Naftogaz facing technical default

The Naftogaz of Ukraine national joint-stock company is asking holders of some of its bonds to freeze a debt of UAH 1.5 billion for 2 years, as the Russian invasion left the company without cash.

This was reported by the online edition ZN.ua.

Naftogaz has asked its international creditors to delay payments on its debt for 2 years, saying the Russian invasion has left it cashless as many of its customers have now been unable to pay their bills.

So, Naftogaz, through the issuer of its Eurobonds, Kondor Finance plc, approached the holders of these securities worth about USD 1.5 billion with a proposal to defer coupon payments on them for 2 years, including postponing for the same period the repayment of Eurobonds-2022 for USD 335 million.

According to Interfax-Ukraine, 3 issues of Naftogaz Eurobonds are circulating on the market, all of them were placed in 2019: in July - three-year for USD 335 million at 7.375% and five-year for EUR 600 million at 7.125% (a fifth of bonds in euros bought by the EBRD), and in November - 7-year for USD 500 million with a yield of 7.625%.

The maturity date for the USD 335 million issue is July 18, 2022.

Naftogaz proposes to pay all coupons on 2022 and 2024 Eurobonds on July 19, 2024 and redeem 2022 Eurobonds on the same day. And NJSC would like to pay coupons for Eurobonds-2026 on November 8, 2024.

The offer also includes a waiver of any default that occurs as a result of such a deferred payment and compliance with certain covenants for a two-year period (from July 19, 2022 to July 19, 2024 for Eurobonds 2022 and 2024 and until November 8, 2024 year for Eurobonds-2026).

In accordance with the document, the deadline for voting on proposals expires in the afternoon on July 21, and the meeting and announcement of the results are scheduled for July 26. And if creditors agree to a debt restructuring, the company will actually enter a technical default.

Recall that earlier the Cabinet of Ministers of Ukraine, by order 554-r dated July 7, 2022, allowed Naftogaz to change credit requirements with the issuer of three issues of its Eurobonds, Kondor Finance plc, on the eve of the redemption of one of them for USD 335 million.

In 2021, it became known that members of the board of the NJSC received a total of UAH 610.1 million in 2020, which was unprofitable for the company. That happened despite the fact that the loss in that year amounted to UAH 19 billion.

In February 2022, Naftogaz reported that the former head of Naftogaz, Andrii Kobolev, took most of the UAH 599.6 million bonus for defeating Russian Gazprom in the Stockholm Arbitration, despite the fact that he did not even manage this division.

Throughout 2021, the senior management staff consisted of an average of five board members and 15 directors (2020: five board members and 12 directors). Compensation to key management personnel included salaries and additional current bonuses and amounted to UAH 911 million (UAH 672 million in 2020).

Of the indicated UAH 911 million, UAH 338 million was paid to the previous head of Naftogaz, Andrii Kobolev, who was fired in April 2021.

Thus, in 2021, UAH 573 million was paid for four members of the board (excluding the head of the board) and 15 directors. If we admit a certain gradation of wages between members of the board and directors, then the average salary of a member of the board of Naftogaz will be over UAH 4 million per month, and a director about UAH 2 million per month.

According to the data of the Naftogaz website, the salary of the current head of the board is about UAH 50,000 per month, in particular, in April 2022, he received UAH 50,727.92. (There seem to be no contracts with the rest of the "temporary" ones, so the amounts of payments and rewards are not disclosed).

The incident is how, with a salary of the head of the board of UAH 50,000, a member of the board can receive 80 times more, and a "simple" director - 40 times more than the head of the enterprise? Is this why Naftogaz, under a far-fetched pretext, refuses to publish data on the amount of salaries of board members?