Naftogaz bondholders reject debt freeze, Kyiv rejects demand for payment

The logo of Ukrainian state energy company Naftogaz is seen outside the company’s headquarters in central Kyiv, Ukraine October 18, 2021. REUTERS/Gleb Garanich/File Photo

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July 25 (Reuters) – Ukraine’s state-owned energy company Naftogaz said its bondholders were set to refuse its request to freeze debt payments for two years and slammed the government for rejecting another plan to the company aiming to continue making its payments.

Naftogaz said in a statement that with so few bondholders backing its debt freeze proposal by Tuesday’s deadline, the “required quorum” needed to pass the plan must “not be met”.

A request for the Ukrainian cabinet to move forward with a $335 million “principal” and interest payment on a bond due July 19, as well as a separate interest payment on another bond that runs until 2024, “has not been granted,” the company said.

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Naftogaz, which accounted for almost 17% of Ukraine’s state revenue last year, added that it had submitted another request on July 23 to approve the payments and was awaiting a response. He also plans to come up with a new proposal to try to win bondholders’ approval.

If Naftogaz fails to convince its bondholders to accept a plan in the coming days, it is likely to be the first Ukrainian entity to fall into total default.

The company initially called for a payment freeze on July 12, saying the Russian invasion had left it strapped for cash as many of its customers were now unable to pay their bills. Read more

Since then, the government itself has also requested a two-year deferral on its roughly $20 billion in sovereign international bonds.

This government’s plan, however, received immediate support from Western powers and some of the world’s largest investment funds, including BlackRock and Fidelity. Read more

The Ukrainian government estimates that it faces a budget deficit of around $5 billion per month, or 2.5% of pre-war GDP. The EU’s financial arm, the European Investment Bank, said the cost of rebuilding Ukraine could run into the trillions of dollars.

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Reporting by Marc Jones in London and the Gdansk Newsroom, editing by Karin Strohecker and Susan Fenton

Our standards: The Thomson Reuters Trust Principles.

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Elaine R. Knight