Ukrnafta reveals details of tax restructuring, AGM may fail

Ukraine’s leading crude oil producer Ukrnafta (UNAF UK) revealed on June 22 some details of management’s proposal for its USD 11 bln tax debt restructuring. The proposal calls for a three-year restructuring and also assumes that state holding Naftogaz will pay the company UAH 3.8 mln as part of compensation for earlier confiscated natural gas in the amount of 11 bcm. In turn, “other debtors” of Ukrnafta will repay the same amount to the company. In this way, the company will be able to retain its operations and maintain its workforce, according to the release. The plan is subject to approval by shareholders at the company’s AGM scheduled for July 7.

Meanwhile, an Ukrnafta supervisory board meeting failed to convene the evening of June 22 as members representing minority shareholders did not attend, Naftogaz stated in a press release that night. The board meeting was called in order to jointly draft Ukrnafta’s restructuring plan for approval at its AGM. Naftogaz intended to demand that the “other debtors” of Ukrnafta repay part of their debt, according to the press release. Naftogaz claimed the failure to meet makes it impossible to hold the AGM.

Alexander Paraschiy: The failure to hold the June 22 meeting indicates a major conflict between the two stakeholders. With its restructuring proposal, Ukrnafta management is revealing its position that both of its two biggest shareholders – Naftogaz (controls a 50%+1 stake) and Igor Kolomoisky (controls about a 42% stake) – are equally responsible for its poor financial stance. Though Naftogaz confiscated 10.6 bcm of natural gas from the company in 2006-2012, the other shareholder generated receivables in the amount of more than UAH 10 bln in 2015. With this approach, Kolomoisky is essentially forcing Naftogaz to participate equally in Ukrnafta’s financial recovery.

As we can conclude from its press release however, Naftogaz doesn’t share Ukrnafta’s view. The state holding is insisting on the unconditional repayment of debts of “other debtors.” The inability of the two top shareholders of Ukrnafta to find common ground on this key issue puts the company’s future at risk.