S&P affirms Gazprom

Standard & Poor's said it affirmed its BB- long-term corporate credit rating on OAO Gazprom, following Gazprom's $13.1 billion bid for a 75% stake in OAO Siberian Oil Co. (Sibneft, BB-/positive).

The outlook on Gazprom remains positive.

The affirmation reflects S&P's opinion that the acquisition will allow Gazprom to diversify into the oil industry, significantly enhance free operating cash flow and improve its resilience to a lower hydrocarbon price scenario.

The agency noted the acquisition should not materially impair Gazprom's coverage ratios as the group is expected to receive a $7 billion payment from the government-owned vehicle Rosneftegas by the end of 2005 for its 10.7% treasury stake in Gazprom.

The agency added the ratings on Gazprom are constrained by the risks of operating in The Russian Federation (foreign currency, BBB-/stable/A-3, local currency, BBB/stable/A-3) and still low domestic gas prices as well as the company's significant leverage and its high capital expenditure needs.

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