KIEV, Ukraine - Ukraine's troubled energy giant Naftogaz on Thursday unveiled a long-awaited offer to restructure its $1.6 billion dollar debt amid concerns it might default on $500 million Eurobonds maturing next week.
State-owned Naftogaz proposed converting the existing bonds into new ones that will mature in 5 years and increasing the interest rate from the current 8.125 percent to 9.5 percent. The company offered explicit state guarantees for the bonds.
Nervous creditors had been pressing Naftogaz to pay up by the Sep. 30 deadline, with some saying it was too late to avoid a default. Fitch Ratings on Wednesday downgraded Naftogaz form CC to C, saying the company was unlikely to repay the bond on its maturity date.
Analysts were divided as to whether the credit holders will accept the offer.
“They have left everything very late,” said Timothy Ash, London-based head of emerging market research at Royal Bank of Scotland. “It’s going to be a close call as to whether they can get this deal closed.”
Anastasia Golovach, an economist with investment bank Renaissance Capital Ukraine, said the conditions proposed by Naftogaz were not favorable and that creditors were being pushed into the restructuring. Golovach said the Naftogaz proposal demonstrated that the company would not make the payments by the deadline.
“The conditions are not investor-friendly,” Golovach said. “The decision is now in the hands of the investors.”
Olga Slyvynska, a bond analyst with the investment bank Dragon Capital in Kiev, said she believed a default will be avoided, even though market participants had expected a higher interest rate offer of 10-12 percent. She said that Naftogaz is likely to propose a “standstill” agreement to creditors, which would avert a possible default until late October, when the company wants to sign a final restructuring agreement.
“There are many ways to avoid a default,” Slyvynska said.
Meanwhile on Thursday, the Luxembourg stock exchange, which specializes in bonds trade, briefly suspended trading in Naftogaz bonds, citing unspecified regulation violations. Trading resumed after Naftogaz clarified its position to investors, the exchange said.
Naftogaz is central to the delivery of Russian natural gas supplies to European consumers as most of the gas is carried by Ukrainian pipelines. Debt problems at Naftogaz have led to a pricing war with Russia that left millions of Europeans without gas for two weeks in January after Moscow turned off the taps accusing its neighbor of stealing gas.
