bne IntelliNews – Ukrainian Naftogaz faces default on $335 million bond

Ukraine’s national gas company Naftogaz faces default on July 26 after it failed to convince enough of its bondholders to agree to a two-year payment freeze at the eleventh hour and the government denied the company permission to meet its obligations.

Naftogaz has already missed the deadline to repay a $335 million Eurobond and has negotiated with investors to delay payments during the month-long grace period that expires on July 26.

A coupon payment on another bond that matures in 2024 is also due on the same day.

The company said too few investors had taken on the plan, ordered by the government to “conserve cash” to buy much-needed winter gas supplies, and without government permission the company cannot make the payment, despite having more than $2 billion. on its balance sheet.

With the start of the heating season only a few months away, Ukraine has only filled its gas storage tanks to 22% of capacity and needs to buy around 5 billion cubic meters of gas at an estimated cost of $7.8 billion. It is unclear where it will find the money, or where it will be able to source gas since it has stopped buying gas from Russia and all European countries are scrambling to fill their own tanks after Gazprom reduced gas flows to 20% this week.

As bne IntelliNews reported, the company issued a statement on July 25 saying that the company has the money and is keen to maintain its good credit history, but after asking the Cabinet of Ministers for permission to repay the bond on July 22, it n had not received the green light – forward.

Naftogaz said in a statement that with so few bondholders backing its debt freeze proposal before the July 26 deadline, the “required quorum” needed to pass the plan must “not be met”, reported Reuters.

“It now seems inevitable that they will be in default at least for a while,” one of Naftogaz’s bondholders, Peter Kisler of Trium Capital, told Reuters. “It’s just a matter of what the government allows them to do.”

Ukraine is short of money. The EU and US have pledged a total of around $16 billion in financial budget support, but Western financial aid has been slowed by bureaucratic delays. The European Investment Bank (EIB) has announced that it will lend the government a total of 1.6 billion euros and that the first billion euros will be immediately available. But with the government burning through $8 billion a month and running a deficit of $4-5 billion each month, the EIB loan is just masking the cracks.

Naftogaz first asked investors to postpone its payment obligations for two years on July 12, but only received a mixed response. The government followed up with its own request for a two-year deferral of its roughly $20 billion in international bonds, which was approved by the Paris Club of sovereign creditors, which called on private investors to also freeze payments until further notice. at two years old.

Meanwhile, the government has ordered all public companies holding bonds to pressure their investors for a two-year suspension of payments. If Naftogaz fails to make the payment on July 26, it will be the first of several public companies to formally default.

Lawyers advising bond investors said they recommend bondholders reject the deal because Naftogaz remains a profitable business and has cash on its balance sheet to meet its obligations.

If Naftogaz fails to pay, investors could take legal action and seize Naftogaz assets in lieu of payment. A source familiar with the matter told Reuters that one of those targets could be some of the overseas assets it has in countries like Egypt and Switzerland.

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Elaine R. Knight