Fitch assigns B-(EXP) rating for proposed Naftogaz Eurobond

Fitch Ratings has assigned a B-(EXP) rating for the
Eurobond that is going to be placed by Ukraine’s state-controlled natural gas
company Naftogaz (NAFTO), the agency reported on Nov. 2. The bond’s rating is
the same as for Naftogaz itself, and the same as Ukraine’s sovereign rating.
Fitch analysts applied conservative assumptions for Naftogaz fundamentals,
assuming no compensation for the company for PSO regime and future unbundling
of gas transit and storage assets (expected in 2020), average annual increase
of internal gas prices by 9% yoy in 2019-2020, no cash payment from Gazprom
related to a USD 2.6 bln arbitration award, and the company’s annual dividends
payable to the state of UAH 25 bln annually.

Alexander Paraschiy: Even after
applying its conservative assumptions, Fitch analysts concluded that the
company will have a sustainable balance sheet allowing it to be rated on a
sovereign level. We see little potential for a Naftogaz rating increase above
the sovereign level, even in case the reality will be better than Fitch
assumes. This is because in recent years, the company has become a significant
contributor to the state budget (in terms of taxes and dividends). Meanwhile,
we expect Naftogaz will successfully place a five-year Eurobond in the coming
six days at around a 9.8% rate.