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″Creditors remember everything″. What will be the consequences of the default of Naftogaz | Ukraine and Ukrainians: a view from Europe | DW

Recently, the national joint-stock company Naftogaz Ukrainy, whose sole shareholder is the state, must coordinate with the government any actions with Eurobonds. In addition, the Cabinet of Ministers of Ukraine ordered the commercial company to change the terms of the loan agreements. The fact is that in connection with the war, Ukraine is now negotiating with all creditors to defer payments on debts, including debts of state-owned companies. “Now the state is consolidating all available resources for priority needs. Financing the army, preparing for the heating season, paying pensions, resuming critical infrastructure,” Prime Minister of Ukraine Denys Shmyhal explained this step in his Telegram channel.

Therefore, for the past two weeks, Naftogaz has been trying to convince the owners of Eurobonds to defer loan payments by two years. In July, the company had to pay $335 million of the loan body and $12.3 million of interest on one issue of Eurobonds, as well as almost €43 million of interest on another. Since the Eurobond holders did not accept the offer, on July 26 official announcement of the default of Naftogaz. The company immediately stated that the Cabinet of Ministers did not provide permission to fulfill the obligation. At the same time, the press service of Naftogaz claims that there are enough funds in the company’s accounts for payments on Eurobonds, and note that it was the government that went into default in this way.

General liability for default

Why was it not possible to convince the owners of Eurobonds to meet the Ukrainian side halfway? The reason is that there was no unified negotiating position with the owners of Naftogaz bonds, Vladimir Omelchenko, director of energy programs at the Razumkov Center, believes. “The government, the Ministry of Finance and Naftogaz negotiated with the owners of Naftogaz bonds. This is unacceptable, because there should be a single negotiating position. Therefore, I believe that the main fault lies with the Cabinet of Ministers. And already indirectly with the leadership of Naftogaz,” he says. he is DW.

At the same time, Denis Sakva, an expert on energy markets at Dragon Capital, is convinced that one should not be blamed for the default. “The position of both parties, Naftogaz and the government, is understandable. The company does not want to spoil its credit history with a default and sought to repay the debt. On the other hand, the Ukrainian government is now restructuring all Eurobonds with a sovereign guarantee, as well as loans to Ukrenergo and Ukravtodor. Making concessions now for Naftogaz is a bad signal for creditors, because others will say: “Pay us too,” he said in an interview with DW. did not receive a response at the time of posting.

Problems with attracting loans and the heating season

The very fact of default is an unpleasant situation for Naftogaz, since investors can theoretically start litigation, trying to sue assets or block the company’s accounts, Sakva said. “But, I think, no one wants to deal with this, because these are expenses. Also, the topic can be politicized, and no one wants to get on the front pages of newspapers with headlines like” Investor X interferes with Ukraine buy gas before the heating season“, he suggests.

But the complication with obtaining credit money is an absolutely possible negative consequence that a default of Naftogaz could lead to, according to experts interviewed by DW. “The default of the largest commercial company will have a negative impact on the rating of all of Ukraine. It will be very difficult or even impossible for Naftogaz itself to raise loans. This is bad, since money is needed to purchase gas and invest in various infrastructure projects,” he believes, in particular , Omelchenko from the Razumkov Center.

However, one should not be afraid that Ukraine will be left without gas and freeze in winter, the expert adds. In this regard, he draws attention to the fact that the domestic production of blue fuel in the summer season is twice as much as consumption. “Before the heating season, it is possible to accumulate up to 14 billion cubic meters of gas through our own production.For a normal winterthere should be 15 billion cubic meters of gas in underground gas storages. A part needs to be bought in addition, and this can be done with loans from Ukrainian banks,” Omelchenko is sure.

At the same time, the government demands that 19 billion cubic meters be pumped into storage facilities in order to insure the power industry in case of interruptions in the supply of coal. According to Omelchenko, such a requirement is an exaggeration. “Due to the war, consumption in Ukraine has decreased by 40 percent, because some huge enterprises have been destroyed, and part of the population has left,” Omelchenko is sure.

Lenders remember everything

Meanwhile, the Cabinet of Ministers instructed Naftogaz to immediately begin the second round of negotiations with investors on debt restructuring, Interfax-Ukraine reports, citing sources in the government. It will be possible to agree on restructuring only by offering investors better conditions than in previous negotiations, Sakva is sure. “Perhaps, certain interests of investors will be taken into account. For example, as it happens during negotiations with sovereign debt, when the government proposes the calculation of interest on interest – the so-called capitalization of interest,” he says. Such an offer, according to Sakva, will somehow sweeten the deal, and investors will have incentives to agree.

“If you still manage to come to an agreement with investors, then Naftogaz will come out of default, but in the long run this will have a negative impact. Lenders remember everything, and without a default, Naftogaz could have borrowed cheaper after the war,” Denis Sakva emphasized. from Dragon Capital.

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