Prices of Ukraine’s Eurobonds jumped by an average of 13% over the past week and, taking into account the growth at the end of June, reached a new high for the period since the beginning of the full-scale Russian aggression.
According to Bloomberg data, last week the quotations of dollar Eurobonds ended in a range from 28.1% of the face value of the shortest securities maturing in September 2025 to 25.0% of the face value of the longest securities maturing in March 2035.
On average, quotations grew during the week by 3.1 percentage points rather evenly along the whole curve.
According to market participants, such a spurt could be caused by the positive reaction to the results of the NATO summit, as a few weeks ago – by the results of the Conference on the reconstruction of Ukraine in London and the rebellion of Prigozhin.
In addition, Ukraine’s GDP warrants also rose to a new military maximum last week – 42.6% of the nominal value, while a week ago they were given 39.3% of the nominal value, and several attempts to break through the 40% level were unsuccessful.
The government of Ukraine intends to extend the maturity of all Eurobonds by 24 months, as well as to defer the payment of interest income on them for the same period, the relevant Cabinet of Ministers Resolution No. 805 of July 19 was published on its website on Wednesday.
“Transactions with public debt in 2022 are carried out until August 15, 2022 by entering into the terms of the bond issue … in agreement with the bond holders …”, the document says.
According to it, “the maturity date of each bond (and for 2017 bonds ⸺ each maturity date of a portion of the 2017 bonds) is deferred for a period of 24 months from the respective final maturity date of the bonds.”
“All interest payment dates on post-deal bonds are deferred for a period of 24 months from each relevant interest payment date (and for 2018 Series 1 bonds ⸺ all interest payment dates on these bonds are deferred for a period from August 1, 2022 d.),” the resolution reads.
During these 24 months, interest income on the bonds continues to accrue at existing rates, and additional interest income is accrued on the amount of accrued basic interest income at the same rates.
“At any time during the specified delay, the total amount of accrued basic interest income and additional interest income (the amount of income of holders) on the basis of a separate decision of the Cabinet of Ministers of Ukraine may be paid to bondholders in part (or) in full,” the document says.
Likewise, at the end of the said deferral, the unpaid amount of the holders’ income at that time may be paid to the holders in full or by additional issue of the relevant bonds.
“The amount of income of holders is calculated by the Ministry of Finance, taking into account, in particular, information provided by business entities engaged by the Ministry of Finance to provide agency, advisory or other services in connection with transactions, and cannot exceed $ 3,000 million (together for all bonds paid in dollars USA) and 300 million euros (jointly for all paid in euros),” the resolution says.
NJSC Naftogaz Ukrainy, through the issuer of its Eurobonds, Kondor Finance plc, has approached the holders of these securities in the amount of almost $1.5 billion with a proposal to defer coupon payments on them for two years, including postponing the repayment of Eurobonds for the same period – 2022 for $335 million.
“In light of the protracted circumstances affecting Ukraine as a result of the ongoing full-scale Russian military intervention and its impact on Ukraine’s energy security, the Issuer, at the request of the Borrower, has initiated this Consent Request in order to obtain the approval of the Noteholders to facilitate the Borrower’s retention of available cash to support strategic priorities. Ukraine,” the stock exchange said.
As reported, there are currently three issues of Naftogaz Eurobonds circulating on the market, all of which were placed in 2019: in July – three-year for $335 million at 7.375% and five-year for EUR600 million at 7.125% (one fifth of the euro bonds were bought by the EBRD ), and in November – 7-year for $500 million with a yield of 7.625%. The maturity date for the $335 million issue is July 18, 2022.
Naftogaz proposes to pay all coupons on 2022 and 2024 Eurobonds on July 19, 2024 and redeem 2022 Eurobonds on the same day. And NAC would like to pay coupons for Eurobonds-2026 on November 8, 2024.
The offer also includes a waiver of any default that occurs as a result of such a deferred payment and compliance with certain covenants for a two-year period (from July 19, 2022 to July 19, 2024 for Eurobonds 2022 and 2024 and until November 8, 2024 for Eurobonds-2026)
Naftogaz, in the argumentation of its request, indicates that the government, by Decree No. 691 of June 17 of this year, obliged the group to ensure the availability of natural gas in storage facilities as of October 1 in an amount sufficient for the stable passage of the autumn-winter period, including to meet the needs household consumers and heat supply organizations.
“Thus, the borrower needs to purchase and import natural gas in the amount of up to 5.6 billion cubic meters of natural gas for a total amount of more than UAH 230 billion (about $7.8 billion). Naftogaz is also obliged to provide natural gas to the most vulnerable consumers ( primarily the population of Ukraine) at fixed prices, which in many cases are many times lower than market prices for natural gas in Ukraine and Europe,” the stock exchange said.
The NAC adds that the Russian invasion of Ukraine has led to a significant economic and business downturn in the country, the inability of many Naftogaz customers to pay for the consumed gas has increased debt on the company’s balance sheet and negatively affected its liquidity, and any continuation of aggression will put additional pressure on NAC balance.
“It is possible that the borrower may not be able to comply with the current provisions of the relevant loan agreements (…) while the invasion continues. Therefore, the borrower considers it necessary and prudent to remove restrictions that may jeopardize its priorities and objectives, in addition to removing the administrative burden on the borrower in these exceptional circumstances,” the company argues for the need to lift covenants.
According to the report, Naftogaz does not plan to pay any premium to holders of its bonds for deferring payments.
In accordance with the document, the deadline for voting on proposals expires in the afternoon on July 21, and the meeting and announcement of the results are scheduled for July 26.
Naftogaz attracted Citigroup Global Markets Limited as an agent for this proposal.
This announcement led to a drop in quotations of NAK Eurobonds maturing in 2024 on the Frankfurt Stock Exchange, according to information on its website, from 29% to 10% of face value, and Eurobonds-2026 – from 24.44% to 20% of face value.
Fitch Ratings has assigned Kernel Holding S.A.’s new $300 million bond due in 2024 a final senior unsecured rating of ‘BB-‘ with a Recovery Rating of ‘RR4’ (50%).
Fitch said in a report on Thursday that the final rating is in line with the expected rating that Fitch assigned to this bond issue on 30 September 2019 and follows the pricing and receipt of the final documentation, which conform to the information already received.
Fitch said that the new $300 million bond’s ‘BB-‘/’RR4’ rating is aligned with the rating on the outstanding $500 million bond due 2022.
As reported, Kernel last week placed five-year $300 million bonds at 6.5% per annum. The pricing was set at 6.625%, the securities were sold at a price of 99.475% of the face value. The organizers of the placement were ING Bank, JP Morgan.
In January 2017, Kernel placed eurobonds worth $500 million. The maturity date of Kernel’s debut eurobonds was January 31, 2022, and the coupon rate was set at 8.75% per annum.
Kernel is the world’s largest producer and exporter of sunflower oil, the leading producer and supplier of agricultural products from the Black Sea region to world markets.
