OREANDA-NEWS. Those entities that we regard as having downside risks for reasons other than those related to the sovereign--remain negative. Also, we have placed Novatek on CreditWatch with positive implications.

MOSCOW (S&P Global) Sept. 20, 2016--S&P Global Ratings said today that it has taken various rating actions on a number of Russian corporations following the sovereign outlook revision (see "Russian Federation Outlook Revised To Stable From Negative On Abating External Risks; Ratings Affirmed," published Sept. 16, 2016, on RatingsDirect).

COMMODITY PRODUCERS (EXPORTERS):We revised the outlook on Gazprom PJSC to stable from negative, and affirmed the 'BB+/B' foreign currency (FC) ratings and the 'BBB-/A-3' local currency (LC) ratings. We revised the outlook on Gazprom Neft PJSC to stable from negative, and affirmed the 'BB+' ratings. We revised the outlook on LUKOIL PJSC to stable from negative, and affirmed the 'BBB-' ratings. We revised the outlook on NLMK PJSC to stable from negative, and affirmed the 'BBB-' ratings. We revised the outlook on Oil Company Rosneft OJSC to stable from negative, and affirmed the 'BB+' ratings. We revised the outlook on PAO Severstal to stable from negative, and affirmed the 'BBB-' ratings. We affirmed the 'BBB-' ratings on MMC Norilsk Nickel OJSC. The outlook remains negative. We affirmed the 'BBB-' ratings on PhosAgro OJSC. The outlook remains negative. We affirmed the 'BB+' ratings on OAO Novatek and subsequently placed them on CreditWatch with positive implications. TELECOM OPERATORS:We revised the outlook on Mobile TeleSystems (OJSC) to stable from negative and affirmed the 'BB+' ratings. We revised the outlook on Rostelecom OJSC to stable from negative, and affirmed the 'BB+' ratings. We revised the outlook on MegaFon PJSC to stable from negative, and affirmed the 'BB+' FC and 'BBB-' LC ratings. RETAIL COMPANIES:We revised the outlook on PJSC Magnit to stable from negative, and affirmed the 'BB+' ratings. TRANSPORTATION COMPANIES:We revised the outlook on PAO Sovcomflot to stable from negative, and affirmed the 'BB+' ratings. INFRASTRUCTURE AND UTILITY COMPANIES:We revised the outlook on OAO AK Transneft to stable from negative, and affirmed the 'BB+' FC and the 'BBB-' LC ratings. We revised the outlook on Federal Grid Co. of the Unified Energy System to stable from negative, and affirmed the 'BB+' ratings. We revised the outlook on JSC Federal Passenger Company to stable from negative, and affirmed the 'BB+' ratings. We revised the outlook on Mosenergo PJSC to stable from negative, and affirmed the 'BB+' ratings. We revised the outlook on Public Joint Stock Company Rosseti to stable from negative, and affirmed the 'BB+/B' ratings. We revised the outlook on Russian Railways JSC to stable from negative, and affirmed the 'BBB-' LC and 'BB+' FC ratings. We have affirmed the 'BB+/B' ratings on DME Ltd. The outlook remains negative.

The outlook revisions on 17 of the entities included in today's rating actions mirror the action on Russia. However, in some cases, we continue to see downside risks driven by entities' stand-alone characteristics. This led us to maintain the negative outlooks on Norilsk Nickel, PhosAgro, and DME Ltd. We placed the ratings on Novatek on CreditWatch with positive implications as we believe the company could withstand a hypothetical sovereign default and potentially be rated higher that the sovereign, which we plan to assess in the next month.

The outlook on Norilsk Nickel is negative as we think leverage in 2016-2017 will be close to the maximum level that we see commensurate with the 'BBB-' rating. Similarly, the negative outlook on PhosAgro accounts for the negative pricing environment and resulting risk of weakening credit metrics. The negative outlook on DME Ltd. reflects our view of possible deterioration in credit metrics due to weaker profitability and the company's capital expenditure (capex) plans.

Currently, the ratings on five companies already exceed the FC sovereign credit rating and T&C assessment on Russia: LUKOIL, Norilsk Nickel, Severstal, NLMK, and PhosAgro.

