Ukrenergo issues USD 825 mln in state-guaranteed sustainable bonds

Ukraine’s electricity transmission system operator National
Power Company Ukrenergo (NPCUKR) completed on Nov. 2 the pricing of USD 825 mln
of green/sustainable bonds guaranteed by the government. The bonds are issued
for five years at the coupon rate of 6.875%. The placement rate implies a 68
bps spread to yesterday’s Ukraine sovereign curve.

Ukraine’s Cabinet issued a state guarantee for the
bonds on Oct. 11 for the amount of UAH 22.8 bln (about USD 870 mln). The state
guarantee was provided to allow the borrower to accumulate funds to repay
Ukrenergo’s debt to the state company Guaranteed Buyer. Guaranteed Buyer should
direct the money to repay its debts to green energy producers. As of the
beginning of November, Guaranteed Buyer owed about UAH 26 bln to green energy
producers, of which Ukrenergo owed about UAH 25 bln to Guaranteed Buyer,
Concorde Capital calculates based on the company’s statistics.

Alexander Paraschiy: Despite its
“sustainable status”, Ukrenergo’s bond was placed at a higher spread to the
sovereign curve than the guaranteed bond of another state issuer, Ukravtodor
(UKRAVT), issued in June at a spread of 55 bps.
The higher spread could be related to a rise in investors’ fear of possible
Russian aggression due to its military movements near the
Ukrainian border, which resulted in the sovereign
bonds’ yield increase over the last couple of days. Also, bond investors might
feel their bargaining power against the issuer: bond proceeds is the only way
for Ukrenergo and the state overall to resolve the issue of the large debt to
green power producers.

The placement will become an important tool for the
government to repay its debt to green producers that has accumulated since March
2020. However, this external financing does not resolve the problem of the poor
correspondence of payments to green producers and the revenues that can be
generated by the state companies responsible for the payments.