Moody's confirms Naftogaz

Moody's said it confirmed the Ba3 corporate family rating and the Ba2 rating for the $500 million senior unsecured loan participation notes of NJSC Naftogaz of Ukraine. The action concludes Moody's review for possible downgrade that was initiated in August.

The outlook is stable.

Moody's said it lowered the baseline credit assessment to 17 from 16, which has no impact on the ratings given ongoing strong expected support and low dependence. The downgrade of the baseline credit assessment reflects Naftogaz's weakened financial profile as a result of increased gas prices that it needs to pay its key supplier, Gazprom, the agency said.

The resolution of the gas dispute between Gazprom and Ukraine in 2005 and 2006 had resulted in a significant increase of the gas price. The impact on Naftogaz was further exacerbated by its inability to increase supplies from other providers such as Turkmenistan, Moody's said it said. During this period, Naftogaz faced political resistance in its domestic market to increase tariffs sufficiently to cover its increased cost base.

The other elements of Naftogaz's rating - high support and low dependence - remain unaffected by this change and support the stable outlook.

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