Ukraine's troubled state energy giant Naftogaz, saying it faced "significant challenges", made a new five-year offer on Thursday to holders of a Eurobond to avoid a $500 million pay-out on September 30. The firm, which is often at the centre of rows between Ukraine and Russia over Russian gas supplies and prices, gave bondholders until October 8 to take up the offer of state-guaranteed bonds at 9.5 percent with a 2014 maturity date.
Bondholders had until that date to decide to take part in the offer or face a five percent exchange penalty, Naftogaz said in a statement. But that had no impact on ratings agency Fitch's view on the issue, with an official reiterating it was still set to cut its view on the bond to "restricted default" if the bond is not repaid by the end of the month.
The present bond, which ought to have matured next Wednesday, is only part of a total Naftogaz foreign debt of $1.6 billion which the ex-Soviet state, hit hard by recession, says it wants to restructure. Naftogaz, which has become a symbol of the lurching fortunes of the Ukraine economy itself, triggered huge concern among investors about Ukrainian state and sovereign debt when first word of a possible Eurobond restructuring was floated in July. Many analysts then dismissed it as game-playing.
Thursday's announcement, however, means there will be no pay-out to bondholders next week. Fitch Ratings on Wednesday said Naftogaz could be in "restricted default" if this was the case. "Naftogaz and the guarantor are taking steps that are intended to address the significant challenges that Naftogaz faces and to reduce Naftogaz' refinancing risk," the firm said on Thursday.
"I don't think the restructuring proposal changes anything to what we have said yesterday because we don't think the bond will be paid on September 30....if the payment is not made by that date Naftogaz will go into restricted default," said Josef Pospisil, Fitch Director for energy utilities and regulation. A programme set out in the Naftogaz statement set an October 8 deadline by which time those agreeing to take part would receive new obligations to the same amount as those already held.
Those who did not sign up to the proposal on October 8, but agreed before October 15, would lose five per cent of their current holdings. The final step would be a bondholders' meeting on October 19 to finalise the agreement. The company said it sought the consent from the bondholders to achieve a successful restructuring and for it to meet its obligations to creditors while maintaining sufficient liquidity to continue operations.
Russian holders of the paper, in an initial reaction, said they sought more clarity on what was on offer. Corlblow, which represents Russian holders of the existing five-year paper, said it needed to see the prospectus for the new offer before making any decision. "We are very uncertain as to the terms of the offer. We need to know when we will get the new paper and when we can start trading it," Alexey Olshansky, who heads the Russian group, told Reuters.
"It seems to be a take it or leave it offer. People are not going to love it and they should really be paying you par...," said a bondholder based in London, estimating that the new bond would amounts to about 92 cents to the dollar. Ukraine says it does not see a risk of Naftogaz's debt servicing problems affecting its regular purchases of Russian gas under the terms of a January agreement which ended a two-week disruption of gas supplies to southern Europe.