Mean man’s offer – Naftogaz of Ukraine launches restructuring agreement

Nafto launched long-awaited restructuring offer, conditions are similar to those expected by the market. The proposal corresponds with current market price, but is not giving an immediate upside to investors. We don’t see immediate upside on the market, but if issue is settled, Ukrainian sovereign spreads could contract, followed by spreads of the largest banks.

State energy company is in the spotlight during last days as Eurobonds redemption date Sep 30 comes closer. The company would launch new 5-year eurobond to replace its current issue and would raise coupon rate from 8.125% to 9.5% (exactly the same conditions were rumored by the market). The Loan Notes are listed on the Bourse de Luxembourg. Notes exchange announcement led to active rally in NAFTO eurobonds and the Bourse suspended the listing of the notes for some time yesterday.

Par-for-par basis vs. take it or leave it offer. In the case of restructuring proposal early acceptance (before Oct 8) no haircuts would be made. Those investors who would agree later (by Oct 15) would lose 5% of par. Naftogaz in its word to investors contained in Consent Solicitation, makes an allusion that restructuring acceptance is likely to be the only way for investors to get their money back in full.

Ukraine has positive experience in timely redemption of state-guaranteed eurobonds. In Feb-09 Yuzhmash eurobonds were repayed without delays by state.

…but guarantee issue is still not clear. Group of investors led by Corlblow say that bondholders “want to see some legal assurances” of state guarantee promised by the Government “especially as Ukraine currently only has an acting finance minister”. All guarantee conditions are described in new Memorandum, which was not circulated to the common public but is likely to be already accessible for bondholders. No Memorandum details were revealed.

Fitch ratings agency downgraded existing NAFTO notes to C, one step above default level, from CC as repayment on time is scarcely probable. At the same time, according to Rtrs, Naftogaz is likely to repay the coupon on its $500 mn eurobond. If notes’ redemption is not executed in time, Fitch says it would further downgrade the bond to “restricted default”.