Naftogaz of Ukraine warns of risks for company and state in event of its "hard default'

MOSCOW. July 25 (Interfax) - Naftogaz of Ukraine has said that it has the sufficient amount of money in its accounts to make all payments on its Eurobonds and is now awaiting the government's response to its request to approve this payment in light of considerable risks if the payment is not made.

"In its appeals to the government, the national company informed it that the company had funds for payment the payments, as well as informed it about potential risks for the company and the state in general in the event of 'hard default' (violation of payment commitments), which would occur is the state did not approve the payments by Naftogaz to the bondholders," the Ukrainian media quoted Naftogaz as saying in a press release on Monday.

Since the proposal to defer Eurobond payments driven by the government's desire to spend this money on gas imports has not been supported by the Eurobond holders, the original Eurobond terms remain in effect, and, therefore, Naftogaz is required to make payments on the principal debt and interest to the bondholders on July 26 (within the grace period specified), it said.

The company also noted that in accordance with a government decree from June 17, Naftogaz's priority remains the accumulation of natural gas in sufficient quantities ahead of the 2022-2023 heating season, which was the main reason for the proposal to delay payments.

Previously, Naftogaz reported that it needed to import an additional 4 billion cubic meters of gas worth about $8 billion in order to comply with the decree.

Pursuant to the government's July 21 decision and the national company's commitments to make payments on its Eurobonds, the Naftogaz financial director on July 22 and the Naftogaz CEO on July 23 asked the government to approve these payments in line with the board's decision, according to the press release.

"At the time of the publication of this press release, Naftogaz has not received approval from the government, and, consequently, cannot transfer money in order to make these payments to the bondholders," it said.

Pursuant to the government's decision, a new draft agreement is being drawn up, seeking the bondholders' consent to payment deferral, which fully meets the government's requirements, Naftogaz said.

International auditors confirmed in May of this year that Naftogaz had again become profitable based on the 2021 year-end results and that Naftogaz had the ability to carry on its continuous operations in 2022, in particular ensure its solvency, the company said. The relevant financial statements were approved by the government.

There are currently three outstanding Naftogaz Eurobond issues, all of which were placed in 2019, including a three-year issue of $335 million placed at 7.375% in July that year, a five-year issue of 600 million euros placed at 7.125% in July (with the EBRD buying up a fifth), and a seven-year issue of $500 million placed at 7.625% in November. The $335 million issue matured on July 19, 2022, when the company was also due to pay interest on these bonds and the bonds maturing in 2024.

Naftogaz has offered to pay all coupons on the 2022 and 2024 bonds on July 19, 2024 and to redeem the 2022 bonds the same day. The company wants to pay the coupons on the 2026 bonds on November 8, 2024.

Naftogaz did not envisage any premium for holders of its bonds for deferred payments.

It was also reported that the Ukraine's cabinet of ministers recognized as unsatisfactory the work of the Naftogaz board with the issuer of its Eurobonds, Kondor Finance plc, to change the terms of the securities.