Fitch: Naftogaz on watch

Fitch Ratings said it placed the B+ local- and foreign-currency issuer default ratings of OJSC Naftogaz on rating Watch negative.

The senior unsecured B+ rating on the company's $500 million eurobond maturing in 2009 is also placed on rating Watch negative. The eurobond's recovery rating is affirmed at RR4.

This follows the announcement that Ukraine is to pay $130 per thousand cubic meters of gas in 2007 compared to $95 per thousand cubic meters in 2006, Fitch said.

Fitch said it is waiting for information from Naftogaz regarding the exact impact that the new pricing scheme is expected to have on its business and financial profile. The agency said it expects to resolve the rating Watch within the next five business days.

The agency said Naftogaz may have lost its dominant position in the Ukrainian domestic gas market. While Naftogaz is a 100% state-owned company, which allows for a degree of state support through the possible increase of gas tariffs to economically justifiable levels in 2007, Fitch said it doubts there exists a strong political will for such a move.

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