Gaz Capital S.A. -- Moody's assigns (P)Baa1 rating to Gazprom's proposed notes issuance; stable outlook

The notes will be denominated in US dollars and euros, and placed in two tranches with different long-term maturities. The notes issuance will be executed as part of the framework of Gazprom'sUSD30 billion Loan Participation Notes programme. Given that the proceeds from the issuance will be on-lent by Gaz Capital S.A. to Gazprom, the noteholders are relying solely on Gazprom's credit quality to service and repay the debt. The obligation of Gazprom will rank senior unsecured and will be pari passu with other senior unsecured obligations of the company. The funds will be used by Gazprom for general corporate purposes, including a partial refinancing of short-term debt.

Upon a conclusive review of the transaction and associated documentation, Moody's will assign a definitive rating to the notes issuance. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

Moody's regards Gazprom as a government-related issuer (GRI). As such, Gazprom's ratings incorporate uplift from its baseline credit assessment (BCA) of 10 (on a scale of 1 to 21 and equivalent to a Baa3 rating) on account of the 'high' implied state support and the company's 'medium' dependence.

Gazprom's BCA, and thus its issuer and debt ratings, reflects the inherent strengths of the company's business, which include its (1) substantial scale in terms of gas reserves and production; (2) leading market position, including the vital role it plays in terms of supplying gas to Western Europe; and (3) unique position as the sole owner of the Russian gas transportation system, with a monopoly on gas exports. The rating agency also factors into the ratings the company's strong financial profile, with robust cash flow generation and moderate leverage.

At the same time, the ratings are constrained by other factors, including (1) challenges associated with operating in Russia, including the risk of policy actions initiated by the state; (2) the country's high dependence on European exports as one of its main revenue sources; (3) Gazprom's complex organisational structure; and (4) the company's sizable capital expenditure (capex) and debt service requirements.

The stable outlook on Gazprom's issuer and debt ratings reflects the robust positioning of the company's BCA as well as the stable outlook on the rating of the Russian Federation. The stable outlook also reflects Moody's expectation that Gazprom will (1) maintain solid credit metrics, with a RCF/net debt ratio consistently above 30% and debt/total capitalisation below 30% on an adjusted basis; and (2) maintain solid liquidity and manage capex and acquisitions in a disciplined manner.

WHAT COULD CHANGE THE RATING UP/DOWN

To consider raising Gazprom's BCA, Moody's would require evidence of (1) the company diversifying its sales channels as well as addressing transit risks associated with its gas export sales; (2) a continuation of price liberalisation on the domestic market; and (3) robust liquidity and a strong financial profile. However, the rating agency notes that an increase of the BCA alone, assuming that all the other GRI inputs were unchanged, would have a neutral effect on Gazprom's final ratings, given the strong link between economic drivers of the financial profiles of Gazprom and the Russian state, which is due to the latter's direct exposure to oil and gas prices on the global markets. At the same time, a one-notch upgrade of the sovereign rating could trigger a respective upgrade of Gazprom's final ratings, subject to no changes in other GRI assumptions.

A weakening of Gazprom's financial profile, with RCF/net adjusted debt remaining sustainably below 30%, could result in Moody's lowering the company's BCA. However, this would not necessarily result in a downgrade of Gazprom's final ratings, assuming other GRI inputs were unchanged. That said, a material and sustainable deterioration in Gazprom's standalone credit quality could exert pressure on the company's final ratings. A one-notch downgrade of Russia's sovereign rating from the current level of Baa1 could result in a one-notch downgrade of Gazprom's debt and issuer ratings, assuming that levels of support and dependence were unchanged. Similarly, a material change in the state support assumption for Gazprom could also negatively affect the company's ratings.

Factors that could lead to a rating downgrade include (1) evidence of reduced support for Gazprom from the state; (2) the development of significant competition, which could ultimately undermine the company's strategic importance to the Russian economy; or (3) measures taken by the state that would significantly impair Gazprom's credit quality, such as materially unfavourable regulatory changes, failure to improve the domestic pricing environment over the medium term, punitive tax and/or dividend claims, or changes to the company's corporate structure.

The principal methodology used in rating OJSC Gazprom was the "Global Integrated Oil & Gas Industry" rating methodology, published in November 2009. Other methodologies used include the Government-Related Issuers methodology published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Moscow, Russia, OJSC Gazprom (Gazprom, Baa1 stable) is one of the world's largest integrated oil and gas companies and is focused on the exploration, production and refining of oil and gas, as well as 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 in Russia, which is the world's largest gas transportation, storage and processing system, comprising nearly 161,000 kilometres of high-pressure trunk pipelines and 25 underground gas storage facilities, and is the leading exporter of gas to Western Europe.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

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Julia Pribytkova Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service Limited, Russian Branch 7th floor, Four Winds Plaza21 1st Tverskaya-Yamskaya St.Moscow 125047 RussiaDavid G. Staples MD - Corporate Finance Corporate Finance Group Telephone: 00971 4237 9536 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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