COMMODITY PRODUCERS (EXPORTERS)

Gazprom PJSCThe outlook revision to stable from negative follows the rating action on Russia. The sovereign is Gazprom's controlling shareholder.

We continue to assess Gazprom's stand-alone credit profile (SACP) as 'bbb-'.In our base case, we assume that the company will adapt its strategy to the revised industry conditions of materially lower gas prices. We also assume that it can achieve neutral free cash flow generation, despite its strategic investments into Power of Siberia and Nord Stream-2 projects. We generally expect Gazprom's funds from operations (FFO) to debt will exceed 45% on average in 2016-2018.

We would likely lower the ratings on Gazprom if we were to lower the sovereign ratings. Because we view Gazprom as a government-related entity (GRE) with very strong link to and critical role for the government, we do not expect to rate Gazprom above the sovereign, which would constrain any upside potential in the absence of a sovereign upgrade. At the same time, we would likely affirm the ratings if Gazprom's SACP significantly deteriorated while the sovereign rating remained unchanged. This could happen if the company made large debt-financed investments, which we do not include in our base case.

Gazprom Neft PJSCThe outlook revision to stable from negative follows the rating action on Russia. We would likely lower the ratings on Gazprom Neft if we lowered the ratings on its parent, Gazprom. In turn, we could downgrade the parent in the event of a sovereign downgrade because of our view of Gazprom as a GRE with very strong links to the state, implying the risk of negative sovereign interference.

We do not expect to rate Gazprom Neft above its parent or the sovereign. In our view, the company's financial performance and funding are ultimately driven by similar key industry and country sovereign factors as those its parent operates with.

LUKOIL PJSCThe outlook revision to stable from negative follows the rating action on Russia.

LUKOIL generated about 85% of its EBITDA in Russia in 2015. We could lower our rating on LUKOIL by one notch if we lowered the T&C assessment and our FC sovereign rating on Russia. Similarly, any positive rating action on Russia could result in ratings upside for LUKOIL.

We might consider a negative rating action if LUKOIL's currency liquidity resources declined while its hard currency short-term maturities increased, or if we saw a pronounced deterioration in business conditions for Russian companies beyond our base-case scenario. This might happen, for example, if the government were to materially amend the taxation system, which we currently do not anticipate.

A negative rating action could also stem from a marked decline in production, large debt-financed investments or shareholder distributions, a prolonged period of limited access to financing, or the ratio of FFO to adjusted debt falling less than 60% protractedly. That said, we see these scenarios as relatively unlikely in the next 12 months.

NLMK PJSCThe outlook revision follows a similar action on Russia and reflects our view that NLMK's credit metrics will remain commensurate with the current ratings, with debt to EBITDA below 1.5x and FFO to debt above 60%. We also expect NLMK to have enough cash in its foreign divisions and maintain significant export cash flows versus limited debt maturities to pass our stress test conditions to be rated above the long-term FC sovereign rating and the T&C assessment. Pressure on the rating might also stem from substantial deterioration of steel demand or the pricing environment that resulted in material EBITDA contraction, or if higher dividends or investments led to FFO to debt falling below 60% and debt to EBITDA exceeding 1.5x on a protracted basis. Ratings upside is currently limited since we cannot rate NLMK by more than one notch above the long-term FC rating and T&C assessment on Russia.

Oil Company Rosneft OJSCThe outlook revision follows the rating action on Russia, the company's controlling shareholder. We assume that Rosneft's FFO to debt, as adjusted by S&P Global Ratings, will remain at about 20%-25% in 2016-2017. We believe that Rosneft's credit metrics have limited potential to improve in 2016-2017, absent more asset disposals than we currently anticipate, as the company is undertaking a number of investment projects that will constrain free cash flow generation.

We believe that the rating on Rosneft cannot exceed that on the government, which limits ratings upside even in the event of an improvement in the company's SACP. At the same time, absent a sovereign downgrade, we could lower the rating only if we were to revise down our assessment of Rosneft's SACP to 'b+'--which would only occur in the event of liquidity pressures or a material increase in leverage--a scenario we see unlikely over the next 12 months.

