Fitch Ratings says that last week's market reaction around NJSC Naftogaz of Ukraine's (Naftogaz, CCC) near miss on its eurobond coupon highlights the negative sentiment that Ukrainian issuers are facing.
Fitch Ratings says that last week's market reaction around NJSC Naftogaz
of Ukraine's (Naftogaz, CCC) near miss on its eurobond coupon highlights the
negative sentiment that Ukrainian issuers are facing.
Funds to pay Naftogaz 's USD75.8m semi-annual coupon payment on its USD1.595bn
eurobond that matures in September 2014 arrived with bondholders just two days
before the grace period deadline of 10 October, owing to the
UK
court-imposed freeze of funds on its account. The company says it originally
transmitted the funds on 30 September. The coupon payment on the bond
guaranteed by
Ukraine
was
made without calling on the state guarantee.
The payment followed market speculation on whether Naftogaz had run out of
money to pay the coupon and on whether it had to request for emergency funds
from the state. While we do not see this as an indication of a larger looming
liquidity shortage at the company, poor market sentiment underlines the lack of
confidence in the company's ability to service its obligations; a perception
that may also apply to other lowly-rated Ukrainian corporates. The latter is
particularly true in light of
Ukraine
's
weak external finances.
We continue to view Naftogaz's stand-alone financial profile and liquidity as
weak. At end-June 2013 (latest available accounts under national accounting
standards), Naftogaz had UAH26.5bn (USD3.3bn) in short-term debt including a
8.5% USD2bn (UAH16bn) loan from Gazprombank (BBB-/Stable) that was extended in
October 2013 with a new state guarantee. It had UAH1.7bn in cash on that date,
well short of short-term maturities.
Naftogaz's EBITDA in H113 was negative UAH4.7bn, implying that the company was
haemorrhaging cash during this period. We expect the company to generate
negative free cash flow (FCF) in 2013 and 2014 based on Fitch's estimate of
import gas price of around USD400 per thousand cubic meters (mcm) for the same
period, and on existing domestic gas tariffs. Since late September 2013, the
yield on Naftogaz's eurobonds has been fluctuating between 16%-17%, worsening
the company's already weak access to debt markets.
We rate Naftogaz's 2014 eurobonds at 'B' because of the sovereign guarantee. Had
the coupon not been paid within 30 days, it would have triggered a cross
default on all
Ukraine
's
sovereign debt.
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