Moody’s Investors Service has today changed to stable from negative the outlook on (1) the Ba1 corporate family ratings (CFRs) and the Ba1-PD probability of default ratings (PDRs) of Bashneft. Concurrently, Moody’s has affirmed these ratings.

Today’s actions follow Moody’s change of the outlook on Russia’s Ba1 government bond rating to stable from negative on 3 December 2015, reflecting the stabilization of Russia’s external finances and the diminished likelihood of the Russian economy or finances facing a further intense shock in the next 12–18 months. Russia’s country ceilings remain unchanged at Ba1/NP (foreign currency bonds), Ba2/NP (foreign currency bank deposits) and Baa3 (long-term local currency debt and deposits). A country ceiling generally indicates the highest rating level that any issuer domiciled in that country can attain for instruments of that type and currency denomination. For additional information, please refer to the related announcement https://www.moodys.com/research/Moodys-changes-outlook-on-Russias-Ba1-government-bond-rating-to-PR_339462.

RATINGS RATIONALE

Credit risks for the 18 Russian non-financial corporates affected by today’s rating actions have somewhat decreased, as a result of (1) the stabilization of Russia’s external finances, resulting from a macroeconomic adjustment that has helped to mitigate the effect of the fall in oil prices on official FX reserves; and (2) the diminished likelihood of the Russian economy or finances facing a further intense shock in the next 12–18 months, such as from additional international sanctions given some easing of the conflict in eastern Ukraine.

However, Moody’s expects that the operating environment for Russian non-financial corporates will remain challenging, although less than previously expected, over the next 12–18 months. This is the result of continuing weak domestic demand resulting from Russia’s structurally weak growth potential, as well as limited availability of favourably priced investment capital.

RATIONALE FOR STABLE OUTLOOK

The stable outlook assigned to the 18 affected non-financial corporates is in line with the stable outlook for the sovereign rating and reflects Moody’s expectation that each company’s specific credit factors, including their operating and financial performance, market positions and liquidity, will remain commensurate with their ratings on a sustainable basis.

WHAT COULD CHANGE RATINGS UP/DOWN

Moody’s does not expect positive pressure to be exerted on the ratings in near term, owing to sovereign-related factors, and considering the stable outlook on the sovereign rating of Russia. However, positive pressure could be exerted on the ratings if Moody’s were to raise Russia’s sovereign rating and/or the foreign-currency bond country ceiling, depending on the company’s specific credit factors, including their rating’s positioning, operating and financial performance, market positions, liquidity and in the case of the government related issuers (GRIs), Moody’s assessment of the credit linkages between a corporate and the state, as well as the probability of the Russian government providing extraordinary support to the GRIs in the event of financial distress.

Conversely, negative pressure would be exerted on the ratings if there is (1) a downgrade or a change of the outlook to negative on Russia’s sovereign rating and/or a lowering of the foreign-currency bond country ceiling; or (2) a material deterioration in company-specific factors, including operating and financial performance, market positions, liquidity and the probability of the Russian government providing extraordinary support to GRIs in the event of financial distress.