Ukrainian Naftogaz bondholders urged to reject debt freeze plan

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

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LONDON, July 14 (Reuters) – Creditors of Ukraine’s state-owned energy company Naftogaz were asked this week to reject the company’s request to freeze debt payments for two years.

Naftogaz made the offer on Monday, saying Russia’s invasion of the country has left it strapped for cash as customers have been unable to pay their bills. Read more

In a call organized by London-based law firm Dechert, which was named by the creditors, advisers said they did not believe the company faced an immediate cash crunch and was considered as a profitable business.

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As a result, they would demand full repayment of one of the company’s bonds which is due next week, as well as an additional “coupon” interest payment on another bond which runs until 2024.

“The advice is to vote against,” one investor said on the call.

Advisers also said bondholders were not forming a steering committee – a core group of creditors that leads debt renegotiations – at this time.

They added that they would be willing to look again if there was no improvement in the country’s situation by the time the next major bond matures in 2024.

Naftogaz is a major source of revenue for Ukraine, accounting for nearly 17% of total state budget revenue last year and employing more than 50,000 people before the war.

Its underground storage facilities hold more than 30 billion cubic meters of gas, making it the third largest in the world after the United States and Russia. It also has the second largest pipeline network in Europe.

The company’s request on Monday caught many creditors off guard, with just over a week to go until a $335 million bond is paid on July 19.

It also raised expectations that the Ukrainian government might seek to do something similar itself ahead of the payment of a nearly $1 billion sovereign bond due in September.

So far, Kyiv has said it intends to make the payment, but many Naftogaz bondholders have also lent money to the government, meaning sentiment could suffer.

The International Monetary Fund, on which the country depends heavily for support, said Thursday it expects Kyiv to continue paying its debt. Read more

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Reporting by Marc Jones; edited by Carolyn Cohn and Susan Fenton

Our standards: The Thomson Reuters Trust Principles.

Bonny J. Streater