PAO SeverstalThe outlook revision follows a similar action on Russia and reflects our view that Severstal's credit metrics will remain commensurate with the current ratings, with debt to EBITDA below 1.5x and FFO to debt above 60%. We also expect Severstal to have enough cash in its foreign divisions and maintain significant export cash flows versus limited debt maturities to pass our stress test conditions to be rated above the long-term FC sovereign rating and the T&C assessment. Rating pressure might also arise from substantial deterioration of steel demand or the pricing environment that resulted in material EBITDA contraction, or if higher dividends or investments led to FFO to debt falling below 60% and debt to EBITDA exceeding 1.5x on a prolonged basis. Ratings upside is currently limited since we cannot rate Severstal by more than one notch above the long-term FC rating and T&C assessment on Russia.

MMC Norilsk Nickel OJSCWe continue to believe that, due to depressed commodity price environment conditions, Norilsk Nickel might face difficulties in the next 12 months maintaining credit metrics that are commensurate with the current rating, notably debt to EBITDA of below 2x (including our adjustments). We could lower the ratings if EBITDA declines because of lower nickel prices or in case of aggressive financial policies, resulting in less supportive liquidity, or adjusted debt to EBITDA exceeding 2x for an extended period. We could also take a negative rating action if conflict over financial policy and control of the group resurfaces among the major shareholders. We could revise the outlook to stable if we consider that the company is solidly placed to maintain an adjusted ratio of debt to EBITDA of 2x or below in 2017-2018.

PhosAgro OJSCThe negative outlook factors in the negative price environment in the industry. We could take a negative rating action in case FFO to debt were to deteriorate markedly below 45% in 2016 and/or the adjusted debt to EBITDA ratio exceeds 2x due to this weaker industry environment than currently assumed. We could also take a negative action in case of weakening of PhosAgro's meaningful cash and liquidity cushion, which currently supports its rating above that of the sovereign.

OAO NOVATEKThe CreditWatch placement reflects the likelihood that we could raise the rating on Novatek to 'BBB-' if we conclude that the company could withstand a sovereign default. Our assessment of the company's SACP is 'bbb-'. Moreover, Novatek's leverage continues to decline on the back of having sold its 10% stake in a major Yamal LNG project and thanks to generally moderate capex. We note that Novatek's foreign currency revenues are steadily increasing, as is the share of liquids, which unlike gas, the company can export. At the same time, the company is gradually repaying its foreign currency debt, thereby improving the debt maturity profile. Importantly, the company has also arranged the financing package for Yamal LNG and the risk of material cash outlays related to it has reduced.

We expect to resolve the CreditWatch within the next 30 days. We could raise the rating to 'BBB-' if we conclude that the company could withstand a hypothetical sovereign default. Otherwise, we could revise the outlook to stable from negative, to reflect the outlook on Russia, and affirm the 'BB+' ratings.

TELECOM OPERATORS

Mobile TeleSystems (OJSC) (MTS)The stable outlook on MTS mirrors the outlook on Russia and reflects our expectation of an adjusted debt-to-EBITDA ratio consistently below 2x and discretionary cash flow generation close to break-even.

We could lower the ratings on MTS if we revised down our assessment of its SACP, which could occur if our adjusted debt-to-EBITDA ratio were consistently higher than 2x and discretionary cash flow generation turned strongly negative. That said, we do not currently expect this to occur. We could also lower the rating if industry or regulatory conditions in any important jurisdictions where MTS operates deteriorate significantly.

We do not see downward pressure from the ratings of holding company Sistema.

We could lower the rating on MTS if we revise the T&C assessment on Russia downward, or lower our ratings on Russia. Upside is limited as we cap our rating on MTS at the 'BB+' T&C assessment for Russia because MTS does not have any meaningful hard currency earnings.

