26 July 2022, Tuesday, 20:37 936

Government Defaults On Naftogaz Eurobonds

Editor: Tetiana Herasimova

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The Cabinet of Ministers has defaulted on Eurobonds of the Naftogaz of Ukraine national joint stock company.

This is stated in the Naftogaz’s message, Ukrainian News Agency reports.

"Today, July 26, 2022, the deadline for payments of the NJSC Naftogaz to Eurobond holders has expired. Earlier, on July 21, 2022, the Cabinet of Ministers, acting as a general meeting, by its order No. 625-r, obliged company officials to take any action when performing a transaction regarding the company's Eurobonds only after separate approval of such actions by the Cabinet of Ministers. In accordance with the above decision of the government, as well as in fulfillment of the obligations of the national company to pay on Eurobonds, the Naftogaz management in advance appealed to the Cabinet of Ministers for agreement on the implementation of this transaction," the statement said.

According to the report, in its official letter to the government, the national company indicated the presence of funds on its accounts sufficient for payments on Eurobonds, and also described the risks and negative consequences for Naftogaz and the country in the event of a "severe default" on the company's Eurobonds.

"In turn, the Cabinet of Ministers did not grant Naftogaz officials permission to fulfill obligations to Eurobond holders to make the necessary payments to pay principal and interest (in relation to the issue of 2022) and interest (in relation to the issue of 2024). Thus, the government defaulted on Eurobonds of Naftogaz. Since the default on Eurobonds practically deprived Naftogaz of access to the international capital market, the Cabinet of Ministers, with its ban on their payment, actually took full responsibility for raising the funds necessary to import natural gas for the heating season 2022/2023," the report said.

As Ukrainian News Agency earlier reported, on Tuesday, July 26, the NJSC Naftogaz of Ukraine was supposed to make payments on Eurobonds or get the consent of Eurobond owners to delay payments.

The Cabinet of Ministers recognized the performance of the Naftogaz board regarding changes in the credit terms of Eurobonds as unsatisfactory

The Fitch Ratings international rating agency lowered the long-term issuer default rating (IDR) of the Naftogaz of Ukraine national joint-stock company from CCC to C after the company requested consent to postpone debt service on its Eurobonds, including those due on July 19, 2022.

In particular, the agency notes that Naftogaz is asking to postpone payments of the principal amount of the debt and the coupon for its bonds in the amount of USD 335 million, which is due for repayment on July 19, 2022, until July 2024.

In the context of this requirement and Naftogaz's weak liquidity, Fitch believes that the consent request was made to avoid default.

In November 2019, the Naftogaz of Ukraine national joint-stock company placed 7-year Eurobonds in the amount of USD 500 million with a rate of 7.625% per annum.

Also in July 2019, Naftogaz placed 5-year Eurobonds for EUR 600 million at an annual rate of 7.125% and 3-year Eurobonds for USD 335 million at an annual rate of 7.375%.

The Kondor Finance company is engaged in the issue of Naftogaz Eurobonds.

The Naftogaz of Ukraine national joint-stock company is a leading enterprise of the country's fuel and energy complex, which is engaged in the exploration and development of deposits, drilling, transportation and storage of oil and gas, as well as supplying gas to consumers.