November 06, 2018 | Cbonds
|Naftogaz has started a roadshow to place $0.5-1.0bln worth of 5-year LPNs. According to local media, meetings with investors have begun on November 5. Fitch has already assigned an expected rating for the notes at a ‘B-’ (on par with the sovereign).|
Our view: We believe that the probability of a successful placement is high, taking into account that Naftogaz is 100% state owned and has received some UAH141bln of support from the central budget over 2012-15. Moreover, we estimate that as of December 2017 the company’s net debt to LTM EBITDA stood at roughly 1.3x (includes provisions and excludes income from arbitration with Gazprom), which suggests relatively low leverage. Although earnings are exposed to losing Russian gas transit volumes as the threat of Nord Stream 2 completion becomes more and more real (the segment generates close to 60% of OCF), compensation should come on the back of increasing selling prices to households (expected to reach market levels by January 2020 in three stages). On a related note, Naftogaz also faces a risk of being forced to fully unbundle its transmission division from the extraction one, as is required by EU energy market laws, which Ukraine is trying to adopt. We anticipate pricing to result in a yield of 9.5-10.0%, which is in line with other state-owned issuers already present on the market and 50-100bps above the recent sovereign placement with a similar maturity.
|Full company name||PJSC "Naftogaz of Ukraine"|
|Country of risk||Ukraine|
|Country of registration||Ukraine|
|Industry||Oil and gas|