Rating Action: Moody’s Assigns B2 Rating To Nostrum’s Proposed Notes

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London, 29 June 2017 — Moody’s Investors Service (Moody’s) has today assigned a B2 rating with a loss given default assessment of LGD4 to the proposed senior unsecured notes to be issued by Nostrum Oil & Gas Finance B.V., a wholly owned subsidiary of Nostrum Oil & Gas Plc (Nostrum). The outlook of Nostrum Oil & Gas Finance B.V. is negative. The B2 Corporate Family Rating (CFR) of Nostrum is unchanged as is the negative outlook. The company intends to use the proceeds from the notes to pay a portion of the cash tender price for the existing $400 million and $560 million notes of Zhaikmunai LLP maturing in 2019, as well as transaction fees and expenses.


The B2 rating assigned to the notes is the same as Nostrum’s CFR, which reflects Moody’s view that the proposed notes will rank pari passu with Nostrum’s existing notes. The notes will be fully and unconditionally guaranteed by Nostrum Oil & Gas Plc and certain of its subsidiaries (including the group’s core operating company Zhaikmunai LLP), which accounted for 98% of the group’s EBITDA in 2016 and 120% of the group’s net assets as of 31 December 2016.

The noteholders will have the benefit of certain covenants made by Nostrum, including limitations on dividends, liens, merger and consolidation and sale of assets, as well as a debt incurrence covenant preventing Nostrum and its subsidiaries from incurring indebtedness if its consolidated coverage ratio, defined as the ratio of EBITDAX to interest expense, falls below 2.5x.

Nostrum’s B2 CFR reflects the company’s (1) deteriorated credit metrics owing to low oil prices; (2) relatively modest scale of operations by international standards, with an average daily production of approximately 40 thousand barrels of oil equivalent (boe) per day in 2016; (3) high field concentration, with only one field currently in operation; (4) large-scale investment plan until 2017, encompassing Gas Treatment Unit (GTU) 3, which the company expects to complete until the end of 2017; and (5) our view that the company’s liquidity will be largely absorbed to fund the GTU 3 project and drilling program, although it is expected to remain sufficient over the next 12-18 month period.

More positively, the rating acknowledges the company’s (1) positive track record of implementing large investment projects (GTU 1 and 2) and converting reserves; (2) beneficial field geology, geographic positioning and reserves’ quality, which account for the company’s low production costs; and (3) potentially improved liquidity profile, following the results of the new notes offering.


The negative outlook on Nostrum’s ratings captures elevated leverage in light of the decline in earnings and extensive capex spending as well as the risks related to the timely launch of the GTU 3 facility and execution of the drilling program allowing full utilisation of GTU 3 amid volatile oil price environment. The outlook could be stabilised if Moody’s were to see a gradual growth in retained cash flows over the course of 2017 provided that the company remains on track with its drilling program and the GTU 3 construction. As the company continues to make positive progress in addressing these uncertainties, including refinancing of a part of its debt following the tender offer, this could contribute to outlook stabilisation during 2017.


Moody’s would consider an upgrade of Nostrum’s ratings, if (1) the company successfully launches GTU 3 with sufficient feedstock to ramp up hydrocarbons production in accordance with its current plan; and (2) the company’s RCF/debt ratio improves to above 20% on a sustained basis.

Moody’s could downgrade the ratings as a result of developments that weaken Nostrum’s operating or financial profile, including (1) deterioration of RCF/debt ratio to below 10% on a sustained basis; (2) deterioration in the company’s liquidity and financial profile beyond Moody’s current expectations; and (3) the imposition by the Government of Kazakhstan of material regulatory and/or contractual changes adversely affecting the economics of Nostrum’s operations.


The principal methodology used in this rating was Independent Exploration and Production Industry published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Registered in England and Wales, Nostrum Oil & Gas Plc, via its indirectly owned subsidiary Zhaikmunai LLP, is engaged in exploration, development and production of oil and gas in Kazakhstan under the framework of production sharing agreements. Nostrum’s main shareholders are Mayfair Investments B.V. (25.7%), Baring Vostok Capital Partners (15.4%) and Claremont Holdings C.V. (13.2%). In 2016, Nostrum reported revenue of $348 million and its Moody’s-adjusted EBITDA amounted to $215 million. Nostrum’s production in 2016 was approximately 40.4 thousand boe per day and its proven reserves stood at 147 million boe as of end-2016.


For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Denis Perevezentsev
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service Limited, Russian Branch
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Victoria Maisuradze
Associate Managing Director
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