Rostelecom OJSCThe outlook revision follows the rating action on Russia and reflects our expectations that Rostelecom will continue to demonstrate adjusted debt to EBITDA of below 2.5x and moderately positive free operating cash flow (FOCF). We expect its liquidity to remain adequate. We could take a negative rating action if Rostelecom's adjusted debt-to-EBITDA ratio exceeded 2.5x and/or if FOCF to debt were below 5% due to financial policy decisions (including those related to its mobile joint venture with Tele2 Russia) or underperformance of the core business. In addition, we might consider a downgrade if Rostelecom's liquidity position deteriorates, for example as a result of untimely refinancing of upcoming maturities. We could also lower the rating on Rostelecom in the event of a sovereign downgrade because the company is a non-exporter. Upside is limited at this stage.

MegaFon PJSCThe rating action on MegaFon follows the rating action on Russia. Our stable outlook on MegaFon reflects our expectation that it will maintain moderate debt leverage and solid liquidity.

We could lower the ratings if MegaFon's adjusted debt to EBITDA exceeds 2x on a prolonged basis, as a result of financial policy decisions, or in case of a pronounced weakening of the operating performance, driven by the weaker market environment in Russia. Upside on the rating is constrained by the rating and T&C assessment on Russia, as we do not expect to rate MegaFon above the sovereign on a foreign currency basis.

RETAIL COMPANIES

PJSC MagnitThe outlook revision to stable follows the same action on Russia. It reflects our view that Magnit's resilient operational performance will continue. We also expect Magnit's adjusted debt to EBITDA will remain broadly at the current level, despite its continued focus on growth and expansionary capital spending. We could lower the rating if Magnit's liquidity worsens to less than adequate, and if the company's adjusted debt to EBITDA surpasses 2x because of financial policy decisions, or in case of a significant decline in operating performance caused by the weaker market environment in Russia. The rating has no upside potential, as we do not expect to rate Magnit above the sovereign.

TRANSPORTATION COMPANIES

PAO SovcomflotThe outlook revision follows the same action on Russia. Because we consider Sovcomflot to be a GRE, we could lower the rating on Sovcomflot if we lowered the rating on Russia, all else remaining equal. We could also lower the ratings if we revised downward our assessment of the likelihood of government support. This could arise if, for example, the government decreased its stake in the company to less than 75%, commenced important hydrocarbon energy projects without Sovcomflot, or became less involved in determining Sovcomflot's strategy.

We could also lower the ratings if Sovcomflot's SACP deteriorated. This would occur if we believed that the company's ratio of liquidity sources to uses deteriorated to less than 1.2x, which could happen, for example, if Sovcomflot were unlikely to retain ready access to ship financing or generated materially lower EBITDA than in our base case, due for instance to lower-than-anticipated charter rates. Likewise, rating downside could arise if Sovcomflot pursued large debt-funded investments beyond our base-case forecast for capex and failed to achieve a rating-commensurate ratio of adjusted FFO to debt of more than 12%. Such deterioration in the SACP might also signal a weakening of Sovcomflot's role for and link with the government, leading us to reassess our view of the likelihood of government support.

INFRASTRUCTURE AND UTILITY COMPANIES

OAO AK TransneftThe outlook revision follows a similar action on Russia. We continue to see an extremely high likelihood that the Russian government would provide timely and sufficient extraordinary support to Transneft in the event of financial distress, and we assess Transneft's SACP at 'bbb'. We would likely lower our ratings on Transneft if we were to lower our sovereign credit ratings on Russia. This is because we currently cap the ratings on Transneft at the level of our ratings on Russia, based on the group's status as a GRE with a very strong link to and critical role for the government. We also incorporate our view of the risk of negative government intervention if the government is under stress. Therefore, we do not expect to rate Transneft above the sovereign. If we revised down the SACP to 'bb', provided that the sovereign credit ratings and the level of government support remain unchanged, we would lower our long-term LC rating on Transneft to 'BB+'. We could lower the long-term FC rating to 'BB' if the SACP fell below 'bb-'. This could occur if the company took on debt-financed investments or dividends markedly larger than our current base-case assumptions. Ratings upside is currently limited due to the cap by the sovereign ratings.

Federal Grid Co. of the Unified Energy System (FGC)The outlook revision follows the rating action on Russia.

In our view there's still a very high likelihood that FGC would receive timely and sufficient extraordinary support from the Russian government, if needed. We continue to assess FGC's SACP as 'bb+'.

