Fitch Ratings, an international credit rating agency, has downgraded National Joint Stock Company Naftogaz of Ukraine's Long-Term Issuer Default Rating (IDR) to 'C' from 'CCC' following its consent solicitation to defer its debt servicing of its Eurobonds, including that due on July 19, 2022.
The agency has said this in a statement, Ukrainian News Agency reports.
“We view the solicitation as a Distressed Debt Exchange (DDE) under Fitch's criteria, given the restructuring would involve a material reduction in terms and is conducted to avoid insolvency.
Russia's invasion in Ukraine (CCC) has affected Naftogaz's performance and cast uncertainty over our financial projections for the company's performance. Its liquidity position is very weak and, among other factors, is affected by the need to buy additional volumes of natural gas for the winter season in the market,” reads the statement.
It is noted that deferring interest and coupon payments should enable Naftogaz to buy more gas to better prepare for the winter season.
“We believe the transaction constitutes a material reduction in the terms of the existing Eurobonds given the proposed deferral of the principal and/or coupon. In particular, Naftogaz is asking to defer principal and coupon payments for its USD335 million bond originally due on 19 July 2022 until July 2024,” the agency added.
Naftogaz has been effectively instructed by the government to purchase and import natural gas in the amount of up to 5.6 billion cubic meters (bcm), which at current prices would cost approximately USD 8 billion, which is likely to significantly exceed Naftogaz's current cash balance.
In the context of this requirement and Naftogaz's weak liquidity Fitch deems the consent solicitation to be conducted to avoid default.
As Ukrainian News Agency earlier reported, the chairman of the board of Naftogaz Yurii Vitrenko says that in order to achieve the level of natural gas reserves in underground natural gas storage facilities of 19 billion cubic meters established by the government at the beginning of the heating season 2022/2023 it is necessary to import about 5.8 billion cubic meters of natural gas worth USD 8 billion, while Ukraine turned to the United States with a proposal to supply the volume of natural gas, which is not enough, within the framework of the lend-lease law.
The Naftogaz group ended 2021 with a net profit of UAH 12.023 billion against a loss of UAH 19.002 billion in 2020, increasing sales income by 36.5%, or UAH 58.15 billion, to UAH 217.384 billion.
Naftogaz of Ukraine is the leading company in Ukraine in terms of exploration and development of oil and gas deposits, drilling, transportation, and storage of crude oil and natural gas, and supply of natural gas to consumers.
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