Naftogaz of Ukraine has exercised its right to capitalize the deferred interest on the Eurobonds maturing in 2028 during the restructuring process, which was due on November 8 of this year, according to a statement from the Eurobond issuer Naftogaz – Kondor Finance plc – on the Irish Stock Exchange on Monday.
As stated, the interest has been capitalized amounting to $83,779,977, resulting in an increase of the nominal debt amount for the Eurobonds to $583,799,977.
It was reported that in July 2022, Naftogaz began negotiations with the holders of three series of its Eurobonds regarding their restructuring. Quickly – in August of the same year – it managed to restructure only one series of Eurobonds worth EUR600 million with a coupon rate of 7.125%, postponing their maturity to 2026, while negotiations regarding the other two series dragged on, leading the company to default. Specifically, on November 8, 2022, Naftogaz failed to make interest payments on a $500 million Eurobond issue with an original maturity date in 2026, also proposing to postpone their repayment by two years and engaging financial advisors for restructuring.
At the end of May 2023, Naftogaz announced agreements with investors, agreeing to improve conditions for holders of two defaulted issues and to pay 5% of the principal amount along with overdue interest. The main changes included a tightening of the covenants, a cash payment of the last semi-annual coupon during the two-year deferral period, the establishment of a fund for interest payments on the 2026 bonds, and the introduction of a restructuring fee, although without any specific details provided.
As before, Naftogaz proposed to defer the payment of 50% of the principal debt of the $375 million Eurobonds for two years – until July 19, 2024, while the remaining 50% would be deferred until July 19, 2025. Regarding the deferral of the principal repayment of the $500 million Eurobonds, the proposal remained unchanged: 50% for one year, until November 8, 2027, and another 50% until November 8, 2028, along with a 0.5% premium on the principal amount for consent.
The restructuring proposal included an increase in the interest rate on the 2025 Eurobonds from 7.375% to 7.65% per annum, and on the 2028 Eurobonds to 7.625%.
Naftogaz decided to retain the right to independently determine whether to pay interest during the two-year deferral period or to capitalize it, except for the last coupon as mentioned above: for the 2025 Eurobonds – from January 19 to July 19, 2024, and for the 2028 Eurobonds – from May 8 to November 8, 2024.
Additionally, a new proposal was made to create a fund for accumulating resources for interest payments on the 2028 Eurobonds: the amount of one coupon of $19.06 million or its equivalent in hryvnias on the day the restructuring takes effect, followed by $3 million on January 15 and February 15, 2024, and another $13.06 million on March 31, 2024.
In June 2023, these conditions were approved by the government, and at the end of July, Eurobond holders finally supported the restructuring. Throughout September 2023, Naftogaz completed the restructuring of its debt on all Eurobond issues and made all agreed payments to Eurobond holders.
According to Naftogaz's report, as of the end of June 2024, the company had accumulated $38.1 million in a special account to ensure coupon payments on the $500 million Eurobonds maturing in 2028.
In July 2024, the period of deferral of payments for two Eurobond issues, as stipulated by the credit agreement, ended, and Naftogaz also exercised the right to capitalize the deferred coupon payments, making the necessary full payments. Specifically, on July 19, $12.7 million was capitalized on the 2025 Eurobonds, $12.2 million was paid in regular coupon payments, and 50% of the principal amount – $165.5 million. For the Eurobonds worth EUR600 million, Naftogaz capitalized EUR94.6 million and paid coupons of EUR42.8 million.
During a conference call with investors organized by Dragon Capital in July, the head of the company, Oleksiy Chernyshov, noted that Naftogaz would be able to make all necessary payments on existing debts due in 2025, but was considering restructuring debt payments due in 2026, which primarily consist of payments on Eurobonds.
According to the Frankfurt Stock Exchange, the price of Naftogaz Eurobonds worth $500 million maturing on November 8, 2028, with an interest rate of 7.625% rose by 0.08% on Monday – to 83.96% of the nominal value, while the price of Eurobonds worth EUR694.6 million maturing on July 19, 2026, remained unchanged at 74.34% of the nominal value.
The net consolidated profit of Naftogaz for the first half of 2024 increased 3.7 times compared to the same period last year – to 24.414 billion UAH, while revenue from sales grew by 28.1% – to 143.373 billion UAH.