LONDON (Dow Jones)--The Ukrainian government has undertaken to provide state guarantees for debt payments to creditors by state-run gas supplier Naftogaz, which is in technical default on its $500 million 2009 Eurobond, Prime Minister Yulia Timoshenko said.
"We told the creditors, that if the company isn't able to service its debts, the state would make the payments," Timoshenko said in a statement published on her official Web site late Wednesday.
Timoshenko said the government is also ready to provide the company, which supplies Ukrainian households and state companies with gas, with budget support and tax breaks if necessary.
Timoshenko, herself a former senior energy-sector executive with experience in gas trading, said after a meeting with Naftogaz's new head Oleg Dubina that the government will form a commission to look at the company's activities.
"I was shocked by the state of the company, which is facing bankruptcy," she said.
Dmitri Shemetilo, a director of Argo Capital Management fund, said, "Naftogaz is in technical default as of January 1, as it failed to provide audited 2006 financial results by December 31, as had been agreed with the creditors."
"It's a move in the right direction that the current government has shown strong support for Naftogaz, but it needs major work for the company to turn around," said Okan Akin, emerging market corporate credit analyst at Bear Stearns.
"It is a contingent liability for Ukraine, and the government has enough reserves to bail out the company. It might have some fiscal cost initially, but in the long run a bailout will be beneficial as it will improve the reputation of Ukraine," he added.
Analysts have long feared that Naftogaz was in a perilous financial state, as the price of domestic gas has failed to reflect the price rise imposed on Ukraine by Russian gas monopoly OAO Gazprom (GAZP.RS).
Russia has raised gas prices from the start of 2008 to $179.5 per 1,000 cubic meters, from $130.
A person familiar with the situation said Thursday that the four largest holders of Naftogaz debt, led by Deutsche Bank AG (DB), met Timoshenko at the end of December and asked her to provide state guarantees for the company.