Ukraine’s biggest state company Naftogaz managed to restructure its debt that matured this week, while much spoken about privatization of Odesa Portside plant was canceled having fetched too little money.
Kyiv Post Staff – It was a bittersweet week for Prime Minister Yulia Tymoshenko, possibly one that could weigh somewhat on her hopes of winning the Jan. 17 presidential contest.
Tymoshenko may have lost the political points with voters she earned during her widely acclaimed appearance at the Yalta European Strategy conference in Crimea. She outperformed two other presidential front-runners, Victor Yanukovych and Arseniy Yatseniuk, in the view of many national and international elite who attended.
But things took an abrupt turn for the worse on Sept. 29 for Tymoshenko’s government, financially afloat thanks to a $16.4 billion aid package from the International Monetary Fund. On that day, her full-steam-ahead plan to hold a major privatization tender – ignoring a ban by President Victor Yushchenko – flopped.
The government hoped that Odesa Portside Plant would sell for $1 billion, desperately needed to narrow the nation’s $2 billion budget deficit. But when two Russian contenders dropped out of the bidding earlier than expected, it looked as if a Ukrainian billionaire, Igor Kolomoisky, snapped the prized chemical plant for $625 million. Unhappy with the result, privatization officials immediately cancelled the tender. Tymoshenko join in suggesting collusion among bidders.
A day later, the country’s biggest company, state–owned Naftogaz, effectively defaulted on its $500 million Eurobonds. Yet – in a plus for Tymoshenko – it turned out on Sept. 30 that her hardball approach had convinced many bondholders and creditors to restructure nearly $1.7 billion in debts owed by Naftogaz.
“At first glance, both debacles look like a big blow for Tymoshenko,” added Vadym Karasyov, a political analyst who has advised Yushchenko, the prime minister’s rival. “But there is no clear-cut loss, even some victory for her. As for how voters take it, much depends on what angle dominates in media. And here, much depends on spin doctors.”
While the Naftogaz default produced embarrassing headlines for Tymoshenko, rolling over the debt will help the eenrgy behemoth and her government. It will free up near-term financial resources to start reforming Ukraine’s murky gas sector. Restructuring Naftogaz’s debts could also open the door to hundreds of millions of fresh loans from two big lenders – the European Bank for Reconstruction and Development and the European Investment Bank. Both have pledged to help restructure the indebted Naftogaz and the lucrative gas sector.
When you cut through the noise, political analyst Oleksiy Haran said Tymoshenko was consistent in pushing hard to privatize Odesa Portside, while her opponents, including Ukraine’s president, did everything possible to sabotage the sale. Many voters will see it this way, Haran predicted adding that shenanigans surrounding the failed auction won’t noticeably hit her rating.
As for Naftogaz, Haran said Tymoshenko managed to keep the company afloat despite deep challenges and constant criticism by opponents. “Despite relentless warnings that bankruptcy loomed, the government has managed to keep the company afloat during a very tough year. If the government manages to restructure Naftogaz’s debt, Tymoshenko will come out with a good and concrete result that stands out from all the fear-mongering criticism,” Haran added.
Rolling over billions of dollars of debt will also reduce pressure on Ukraine’s currency, which remains wobbly. It could also give the prime minister more breathing space in a deep recession, during which budget revenues have plunged. Free for now from servicing Naftogaz’s massive pile of debts, Tymoshenko’s government has a strong chance of paying pensions and public-sector salaries on time and in full.
