Naftogaz raises USD 1 bln from Eurobond placement

Ukraine’s natural gas holding Naftogaz (NAFTO) placed
two Eurobonds for a total value equivalent of USD 1 bln, according to its July
12 statement. It placed EUR 600 mln in 5Y bonds at 7.125% and USD 335 mln in 3Y
Eurobonds at 7.375%. The company highlighted that the rates were much better
than it was offered in November 2018. Recall, in November, the company decided to postpone the Eurobond issue,
citing “volatile markets.”

Naftogaz is now “better placed to prepare for the next
winter season by accumulating gas volumes in the underground gas storages,” the
company commented.

Alexander Paraschiy: The
placement rates are in the middle of the range we expected a week before. The spread
to the sovereign curve for Naftogaz’ 5Y bond in euro is about 176 bps, while
the spread of the 3Y dollar bond is 154 bps, we estimate. The spreads are in
line with those achieved by Ukrainian Railway two weeks ago (155 bps
over sovereign curve for its 5Y dollar bond). The amount raised is more than
the company was expected to raise from Eurobond placement, based on information
about its draft financial plan provided by top management earlier. All in all,
we consider the placement as being successful.

The raised funds will indeed provide Naftogaz with
liquidity to accumulate more gas stockpiles for the next winter season, ahead of
possible shortages of gas supply from Russia in early 2020. At the same time,
Naftogaz will likely need additional financing in 2019 (possibly from state
banks) to cover its possible financing gap, including the repayment of maturing
debt. Anyway, with the raised funds, Naftogaz’ task of seeking additional
financing is becoming much easier.