Ukraine state energy company Naftogaz has managed to restructure its $500 million Eurobond after failing to pay it by Sept. 30 deadline.
(Reuters) – Ukrainian state energy firm Naftogaz, battered by higher gas import prices and the country’s deep recession, said on Oct. 19 that investors in its $500 million Eurobond had agreed to its restructuring terms.
The company, often at the center of energy rows with Russia that have previously led to supply cuts to Europe, wants to swap its entire foreign debt – including the Eurobond – for a new 5-year issue worth $1.65 billion. Bondholders gathered in London on Oct. 19 after weeks of consideration and overwhelmingly approved the new terms.
Those holding ‘more than 93 percent of the existing notes voted in favor of the consent solicitation, and, accordingly, the extraordinary resolution put to note holders at the note holder meeting was passed,’ Naftogaz said in a statement.
Rating agencies said Naftogaz was in restricted default after it failed to repay the $500 million by a Sept. 30 deadline. The bondholders now can buy into the new debt, settlement for which will be on Oct. 29, and receive coupon payments of 9.5 percent – higher than the 8.125 percent they received on the previous bond.
The company is concurrently holding talks with its bilateral creditors. Local agencies have said these include Credit Suisse’s loan of about $550 million, Deutsche Bank’s $395 million and Depha’s $220 million.
“Negotiations with the bilateral lenders to Naftogaz are progressing and Naftogaz is encouraged by the continued constructive nature of these discussions,” Naftogaz said.
IMF implications
Ukraine is in the throes of a deep economic recession characterized by plunging steel exports, a much weakened hryvnia currency and a destabilized banking sector. It has been surviving on an IMF lifeline of $16.4 billion.
Ukraine announced it wanted to restructure Naftogaz’ debts in late July, just days after it received a $3.3 billion tranche from the IMF which could have been used to pay for debt. This had led some analysts to say the decision to restructure Naftogaz’ debts may have been a political one.
The IMF itself said restructuring could be beneficial to Naftogaz, which has been sapping funds from already depleted state coffers, as long as investors willingly agree.
Some linked the restructuring to a refusal by the government to increase heavily-subsidized household gas prices – an unpopular move before a Jan. 17 presidential election but one that would have boosted the finances of Naftogaz.
Naftogaz has found itself operating a ‘buy high, sell low’ business – as Russian gas import prices have risen to about $230 per 1,000 cubic meters this year from $50 in 2005, it sells the gas on to utilities at far cheaper subsidized prices.
An IMF mission is in Kyiv to assess progress on conditions it has set for its bailout program – such as raising household gas prices, to see whether to release a tranche worth $3.8 billion by the end of the year.
“In terms of the state’s support of Naftogaz, the IMF required the government to improve Naftogaz’s financial stance and reduce its support of the company. The state did not provide support to Naftogaz,” Renaissance Capital said in a note.
“The government may use the successful restructuring of Naftogaz’s external debt as an argument of improvement because after the restructuring, the company’s financial needs this year will be lower than initially expected.”
