Ukrnafta posts 63x surge in 2018 profit, yet to distribute dividends

Ukraine’s largest oil producer Ukrnafta (UNAF UK) generated
UAH 36.1 bln net revenue in 2018, which is 34% more yoy, according to its
annual report published on Apr. 25. Its EBITDA advanced 5.4x yoy to UAH 9.5 bln
and net profit skyrocketed 63x yoy to UAH 6.4 bln. Despite improved P&L,
the company did not reach progress in resolving its debt issue to the state, as
payables to the budget increased 7% yoy to UAH 12.7 bln as of end-2018.

At the company’s Apr. 25 AGM, shareholders failed to
approve the company’s 2018 results and dividend distribution. Commenting on
that, Yuriy Vitrenko, the top manager of Naftogaz (which holds a 50%+1 stake in
Ukrnafta) and head of Ukrnafta’s supervisory board, said that the company’s
2018 financials were provided to shareholders too late to become familiar with
them.

Vitrenko also listed the conditions for Ukrnafta
shareholders to approve dividend distribution. First, the Cabinet must publish
its resolution on dividend distribution for state-owned companies (recall, the
media reported on Apr. 24 that the Cabinet decided to order a 50% distribution of 2018 profit).
Second, the Cabinet must approve the decision of Ukrnafta’s EGM that allows
Naftogaz to purchase natural gas from Ukrnafta. Recall, on Mar. 28, Ukrnafta shareholders decided
that Naftogaz will buy 4.06 bcm of natural gas from the company, and Ukrnafta
will use the proceeds from the deal to repay its tax debt.

Alexander Paraschiy: By postponing dividend distribution from Ukrnafta, Naftogaz is trying
to force the government to allow it to buy the natural gas from Ukrnafta in
order for its subsidiary to resolve its tax debt issue. Such tactics are risky
for Naftogaz’s top management, given that the Ukrainian government does not
support Naftogaz’s initiative for Ukrnafta debt resolution. So, Vitrenko’s
position may escalate a smoldering conflict between Naftogaz and Cabinet. At
the same time, this attempt looks encouraging for Ukrnafta’s prospects to resolve
its key risk.