Naftogaz officially postpones issue of Eurobond

Naftogaz of Ukraine (NAFTO) reported on Nov. 15 it has
postponed indefinitely its Eurobond issue “because of volatile market
conditions and elevated funding levels.” Commenting on the decision, the
company’s CEO Andriy Kobolev said that it’s “not reasonable” for Naftogaz to
borrow at the current levels. “We are grateful for the high investor interest
and look forward to returning to the market in the future,” he said. The
company was planning to issue 5-year Eurobonds for USD 0.5 – 1.0 bln. Earlier,
media reported that the initial pricing of the bonds was at  the 10.9%
level, indicating its total subscription book of about USD 700 mln.

Alexander Paraschiy: Demand for
Ukraine-level-rated bonds appears to be too low these days, which might be a
consequence of Ukraine’s failure to close the deal with the IMF, increased
rates for EM dollar debt, as well as possible political risks associated with
investment in Naftogaz. On top of that, it looks like Ukraine’s recent placement of USD 750 mln in 5-year bonds
diverted demand for the quasi-sovereign issuer.

Naftogaz’ postponement means that Ukraine’s sovereign
universe (including state banks, MinFin and the NBU) lost an opportunity to
receive an external injection of hard currency in the amount of at least USD
0.5 bln. That’s not supportive for Ukraine’s sovereign curve and for the
short-term support of Ukraine’s currency.