Professional Documents
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6.5 Lukoil' 22
Lukoil' 19
6.0 Lukoil' 20
3.0
2.5 LUK-CONV-15
2.0
3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0
© Bank of M oscow 1/ 3
Fixed Income Special Report December 10, 2010
Placement results
If we disregard the option part, LUKOIL placed the issue with a 235-bpts discount to the eurobond
curve. In reality, the spread of 235 bpts in yield (11 ppts in price) is the conversion option value. We
believe that implied option volatility amounted to about 25%. This estimate is in line with long-term
implied market volatility for call options with strike price of 130%. Yesterday we saw offer prices for
June 2011 with 30% volatility.
We analyzed bond price sensitivity on the three and 12-month period (see the tables below) and
drew the following conclusions:
• If LUKOIL’s ADR trade in the range of $50-60 and volatility increases to 40% with the
change in the yield curve by 50 bpts (up or down), investments in the instrument will be
efficient.
• If LUKOIL stocks reach in 12 months the $73.25 target, set by our analysts, the bond price
will dip below par only in case of dramatic yield growth by 300 bpts. As these events are
mutually exclusive and taking in to account the BUY recommendation on LUKOIL, we
recommend LUKOIL’s convertible bonds as well as we don’t expect material yield growth in
the eurobond market in the next several months.
© Bank of M oscow 2/ 3
Fixed Income Special Report December 10, 2010
Contact Information
Research Information
Tel: +7 495 925 80 00
Fax: +7 495 925 80 00 доб. 2822
Bank_of_Moscow_Research @mmbank.ru
Head of Research
Kirill Tremasov
Tremasov_KV @mmbank.ru
Equity Research
Yury Volov, CFA Sergey Vahrameev Ivan Rubinov, CFA Andrey Kucherov
Volov_YM @mmbank.ru Vahrameev_SS @mmbank.ru Rubinov_IV @mmbank.ru Kucherov_AA @mmbank.ru
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