We expect that the rating on FGC will continue to be capped by the long-term FC sovereign credit rating on Russia, given the full exposure of the company's operations to Russia country risk, its very strong links with the government, and the risks of negative sovereign intervention.

Conversely, our expectation of a very high likelihood of sovereign support creates some cushion against any weakening in the stand-alone performance, which we currently do not expect. If the sovereign credit rating and our assessment of the likelihood of extraordinary support to the company remain unchanged, the rating on FGC would move down if the company's SACP weakens from 'bb+' currently to 'b+', which is very far from our base-case scenario.

JSC Federal Passenger Company (FPC)The outlook revision follows the rating action on Russia. We believe there is a high likelihood of the Russian government providing timely and sufficient extraordinary support to FPC if needed. We continue to assess FPC's SACP as 'bb+'.

The ratings on FPC continue to be capped by the ratings on Russia, as the company conducts all of its business in Russia and has a strong link with the Russian government. We expect that FPC will maintain its stable market positions, its important role in passenger transportation in Russia, and its moderate leverage level. We expect that FPC's ratio of FFO to debt will not fall below 45% in the coming months. If this were to happen, we could revise FPC's SACP downward to 'bb', although this would not prompt us to lower the rating on FPC.

We could lower the rating on FPC if we were to reassess the SACP on FPC to 'b+'.

Mosenergo PJSCThe outlook revision follows the rating action on ultimate parent company Gazprom.

In our view Mosenergo remains a moderately strategic subsidiary of the Gazprom group, which results in a one-notch uplift from the SACP. We continue to assess Mosenergo's SACP as 'bb'.

We expect that the ratings on Mosenergo will continue to be capped by the FC rating on Gazprom, given the company's status within the group.

We would lower our rating on Mosenergo if we lower the LC or FC rating on Gazprom, because it would signal Gazprom's lessened ability to support the company. We could also lower the rating if we saw significant deterioration in Mosenergo's SACP, for example, if the company made acquisitions, with debt to EBITDA exceeding 3x and FFO to debt falling below 30%.

Public Joint Stock Company RossetiThe outlook revision follows the same action on Russia. We continue to see a very high likelihood that the Russian government would provide extraordinary support to Rosseti, given the company's position as the monopoly electricity transmission and dominant distribution provider in Russia, strong track record of ongoing government support to the company (via capital injections and infrastructure bonds), and the government's position as a stable majority shareholder with a strong influence over the company's strategy. On the stand-alone level, we expect Rosseti's performance to remain relatively stable, with solid market position, EBITDA margin of about 30%, debt to EBITDA of less than 4x, FFO to debt of above 20%, adequate liquidity, and manageable maturity profile. Our base-case scenario does not include any material change to the group structure and, therefore, market position.

Russian Railways JSC (RZD)The outlook revision follows the rating action on Russia.

We continue to see the likelihood of timely and sufficient extraordinary financial support from the Russian government for RZD as extremely high. The ratings on RZD continue to be capped by the ratings on Russia, reflecting the fact that all of RZD's operations are in Russia and that the company has a very strong link with the government through tariff setting, strategic planning, and ongoing financial support.

We could lower our ratings on RZD, all else being equal, if we revised our assessment of its SACP down to 'b+'. This could occur if the company's operational performance deteriorated significantly, due to freight traffic declines, weaker economic conditions, lower-than-anticipated ongoing government financial support, increased investments (including acquisitions), or excessive debt accumulation above our expectations. We would reassess RZD's SACP to 'b+', provided that the company's business risk profile remained in our satisfactory category, if its adjusted credit metrics deteriorated substantially. Specifically, this would include FFO to debt falling below 12% and debt to EBITDA rising above 5x, in the absence of a sound plan to improve these ratios over the next few years.

DME Ltd. The negative outlook on Domodedevo airport reflects the risks brought by the economic slowdown in Russia, which could lead to weaker profitability for DME in the coming months. The negative outlook also reflects airport's investment program which could result in our ratio of funds from operations to debt declining to below 45% on a sustainable basis.

We could revise the outlook on DME to stable if we saw a sustainable recovery of passenger traffic and profitability at the airport and a more conservative investment program largely funded by internally generated cash flows.