Nuclear power producer to issue UAH 1.7 bln in bonds

The Ukrainian government allowed NAEK Energoatom, the state’s nuclear power plant operator, to issue 10-year local bonds for UAH 1.7 bln (about USD 210 mln), according to a Cabinet of Ministers resolution made public on Dec. 27. The paper would bear a quarterly coupon at a rate of no more than 18% in its first three years and the right of the issuer to review the rate afterwards. In the same resolution, the government recommended that the state’s energy tariff regulator, the NERC, increase Energoatom’s tariff, enabling it to generate the additional cash flow necessary to service and repay the bond.

Alexander Paraschiy: The current market of domestic government bonds implies yields of above 22% for long-term paper, which makes Energoatom’s issue not competitive. And despite the nearly full certainty that the NERC will secure a tariff adjustment for Energoatom to smoothly service the debt, it looks like the only candidates to purchase the new paper are state banks.

Meanwhile, the NERC reduced Energoatom’s tariff by 2.7% starting Jan. 2013, which implies the company will receive UAH 0.48 bln (UAH 480 mln) less yoy in 2013, providing its power output remains unchanged yoy. It looks like the power sector regulator is trying to do all it can to limit the growth of wholesale power prices for the near term by lowering producers’ tariffs and forcing them to compensate their liquidity deficit with new loans that will be repaid from increased tariffs “sometime in the long-term future.”