Morning Commentary: Russia’s Lukoil may price new bonds in 1Q to fund upcoming maturity

By Rebecca Melvin

New York, Dec. 20 – Russia's Lukoil has sufficient liquidity to repay its upcoming maturity on its $1.5 billion bonds due April 24, 2018, but is also expected to come with a new deal in the first quarter, a London-based market source said on Wednesday.

The oil and gas company’s notes due 2023 were seen in the market on Wednesday at 103.858, leaving it at a yield of 3.76%, or spread of mid-swaps plus 147 basis points, according to the source.

The Lukoil 4¾% notes due 2026 were at 104.746 with a 4.11% yield and spread of mid-swaps plus 169 bps.

Lukoil’s z-spread on the 2026 notes has tightened substantially since issue in October 2016 and trade 15 bps above the underlying sovereigns, according to research firm Gimme Credit.

“Lukoil’s growing exposure to oil and gas fields that generate higher operating margins than its operations in West Siberia will help the firm maintain elevated EBITDA margins and support its credit profile going forward,” Gimme Credit analyst Aledandre Dray wrote in a note published Wednesday.

“With industry-low leverage ratios and annual cash flow from operations exceeding its outstanding debt pile, Lukoil has a strong credit profile and we do not expect the increase in dividend payments and capital spending after 2018 to put the credit story at risk,” Dray wrote.

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