Ukrenergo bondholders concerned about bond restructuring process
MOSCOW. Nov 8 (Interfax) - The circumstances of Ukrenergo's declaring on November 6, 2024 its suspension of payments on 825-million-dollar green bonds maturing in 2028, including the payment of interest on November 9, raised a number of concerns among the ad hoc group of Ukrenergo bondholders (AHG), Ukrainian media outlets said, citing a statement made by their legal representatives Cleary Gottlieb Steen & Hamilton LLP on Friday.
"First, notwithstanding the clearly stated intent of the government of Ukraine (which acts as guarantor under the notes) to engage in discussions with holders of the notes upon the conclusion of Ukraine's sovereign debt restructuring in August, no such discussions ever took place," the statement said.
The AHG clearly communicated to the government of Ukraine and Ukrenergo that it was ready to engage, but neither the government, nor the company demonstrated actual preparedness to enter into a non-disclosure agreement or conduct discussions with the AHG, it said.
Second, Ukrenergo's announcement shows that the issues surrounding the company's corporate governance remain, as the decision to suspend payments was attributed to the Ukrainian Energy Ministry, whereas only the company's management and supervisory board should have taken such decision with proper adherence to corporate government, the statement said.
"The AHG notes recent commentary by market participants suggesting note holders might be requested to consent to a removal of the Ukrainian government's guarantee on the notes as part of a future restructuring. Without pre-judging the substance or nature of proposal which may be made by the company, the continued exercise of corporate governance functions by the government of Ukraine underscores the responsibility of the government of Ukraine for the company's treatment of its note holders," it said.
Third, the bondholders believe that they have already made substantial concessions in the 2022 debt deferral, and since then, Ukrenergo made no payments on the bonds, which, as the company itself acknowledged, has contributed meaningfully to its financial resilience for the past two years. During this same period, Ukrenergo has continued to promptly servicing its other commercial debts, including interest and principal payments of $221 million and $156 million, respectively.
"In this context, the announced suspension of payments under the notes (including the scheduled $28 million semi-annual coupon coming due on November 9, 2024) appears particularly regrettable. It should be noted that the notes rank pari passu with, and are not subordinated to, the other debts the company has continued to service," the statement said.
In conclusion, the group welcomed Ukrenergo's intention to engage with it in the near future, but said that it believes that the suspension of payments under the bonds without any prior engagement with the bondholders goes against the intention to achieve the consensual solution the company claimed to have.
"In this context, the AHG has no other choice but to reserve all of its rights in relation to any default under the notes whether in relation to the company's failure to make the interest payment due on November 9, 2024 or otherwise," the statement said.
The AHG remains supportive of Ukraine, but believes that upholding and honoring commercial relationships to the fullest extent possible under the current circumstances is the best way to ensure that Ukrainian borrowers receive continuous funding at capital markets and that Ukraine's economy adjusts as rapidly as possible to new circumstances.
Ukrenergo said on November 6 that is temporarily suspending payments on green and sustainability-linked bonds worth $825 million originally issued in 2021 and maturing on November 9, 2028 from November 9.
"This technical solution will be in effect until the planned debt restructuring in the coming months is complete. Ukrenergo, together with the Ukrainian government, is taking all necessary measures to reach an agreement with bondholders in the near future," Ukrainian media outlets quoted the company's statement on social networks as saying.
The provisions of the law on specifics of transactions with state government-guaranteed debt, local debt and state derivatives, as well as the two governmental resolutions and the order of the Energy Ministry, which is Ukrenergo's authorized management body, are the grounds for terminating the payments, the statement said. These regulations were adopted as part of Ukraine's compliance with the terms of cooperation with the International Monetary Fund.
Ukrenergo mentioned that the parties agreed in 2022 to defer payments on the bonds, which helped support it amid the crisis and significantly contributed to its financial resilience over the past two years.
According to the memorandum on economic and financial policies for the International Monetary Fund's fifth review of its Extended Fund Facility (EFF), following the successful restructuring of Eurobonds this August Ukraine intends to restructure a number of other obligations to private creditors, including on GDP warrants and Ukrenergo's government-guaranteed Eurobonds, and allows for another restructuring, if required, closer to the end of the EFF in 2027.
The contacts have already been established with the holders of GDP warrants and Ukrenergo's bonds, and a moratorium on state payments on these tools has been imposed, the memorandum said.
According to Ukrenergo's report, its net loss in the first half of 2024 reached 9.681 billion hryvni, which is four times as many as in the same period of 2023, while its revenue grew by 28% to 48,794 billion hryvni.
The company's obligations in the first half of the year increased from168.36 billion hryvni to 174.84 billion hryvni, including loans from 63.86 billion hryvni to 74.02 billion hryvni and Eurobonds from 46.77 billion hryvni to 49.91 billion hryvni.