Analysts suggest gas deal with China may have influenced credit agency's decision

Dagong Global Credit Rating Co Ltd on Monday assigned an AAA rating with a stable outlook to Russian natural gas giant OAO Gazprom, despite falling oil prices, the volatile rouble and simmering tension between Europe and Russia.

The move by Dagong, a major Chinese ratings agency, puts Gazprom above the "sovereign ceiling", different from a convention observed by credit agencies that in most situations ranks private-sector debt issuers below their home government.

On Jan 8, Dagong decided to maintain Russia's sovereign rating at A with a stable outlook, in stark contrast with major international raters. Standard & Poor's Financial Services LLC, for example, on Jan 26 downgraded Russia's sovereign debt a notch to BB+, which means debt sold by the country was categorized as junk.

Moody's Investors Service Inc and Fitch Ratings Inc had previously downgraded Russia's rating to just a notch above "junk" status.

All three agencies assigned a "negative" outlook to Russia's debt.

Dagong said that it had given an AAA rating to the world's biggest natural gas company mainly because of two strategic agreements Gazprom signed with China in May and November to provide natural gas through western and eastern pipelines.

Lin Boqiang, a professor at Xiamen University and dean of the China Institute for Studies in Energy Policy, said that he agrees with the Western ratings firms, whose ratings are "reasonable and logical" in terms of assessing Gazprom.

Li Yan, an analyst with Shandong Longzhong Information Technology Co, a local oil and gas consultancy, said China has a good relationship with Gazprom in natural gas supply, which may have affected the rating.

"It is understandable that Western ratings companies don't see a bright future for Gazprom which is highly dependent on energy. However, from China's perspective, the Russian giant does not represent financial risks since it will gain stable cash flow from the natural gas supply deal with China starting from 2018," Li said.

Russia and China agreed to a $400 billion natural gas deal in May last year that could see Russia export 38 billion cubic meters annually to China beginning in 2018.

"China wants to provide support to Russia when it is in difficulties," Li said. "Frankly speaking, it doesn't mean Gazprom has a better or stronger performance if Dagong gives it an AAA rating. Meanwhile, it is not proven worse if other agencies downgrade it."

The figures Dagong used to derive its ratings for Gazprom ended in June 2014, when the global crude oil price began its plunge from more than $100 a barrel to less than $50 a barrel in December.

Gazprom said on Thursday that its third-quarter net profit fell 61 percent to 105.7 billion roubles ($1.52 billion). The firm stopped supplying Ukraine with gas in June in a dispute over pricing and debt, which hurt its revenues.

Dagong's rating provided rare support for Gazprom as it sought to sell renminbi-denominated bonds recently in Hong Kong, after mounting financing difficulties in Western financial markets, analysts said.