S&P improves Gazprom Neft rating outlook to stable
MOSCOW. Dec 7 (Interfax) - Standard & Poor's Ratings Services has revised its outlook on the Russian vertically integrated oil company JSC Gazprom Neft to stable from negative, the agency said in a press release.
At the same time, the 'BBB-' long-term corporate credit and 'ruAA+' Russia national scale ratings were affirmed.
"The outlook revision reflects our view that Gazprom Neft's healthy free cash flow performance should help digest its recent sizable acquisitions without impairing credit metrics or liquidity," said Standard & Poor's credit analyst Elena Anankina.
S&P has also gained increased comfort of the company's liquidity, which we once again assess as "adequate", as well as on potential support, if needed, from parent OAO Gazprom (BBB/Stable/A-2).
S&P's ratings on Gazprom Neft primarily reflect the group's stand-alone credit profile of 'bb+', to which S&P adds one notch for potential support from its 96% owner, Gazprom, in line with S&P's parent-subsidiary criteria. Gazprom Neft's stand-alone credit profile reflects our assessment of a "fair" business risk profile and "significant" financial risk profile. The one-notch uplift for potential parental support balances Gazprom's control over key strategic decisions and management with the relative autonomy of Gazprom Neft's operations and finances in such a large, gas-oriented group. Historically, Gazprom Neft's large acquisitions have been financed with the company's own debt and cash flow.
S&P continues to view the company's acquisitive policy as a risk. However, S&P believes that recent acquisitions, together with the pending purchase of Orenburgneft from Gazprom, should be supportive for the company's business profile, as new reserves should help offset natural decline at existing mature fields.
"The stable outlook reflects Gazprom Neft's currently robust performance, supported by favorable oil prices, which should help it accommodate the acquisitions of Severenergia and Sibir Energy without any material increase in debt year on year," said Anankina.
S&P also expects credit metrics to retain some headroom until year-end 2010, on the basis of forecast adjusted debt of just above $6.0 billion, and a forecast ratio of FFO to adjusted debt above 80% and the ratio of adjusted debt to EBITDA of about 1.0x. Ratio expectations at the current rating include FFO to adjusted debt of above 50% and adjusted debt to EBITDA of about 1.5x, under our midterm oil price working assumptions of $70-$65 per barrel.
S&P believes that Gazprom Neft should be able to manage the changes in the Russian tax regime currently being discussed because although the company's refining cover is among the highest in the industry, its product mix is relatively favorable and its product exports are low.
S&P might lower the ratings if Gazprom Neft makes large debt-financed acquisitions that are not offset by parental support.
On the other hand, S&P might revise the stand-alone profile higher on stronger evidence of parental support in the future.