Ukrnafta may be split as part of tax debt resolution

Naftogaz of Ukraine, the owner of a 50% stake in
Ukraine’s largest crude oil producer Ukrnafta (UNAF UK), is considering a split
of Ukrnafta as one of the options to resolve the issue of its huge debt to the
state, Interfax-Ukraine reported on June 5. This option proposes the separation
of Ukrnafta into three businesses: natural gas, crude oil and infrastructure.
Some of the separated businesses will be purchased by the current shareholders
of Ukrnafta, and the raised money will be directed to repay its tax debts, the
enkorr.com.ua news site reported, citing a letter from Naftogaz. Currently, an
independent evaluation of all Ukrnafta assets is being performed, which will
enable such a separation.

Another option to resolve Ukranfta’s debt issue is
mid-term restructuring, according to cited Naftogaz letter, as had been proposed by Ukrnafta’s management two years ago.

Ukrnafta’s tax debt increased from UAH 2.8 bln as of
end-2014 to UAH 10.1 bln as of end-2015 and UAH 13.2 bln as of end-2016, which
brought the company on the verge of bankruptcy. As of end-March 2018, tax debt
was UAH 13.0 bln.

Alexander Paraschiy: A
separation of Ukrnafta and the distribution of the stakes in its subsidiaries
between two groups of shareholders (the state and Igor Kolomoisky) will resolve
the long-lasting issue of dual power in the company, which historically has had
two large shareholders (Naftogaz with a 50%+1 share and Kolomoisky with a stake
of over 42%). Such a separation will be definitely positive for Kolomoisky, who
has controlled management of Ukrnafta for more than a decade, despite being a
minority shareholder in the company. That’s especially the case considering
Kolomoisky’s influence in Ukrnafta may evaporate soon following April’s ruling
of the London Court of International Arbitration. Namely, the ruling concluded
that the shareholder agreement that grants exclusive power to Kolomoisky to
appoint his CEO in Ukrnafta is unenforceable.

For the state overall, the separation would not look
very advantageous. On the one hand, it would receive overdue taxes from
Ukrnafta. But it would also lose some of the assets currently owned by
Ukrnafta. But at least it will be able to develop the remaining assets, which
is hard to do under the current ownership structure.

For the local stock market, such a separation may
imply the loss of a blue chip. But it won’t be a big loss, taking into account
that the company’s future and its value for minorities is under doubt now.