Vitrenko signs 1Y contract as Naftogaz CEO, supervisory board again asked to stay

The Head of Ukrainian presidential office, Andriy Yermak,
told western ambassadors on May 13 that a one-year contract with Yuriy Vitrenko
as CEO of Naftogaz (NAFTO) had been signed on the same day. Yermak assured the
ambassadors of G7 countries, Sweden and the EU at a meeting with them that a
new Naftogaz CEO would be elected in an open competition that would start in
about six months, or when a new supervisory board of the company starts
working. He also said that the existing Naftogaz supervisory board would be
offered to stay “under guarantees of preserving a constructive dialogue with
the new CEO.” Yermak also asked the western governments “to join in the
preparation of a draft law on improving corporate governance” of
state-controlled companies.

Recall, the supervisory board of Naftogaz was temporarily dismissed by the Cabinet on April 28,
in order for the Cabinet to replace the company’s CEO. After replacing Andriy
Kobolev for Vitrenko at the CEO position, the Cabinet re-appointed all the
dismissed supervisory board members. However, most of the board members decided
on April 30 to resign, and the Cabinet’s May 2 offer for them to stay did not help to change this
decision. Moreover, three independent board members wrote a letter to the
Cabinet on May 3 stating, among other, that they never saw Vitrenko as a CEO
candidate.

Alexander Paraschiy: In our
view, Yermak’s comments about Naftogaz personnel changes discredit the idea of
corporate governance in Naftogaz and other state-controlled companies, as well
as discredits the entire Cabinet, which, by all laws and rules, should be the
decision-maker in state-controlled companies.

It does not look likely that all the members of the
company’s supervisory board will stay, taking into account the independent
board members’ letter where they provided a negative assessment of the
situation around the board and revealed their disrespect for Vitrenko. In such
circumstances, there is little hope for constructive dialogue, even if Yermak
or the prime minister would “guarantee” it.

The  appointment of Vitrenko as CEO for one
year is another problem for Naftogaz, as it implies a risk that he will be
replaced and that any strategy that Vitrenko and his team would develop may
turn out short-lived. That said, it seems like the year 2021 could be turbulent
for Naftogaz because of its internal issues and uncertainty regarding its
future strategy. Such uncertainty is not the best background for the company to
issue a new mid-term Eurobond, in our view. With no bond placement in late
2021, Naftogaz’ risk of refinancing its July 2022 Eurobond would increase.