Ukraine's debt-laden state energy company Naftogaz on Thursday effectively defaulted on its $500 million Eurobond issue after it failed to make a payment on time, but a deal on restructuring the debt was expected soon.
Naftogaz,
which transports Russian natural gas to European consumers, said in a
statement that it had failed to pay principal on the bonds that matured
Wednesday, saying the bond issue was subject to a restructuring
proposal to be considered on Oct. 19.
The company declined further comment, but analysts said a failure to redeem the bonds was tantamount to a default.
“They
paid the coupon, but not the principle. What is it? It’s default,” said
Petr Grishin, an analyst with the investment bank Renaissance Capital.
Fitch
Ratings on Thursday downgraded Naftogaz’s rating to a so-called
“restricted default,” which means a default on a particular security,
but not the entire company.
“It’s not the end of Naftogaz, it’s the end of that particular bond,” said Fitch analyst Anton Krawchenko.
Analysts,
however, said a restructuring deal was highly likely and that the
default would not have a drastic effect on the company or the Ukrainian government.
“Markets have a very short memory,” Grishin said. “This won’t have any effect on anything.”
Naftogaz
has 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 proposal offers explicit state
guarantees for the bonds.
Krawchenko agreed that investors would
likely agree to the proposals, but said that Naftogaz was in need of
wide-ranging reforms. He said the company must end the practice of
importing natural gas from Russia and then selling it to domestic
consumers at much lower prices.
“This is the fundamental problem with Naftogaz that needs to be resolved,” Krawchenko said.
Previous
debt problems at Naftogaz have contributed to disruptions in natural
gas supplies to European consumers. In January, millions of Europeans
were left freezing for two weeks after Russia turned off deliveries via
Ukraine, accusing its neighbor of stealing gas.
