Page 13 - FSUOGM Week 31 2022

FSUOGM PROJECTS & COMPANIES FSUOGM

Russia’s Lukoil to buy back $6.3bn of bonds

RUSSIA RUSSIA’S second-largest oil company Lukoil on any dividend decisions”, as Lukoil “indeed
could buy back up to $6.3bn of outstanding has enough cash to both execute this offered
The movve is aimed bonds maturing in 2023-2031, according to buyback and pay a significant final dividend on
at avoiding as possible Vedomosti daily, due to difficulties in paying 2021”.
default. interest on bonds due to the Western sanctions Lukoil ended 2021 with $9bn of cash and
for Russia’s military invasion of Ukraine. should have generated “material amounts”
The company’s press service commented of operating cash in 1H22, despite the war in
that Lukoil has sufficient cash on hand for the Ukraine, BCS GM estimates. The buyback of
buyback, that it will negotiate the price with bonds is also expected to require much less cash
the individual bondholders, and will cancel the than the actual $6.3bn face value of the bonds.
repurchased bonds. Lukoil, Russia’s second-biggest oil producer
“The main question for shareholders in the and its largest privately owned one, saw the
current environment will regard the potential recent departure of its long-standing president
impact on the as-yet undeclared final dividend and founder Vagit Alekperov, as well as its right-
on 2021, on which Lukoil delayed decision until hand man, vice president Leonid Fedun. While
December as it searches for mechanisms to exe- both businessmen are going into retirement, the
cute transfer of dividends to foreign sharehold- moves are also seen as a means of them distanc-
ers,” BCS Global Markets commented on August ing themselves from the oil company to avoid
4. sanctions.
The analysts believe that bond buyback Alekperov was replaced as president by com-
“ultimately should have only a modest impact pany veteran Vadim Vorobyov. ™

NEWS IN BRIEF

Latest debt-freeze proposal invasion of Ukraine, which has devastated downgraded to the level of RD (limited
the company as many citizens are unable
default), for failing to pay its Eurobond
from Naftogaz rejected by to pay their bills. However, it was revealed debt on July 19. Ferrexpo’s foreign-currency
on July 15 that the government ordered
issuer default rating (IDR) rating fell from
Dechert Naftogaz to delay debt payments, surprising B- to CCC+, whilst Ukrenergo’s five-year
the chairman Yuriy Vitrenko, who claims
state-guaranteed notes’ senior unsecured
The latest debt-freeze proposal from that the company had been planning rating dropped to C from CCC.
Ukraine’s state-owned oil and gas company finances to redeem the Eurobonds and buy
Naftogaz was rejected once again by law gas.
firm Dechert, Bloomberg reported on The Cabinet of Ministers published Uzbekistan’s SEG reports
August 4. a statement on its website on August 1
Trouble with Naftogaz emerged earlier giving consent to Naftogaz to change “the nearly nine-fold gain in oil
this month after the company asked credit agreements dated July 17, 2019, and
bondholders for a two-year payment freeze November 6, 2019, by concluding additional production at Chegara field
on $1.4bn of its bonds, including a $335mn agreements and/or setting out the said
2022 Eurobond coupon payment due on agreements in a new version”. However, the Sanoat Energetika Guruhi (SEG),
July 19. Advisors from Dechert, appointed details about the amendments proposed Uzbekistan’s largest private oil and gas
by creditors, told bondholders to reject were not revealed. company, on August 3 announced a
Naftogaz’s first request last month. Their With Ukraine running out of money, nearly nine-fold increase in production
opinion has remained the same and the law the government asked other state at its Chegara field in the south-eastern
firm stated that Naftogaz’s new proposal companies State Automobile Roads Uzbekistan region of Kashkadarya.
fails to address concerns of creditors. Agency (Ukravtodor) and power company The development of the Chegara group
“[Naftogaz] remains a sustainable Ukrenergo to also defer bond payments for fields has been under way since 1996. The
business operating on a sound financial two years. However, with other national average rate of natural annual decline in
footing and does not face the same types companies looking set to default, Ukraine’s oil production for these fields from 2010
of challenges confronting Ukraine at the state-run Ukreximbank surprised experts to 2013 was 40%, said SEG. In 2014-2015,
sovereign level,” Dechert stated. by making its scheduled, regular 2025 the deposits were left idle and production
As such, Naftogaz is expected to fulfil Eurobond payment of $26.21mn, reported resumed in 2016. The average annual
its debt obligations on its 2022 Eurobonds. Bloomberg. production of oil from 2017 to 2019 was
However, if the company cannot pay Nevertheless, several state companies 6,400 tonnes.
the 2024 and 2026 bonds and requires have been downgraded by the rating agency When the Chegara fields were
help, then “such need can potentially be Fitch, including Naftogaz, Ukrenergo and transferred to SEG from Uzbekneftegaz in
addressed at an appropriate juncture and Ferrexpo, as a result of Ukraine’s increased December 2019, there were three oil wells
with proper creditor engagement and country risks and financial crisis, Ukraine in operation. The average rate of production
input”, Dechert noted. Business News reported on August 1. at the field was no more than 15.7 tonnes
Naftogaz placed the blame on Russia’s Naftogaz’s long-term rating has been per day, as of 1 January 2020, SEG noted.

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