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FSUOGM INVESTMENT FSUOGM

Ukraine’s Naftogaz faces default

on $335mn bond payment

UKRAINE UKRAINE’S national gas company Naftogaz default at least for a bit," one of Naftogaz's bond-
faces default on July 26 after it failed to persuade holders, Trium Capital's Peter Kisler, told Reu-
The company is on enough of its bondholders to accept a two-year ters. "It is just a question of what the government
government order to freeze on payments at the eleventh hour and the allows them to do."
preserve cash for gas government refused the company permission to Ukraine is running out of money. The EU
supply. make good on its obligations. and US have promised a total of about $16bn
Naftogaz has already missed the deadline to in financial budgetary aid, but the Western
pay off a $335mn Eurobond and has been nego- financial aid has been dogged by bureaucratic
tiating with the investors to delay payments dur- delays. The European Investment Bank (EIB)
ing the month-long grace period that expires on announced that it would lend the government a
July 26. total of €1.6bn and that the first €1bn was being
A coupon payment on another bond that made immediately available. But with the gov-
matures in 2024 is also due on the same day. ernment burning through $8bn a month and
The company said that too few investors had running a $4bn-5bn deficit each month the EIB
agreed to the plan, ordered by the government to loan is simply papering over the cracks.
“preserve cash” to buy badly needed gas supplies Naftogaz first asked investors to delay its pay-
for the winter, and without the government’s ment obligations for two years on July 12, but
permission the company cannot make the pay- was met with a lukewarm response. The gov-
ment, despite having more than $2bn on its bal- ernment followed up with its own request for a
ance sheet. two-year deferral on its roughly $20bn worth of
With the start of the heating season only a international bonds, which was approved by the
few months away Ukraine has only filled its gas Paris Club of sovereign creditors, who called on
storage tanks to 22% of capacity and needs to buy private investors to also freeze payments for up
about 5bcm of gas at an estimated cost of $7.8bn. to two years.
It is not clear where it will find the money, nor The government has in the meantime ordered
where it can source the gas since it ceased buying all the state-owned companies with bonds to
gas from Russia and all European countries are lobby their investors for a two-year payment
scrambling to fill their own tanks after Gazprom hiatus. If Naftogaz fails to make the payment on
reduced gas flows to 20% this week. July 26 it will be the first of several state-owned
As bne IntelliNews reported, the company companies that will formally default on their
issued a statement on July 25 saying that the obligations.
company has the money and is keen to main- Lawyers advising the bond investors said
tain its good credit history but after applying to that they recommended bondholders reject the
the Cabinet of Ministers for permission to pay deal as Naftogaz remains a profitable concern
the bond off on July 22 it had not received the and has the cash on its balance sheet to meet its
go-ahead. obligations.
Naftogaz said in a statement that with so few If Naftogaz fails to pay then investors could
bondholders supporting its debt freeze proposal launch legal suits and seize Naftogaz assets in
ahead of a July 26 deadline, the "required quo- lieu of payment. One source familiar with the
rum" needed to pass the plan was "not expected matter told Reuters that one such target could be
to be met", reported Reuters. some of the overseas assets it has in countries like
"It seems inevitable now that they will be in Egypt and Switzerland. ™

P14 www. NEWSBASE .com Week 30 28•July•2022