Fitch warns Russian oil and gas majors face "probable default"

New York credit ratings agency Fitch Ratings has warned that Russia's leading oil and gas companies including Gazprom and Novatek face a "probable default," as a result of escalating Western sanctions and a Russian presidential decree that could force a redenomination of foreign currency debt payments into local currencies for creditors in certain countries.

Gazprom and Novatek have both had their long-term foreign-currency and local currency issuer default ratings slashed to CC from B/RWN (and B+/RWN for Gazprom's local currency rating). The same rating has been assigned to Bashneft, Gazprom Neft, Lukoil and Tatneft and other various Russian companies, mostly in the commodities sector.

Russian president Vladimir Putin signed a decree on March 5 that would allow Russia and Russian companies to pay foreign creditors in rubles on securities including those denominated in other currencies. This will apply to creditors from "countries that engage in hostile activities" against Russia. This is expected to include that states have imposed sanctions on Russia, although the Kremlin is yet to divulge details.

Fitch said on March 11 that the decree, "against the backdrop of an escalating sanctions regime, could impose insurmountable barriers to many corporates' ability to make timely payments on foreign- and local-currency debt to certain international creditors."

"While the practical implementation of this decree remains unclear, Fitch believes that the severely heightened risk is best reflected in its CC ratings definition: 'default of some kind appears probable.'"

The latest downgrades come after Fitch warned on March 8 that a default on Russia's sovereign debt was "imminent," as the country struggles under the weight of Western sanctions.