1 Oct 2009 13:35

Fitch downgrades Naftogaz, places on watch evolving

MOSCOW. Oct 1 (Interfax) - Fitch Ratings has downgraded Ukraine-based OJSC Naftogaz's Long-term foreign and local currency Issuer Default ratings (IDRs) to 'RD' (Restricted Default) from 'C' respectively, the agency said in a press release.

Both ratings have been placed on Rating Watch Evolving (RWE).

Fitch has affirmed the senior unsecured rating on Naftogaz's $500-million Eurobond at 'C'. The Recovery Rating on the Eurobond is 'RR4'.

The downgrade follows confirmation from Naftogaz that repayment of its $500-million Eurobond, which matured yesterday, has not occurred, and that a standstill period to enable restructuring of the bond has commenced.

Naftogaz has, however, submitted a restructuring proposal to bondholders for the Eurobond. The key terms of the proposal are an exchange of the existing notes for new notes with a five-year extension in maturity, a 9.5% coupon and a sovereign guarantee. The expected rating of the new notes is likely to be aligned with that of the guarantor, assuming that the terms of guarantee are as proposed at present. Upon the rating of the new notes, the existing bond rating will be withdrawn.

The earliest date that the restructuring can be finalised, under the terms of the proposal, is 19 October 2009. If a debt exchange is executed, Fitch will at that time reflect the exchange in its ratings of the issuer, based on the agreement's final terms. Naftogaz has stated that it is also seeking to restructure its bilateral foreign currency-denominated debt on the basis of a sovereign guarantee, however, any initial rating action taken by Fitch on completion of the Eurobond exchange is unlikely to see Naftogaz's IDR reach higher than the 'CCC' rating level. Fitch will then review the restructuring of other debt liabilities, and support or otherwise provided for these, in Naftogaz's ratings if and when they occur.