Naftogaz plans another Eurobond issue

Ukraine’s state natural gas company Naftogaz plans to
place 5Y-7Y Eurobonds for USD 500 mln, Interfax-Ukraine reported on Oct. 28,
citing an anonymous source in the banking community. A roadshow to promote them
will start on Oct. 30 with plans to visit London, New York and Boston. The
issue is managed by Citi.

Recall, Naftogaz placed 3Y
Eurobonds for USD 335 mln at 7.375% and 5Y bonds for EUR 600 mln at 7.125% in
July. The receipts were intended to provide the company with liquidity to
accumulate more gas stockpiles for the winter season.

In related news, Interfax-Ukraine reported on
trilateral talks involving Naftogaz, Gazprom and the European Commission in
Brussels on Oct. 28 to negotiate a long-term agreement on Russian gas transit
through Ukraine’s territory.

Naftogaz CEO Andriy Kobolev noted that the new
contract, which should determine a “significant” period of transit and volume
of transited gas, will be signed with a new operator. This operator will be
removed from the Naftogaz group starting Jan. 1, 2020. The contract terms
should ensure that Russia-Ukraine relations in gas transit are based on the
same principles as those of Gazprom with EU contractors, he said.

Evgeniya Akhtyrko: The new debt is likely to pursue the same goals as July’s Eurobond
placement. Naftogaz’s solid financials in 1H19 – and Ukraine’s strong position in gas
negotiations with Russia – should secure sufficient demand for this Eurobond
issue. We estimate the new bond will be priced with a spread of about 1.6pp to
Ukraine’s sovereign curve, or at 7.25-7.75% yield to maturity for 5Y bonds and
7.7-8.2% for 7Y bonds.