Naftogaz to get UAH 5 bln equity infusion

The Cabinet of Ministers has decided to inject UAH 5 bln into Naftogaz of Ukraine’s equity through the issuance of 5-7Y UAH bonds with a 9.5% coupon rate, according to an official decision dated December 29, 2010 that was made public yesterday.  Mykyta Mykhaylychenko: We expect that, as before, the bonds will be converted into cash through one of the state-owned banks to use subsequently for import gas payments at the beginning of 2011. Earlier, in November, the government infused UAH 7.4 bln into Naftogaz’ equity using the same scheme. Hence, total government support to Naftogaz, amounting to UAH 12.4 bln, equals 1.1%-1.2%, marginally above IMF 1% target. A 50% gas tariff increase in August 2010 and another expected hike in April 2011 along with utilities tariffs increases are expect to bring Naftogaz’ gap to zero in 2011. Less dependence on government support next year is also supported by the fact that Naftogaz has received USD 1.5 bln from Russia’s Gazprom in December as prepayment for future gas transportation services to Europe. In return, Gazprom will pay for about 84% of gas actually transited gas through Ukraine over the next five years.