Naftogaz tenders USD 335 mln in 2022, 2024 notes, plans to issue longer bond

Naftogaz of Ukraine (NAFTO) initiated on Oct. 14 a tender
offer for its USD 335 mln bond maturing in July 2022 and EUR 600 mln notes
maturing in July 2024. The maximum amount to be purchased is initially set at
USD 335 mln of par value of the bonds, with priority given to the shorter
notes. The tender price for the 2022 notes is 100.875% of par, and for the 2024
notes is 96.25% of par, or a slight discount to market as of Oct. 13. The
company is offering also an early tender premium of 2.0% of par for each bond,
making the total early offer price above the market. The early tender deadline
is Oct. 27 and final deadline is Nov. 10.

The purpose of this debt operation is to extend the
maturity of Naftogaz debt, so its obligation to purchase the tendered notes will
be subject to the placement of new USD bonds with five to seven years maturity.

Currently, Naftogaz has three Eurobonds outstanding,
including the two tendered issues and the USD 500 mln bond maturing in November
2026.

Alexander Paraschiy: Naftogaz is the third Ukrainian bond issuer who initiated a debt
extension this fall, after Metinvest (who tendered its 2021 and 2023 notes) and Kernel (who is tendering its Jan’22 notes). The timing of Naftogaz’s debt operation does not
look optimal, in our view, taking into account that more than 20 months remain
till the maturity of its earliest bond and the economic environment does not
look much supportive for the new issue. Namely, there is uncertainty about the
Ukraine-IMF deal, meaning Ukraine’s sovereign risk is high, while the recent
interim report of Naftogaz (with losses at the EBITDA level) does not add optimism about the company’s prospects. Such timing might
suggest, therefore, that Naftogaz is expecting even worse conditions for a new
bond issue in the near future. All this means Naftogaz is likely to see a
higher rate on its new bonds as compared to any of the existing notes.