Chinese rating agency CSCI Pengyuan assigned its highest AAA rating to U.S.-blacklisted Russian oil and gas giant Gazprom on Friday, paving the way for any debt issuance in China’s domestic bond market.
Western rating agencies including Moody’s, Fitch and S&P Global Ratings have withdrawn credit ratings for Gazprom and many other Russian companies due to the Russia-Ukraine conflict.
Accessing China’s bond market, the world’s second-biggest, would be a boon for Russian companies cut off from Western financing due to sanctions.
“The high rating from an independent foreign rating agency confirms Gazprom’s financial stability and indicates the company’s strong creditworthiness,” Gazprom Deputy CEO Famil Sadygov said in a statement.
The long-term issuer rating on Gazprom will not necessarily lead to an imminent issuance of yuan-denominated bonds by the Russian company, said a source with direct knowledge of the situation.
But the rating paves the way for potential yuan bond issuance in the future, though that requires approval from Chinese regulators who will take geopolitical risks into consideration, said the source, who was not authorised to speak publicly.
The “AAA” rating for Gazprom with a stable outlook came just days after Russia and China gave their blessings to the Power of Siberia 2 pipeline, a massive gas project linking the two countries as they seek to reduce economic reliance on the West.
Gazprom made the announcement about the project during Russian President Vladimir Putin’s visit to China last week.
“Gazprom’s rating reflects its strategic importance and legal ties to the Russian government,” CSCI Pengyuan said.
The firm’s credit profile “is underpinned by its strong business profile as one of the market leaders in the global oil and gas industry and its important position in Russia’s energy market,” it added.
Late last month, senior Chinese financial regulators told top Russian energy executives that they would support their companies’ plans to sell yuan “panda bonds”, the Financial Times reported on Sunday, citing sources.
Companies typically obtain credit ratings before selling bonds in China.
Such issuer ratings can also be used in transactions with Chinese banks and in deals with Chinese counterparties, said the source with knowledge of the situation.
GEOPOLITICAL RISKS
In an analysis of Gazprom’s outlook alongside its rating decision, CSCI Pengyuan cited “high geopolitical risks” associated with the energy company, which was sanctioned by the U.S. following Russia’s invasion of Ukraine in 2022.
“Sanctions and geopolitical disruptions have adversely affected the company’s operations, leading to a decline in gas export revenue and volume in 2023,” the rating agency said.
“As the geopolitical landscape continues to evolve, operational uncertainties persist.”
Last month, CSCI Pengyuan also assigned a “AAA” credit rating to Zarubezhneft, a mid-scale upstream oil company fully owned by the Russian Federation.
A decade ago, China and Russia were in talks on a framework to allow Russia to issue yuan-denominated bonds, but little progress has been made.
(Reporting by Shanghai Newsroom; Editing by Sumana Nandy and Jamie Freed)