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Gazprom boosted by ‘resource nationalism’

Thursday, 30 November 2006

US credit rating agency Standard & Poor’s lifted Gazprom’s status to “BBB” from “BBB-”, though it didn’t see any improvement in the “credit quality” but rather in the country’s entrenched status as a government-related entity.

“Gazprom fulfils an important public policy role by supplying about 41 percent of the country's energy requirements at very low regulated prices,” S&P said in a statement.

The report pointed out that Gazprom was an important sate tool as it provided about 14 percent of federal tax revenues and about 13 percent of Russia's exports.

Gazprom also enjoyed strong access to international financial markets.

“Its default would be a reputational blow for the government,” S&P said.

“Russia has made ‘resource nationalism’ a priority; therefore, the government is demonstrating increased willingness to support Gazprom, through access either to profitable business opportunities or liquidity from state-controlled financial institutions, or even potentially through extraordinary actions,” the report added.

“As one of the government's key tools in acquiring control over strategic assets and projects, Gazprom plays an increasingly important role in Russia's foreign policy” S&P said..

“The government's considerable ability to offer financial support is highlighted by its substantial liquidity reserves and the growing size of state-owned banks, which could be used to provide Gazprom with liquidity, if unavailable in the market,” the report added.

The last available figures showed that Gazprom had $30.6 billion in on-balance-sheet debt, $1.5Bln in guarantees, about $6.6Bln in post-retirement liabilities, and $600 million in asset retirement obligations.

Gazprom’s cash and liquid assets amounted to $9.3Bln.

“Gazprom's credit quality is hampered by its aggressive financial profile, with modest free cash flow generation, still-high overall debt, a high proportion of short-term debt, and large capital-expenditure needs to support the core business” S&P said.

“These weaknesses are offset by the company's satisfactory business profile, featuring huge gas reserves; massive production; vertical integration among exploration, production, and transportation; and a solid market share in Europe that is unlikely to erode,” the report said.