1 Aug 2022 16:22

Fitch downgrades Naftogaz, Ferrexpo issuer default ratings, Ukrenergo bond rating

MOSCOW. Aug 1 (Interfax) - Fitch Ratings has downgraded credit ratings assigned to Ukrainian national oil and gas company Naftogaz and iron ore producer Ferrexpo, and a rating assigned to power company Ukrenergo bonds.

The downgrade reflects payment default, announcement of a distressed debt exchange and deterioration of operational conditions, respectively. The rating action also follows Ukraine's sovereign rating downgrade on July 22, Fitch said.

Fitch has downgraded Naftogaz's Long-Term Foreign-Currency Issuer Default Rating to 'RD' (Restricted Default) from 'C' following expiry of the grace period on its missed Eurobond repayment due on July 19, 2022 and failure to approve its initial consent solicitation by bondholders. Naftogaz is planning to submit an alternative consent solicitation. The senior unsecured rating is affirmed at 'C' with a Recovery Rating of 'RR4'.

Fitch said that Naftogaz's rating now reflects its Standalone Credit Profile (SCP). Once the debt restructuring is completed Fitch will review Naftogaz's linkage with the state and potential impact of the linkage on its rating.

Fitch has downgraded Ferrexpo's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC+' from 'B-' and removed it from Rating Watch Negative on deteriorated operating conditions in Ukraine and increased country risks.

The rating reflects high uncertainty over Ferrexpo's operational and financial performance. However, Ferrexpo's net cash position and absence of material financial debt make it more resilient relative to other Ukrainian corporates, Fitch said.

Fitch said that due to logistical bottlenecks Ferrexpo's export capacity has reduced and logistical costs have increased. Ferrexpo has declared force majeure on some of its seaborne contracts. In the medium term Ferrexpo will continue to operate at reduced capacity.

Fitch expects Ferrexpo to be broadly free cash flow -neutral in 2022-2024 though its financial projections lack certainty in view of the situation surrounding Ukraine.

As for Ukrenergo, which is asking to defer by two years the maturity of its $825 million notes originally due in 2026, Fitch has downgraded Ukrenergo's five-year state guaranteed notes' senior unsecured rating to 'C' from 'CCC'. The Recovery Rating is 'RR'.

The requirement to keep the electricity network operational is absorbing the company's available resources and weighing on Ukrenergo's weak liquidity, Fitch said.

New avenues of revenue from increasing electricity exports largely to Slovakia and Romania might not be sufficient to alleviate pressure on liquidity. As a result, Fitch expects Ukrenergo's unrestricted cash position by July 2022 to fall short of debt principal and interest payments due until end-2022.

So far around 5% of Ukrenergo's transmission infrastructure is damaged, while 15% of its assets, based on the length of transmission lines and the number of electricity substations, are in territory not controlled by Kyiv, Fitch said.