S&P rates Gaz Capital notes BB

Standard & Poor's said it assigned its BB debt rating to the proposed unsecured loan participation notes to be issued by Gaz Capital SA for the sole purpose of financing a loan to Russian gas giant OAO Gazprom (BB/positive), within the framework of a $15 billion loan participation note program.

The exact issue terms will be finalized at placement, but management expects the issue size to be up to €1 billion and maturity to be about seven years. The proceeds are expected to be used for general corporate purposes, including refinancing, the agency said.

The rating mirrors the corporate credit rating on Gazprom because noteholders will face only the credit risk of Gazprom.

The rating on Gazprom reflects its vast reserves of 16,357 billion cubic meters, its dominance in Russian gas production, ownership of the country's gas transportation network and its privileged position as a supplier to the large and growing Western European natural gas market, the agency said.

S&P said the rating is constrained by the risks of operating in the Russian Federation, still-low domestic gas prices, significant and rising debt and high capital expenditure needs, which are expected to continue to constrain free operating cash flows after capital expenditures.

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