Naftogaz drafts 2019 financial plan with USD 2.5 bln financing gap

State natural gas giant Naftogaz of Ukraine (NAFTO)
has filed an updated draft of its 2019 financial plan to the government, the
company’s CEO Andriy Kobolyev reported on Apr. 11. The draft has been prepared
in full accordance with Ukraine’s 2019 state budget, as had been demanded by
the Cabinet and required in Kobolyev’s employment contract, he stressed. Due to
such demands, the updated plan is based on an assumption of no compensation of Naftogaz
losses related to public service obligations (PSO), as well as the distribution
of 90% of Naftogaz’ 2018 profit, or UAH 12.3 bln, in dividends to the state (up
from a 50% distribution rate indicated earlier). On top of that, Naftogaz
forecasts the accumulation of 20 bcm of natural gas stockpiles by the start of
the new heating season (up from 17 bln accumulated last year). The plan also
assumes repayment of loans for UAH 16.5 bln (USD 590 mln).

With the updated assumptions, Naftogaz sees its 2019 financing
gap at UAH 71.3 bln (USD 2.53 bln), most of which it proposes to cover with new
debt of UAH 63.6 bln (USD 2.25 bln), including USD 0.5 bln in Eurobonds and the
rest to be borrowed from Ukrainian state banks. “We hope for … a professional
discussion of the realistic ways to cover the company’s financial gap,”
Kobolyev added.

The company’s end-2018 debt amounted to USD 2.02 bln,
Kobolyev reported, which is the lowest level for the last six years. The
updated plan forecasts the company’s 2019 net profit at UAH 16.0 bln, or a 1.2x
yoy increase.

Alexander Paraschiy: Unlike
another state-controlled giant, Ukrainian Railway, Naftogaz does not make its
financial plans public, so we can only learn about its details from official
statements or leaks to the media. According to a leaked discussion of the
previous Naftogaz plan by various ministry officials, as reported by the
Ukrainian News agency, the company’s financial gap had been expected to be
covered mostly by UAH 69.2 bln in compensation by the government of PSO-related
losses and UAH 15.3 bln in dividends to be received from Naftogaz subsidiaries.
However, the government declined to accept such a plan, citing its
contradictions with the state budget (which assumes no PSO compensation and
directs all subsidiary dividends to the budget).

By submitting an updated financial plan with huge
borrowing needs and asking for a “professional discussion” of a borrowing plan,
Naftogaz seems to be hinting at poor chances to receive adequate financing of
the planned gap. In other words, Kobolyev seems to be indicating that the
company’s financial plan – which assumes continuation of PSOs and implies the
state milking the company “in full accordance with legislation” – does not look
sustainable or realistic. The key implication for prospective international
lenders is that with such a plan and such a mood, it will be hard for Naftogaz
to place a new Eurobond this year.