outlook, Remains as Rating Under Review

PRINCIPAL METHODOLOGIES

The principal methodology used in these ratings was Global Integrated Oil & Gas Industry published in April 2014. 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.

Headquartered in Moscow, Russia, OJSC Gazprom is one of the world's largest integrated oil and gas companies and is focused on the exploration, production and refining of gas and of oil (via its subsidiary Gazprom Neft JSC (Baa3 review for downgrade), as well as the transportation and distribution of Russian gas to domestic, former Soviet Union (FSU) and European markets. Gazprom also owns and operates the Unified Gas Supply System (UGSS) in Russia, which is the world's largest gas transportation, storage and processing system, comprising nearly 168,900 kilometres of high-pressure trunk pipelines and 26 underground gas storage facilities, and is the leading exporter of gas to Western Europe. In the 12--month period ended 30 June 2014, Gazprom generated sales of approximately $164.5 billion and EBITDA of $59 billion (as adjusted by Moody's).

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.

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

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Moody's downgrades Gazprom's foreign and local currency ratings to Baa3 and Baa2
No Related Data.
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