Merrill Lynch confirms high profitability of NJSC Naftogaz of Ukraine Eurobonds

It its March 7, 2006 report, investment bank Merrill Lunch provides recommendations to investors on NJSC Naftogaz of Ukraine Eurobonds, confirming the high value of the papers and recommending them as a good investment. Merrill Lynch emphasized in a press release that the speculations on Naftogaz facing potential bankruptcy have been politically motivated rather than based on factual analysis of company operation. “During our trip to the Ukraine we found through various sources that a number of recent negative press headlines on Naftogaz bankruptcy and investigations were driven mainly by political motives rather than hard facts,” Merrill Lynch states in its report. Merrill Lynch experts dismiss the media claims that the company is on the brink of bankruptcy.

Having studied Naftogaz accounts on a consolidated basis and assuming its rights to dividend payments from its subsidiaries (specifically CJSC Ukrnafta), and the interest of the government in Naftogaz as the single biggest contributor to Ukraine’s GDP, Merrill Lynch analysts concluded that the recent bankruptcy claims were unfounded.

Merrill Lynch maintains its Overweight-30% on Naftogaz bonds. The analysts point out that at a spread of over 200 bps against the sovereign, valuations of Naftogaz papers look extremely attractive at identical ratings.

Footnote: The Merrill Lynch’s Overweight-30% recommendation regarding bonds means “good carry plus some spread tightening expected,” as Naftogaz bonds should be traded at a profitability comparable with the sovereign.

NJSC Naftogaz of Ukraine Press center

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