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“No state-owned company in Ukraine has yet issued bonds with such a low rate” - an exclusive comment on the issue of international bonds of Naftogaz Ukraine

August 08, 2019 | Cbonds

In mid-July 2019 Naftogaz Ukraine placed two issues of international bonds totaling about $ 1 billion, including the first in the history of Ukraine public issue of international corporate bonds denominated in euros. Cbonds appealed to the communications department of Naftogaz Ukraine to comment on the results of the placement.
Why did Naftogaz Ukraine decide to place securities in euros? The issue of bonds denominated in euros, after a similar sovereign issue, cannot be called a complete surprise, but, nevertheless, this currency is “exotic” for the corporate sector of Ukraine.
Naftogaz was one of the first among corporate borrowers in Ukraine to issue bonds in euros. This is due to the reorientation of the company's contractual obligations to the euro. This is one of the currencies in which borrowers now issue their bonds most of all, both from emerging markets as well as the developed economies.

Demand for bonds of Naftogaz Ukraine exceeded the issue volume 2.5 times, although over the issues of Ukraine and Ukrzaliznytsia the oversubscription was 5-6 times. What is the reason for this?
The volume of oversubscription is only an indicative tool for estimating demand. Important for the issuer is the ratio of the value of money to the volume of output. Not a single state-owned company in Ukraine has issued bonds at such a low rate. In terms of output - more than $ 1 billion in equivalent - this is also one of the largest placements. This result indicates that investor interest in our Eurobonds was significant and substantive.

Why, in addition to the “large” issue for € 600 million, was it decided to place a “small”, and therefore less liquid and potentially more “expensive” dollar issue for $ 335 million?
A smaller dollar issue was carried out at the request of investors and allowed Naftogaz to optimize its foreign exchange portfolio. Investors have not expressed reservations about the liquidity of the dollar issue.

The premium for Euro-nominated 5-year securities of Naftogaz Ukraine for the 7-year sovereign issue amounted to about 120 bp, and 3-year dollar bonds for the sovereign with the same maturity term - about 170 bp. Do the investors lay risks at such a rather high price for financing of one of the leading quasi-sovereign issuers in Ukraine?
The ratio of rates between the bonds of Naftogaz and the sovereign issue of Ukraine is consistent with the ratio of the rates of sovereign issues of developing economies and their state-owned companies.

How many investors bought the securities? What is the geographical and institutional structure of the investors?
Eurobonds of the company were acquired by more than 120 investors. 
5-year euro bonds were mainly placed among asset management companies and international financial organizations (82%). Hedge funds accounted for 15%; the share of banks and private banks was 2% of investments, insurance companies and pension funds - 1%. Investors from the UK and other European countries bought most of the issue, 36% and 28%, respectively. Swiss investors and investors from other countries purchased 18% of the issue of 5-year bonds in euros.
The structure of investors in 3-year securities in dollars is as follows: asset management companies - 92%, hedge funds - 6%, banks with private banks, as well as insurance companies with pension funds - 1% each. Investors from the UK and other European countries accounted for 34% and 10% of the issue, investors from other countries of the world - for 56%.

What will the attracted resources be used for?
The funds raised will be used for general corporate purposes of Naftogaz, including for the purchase of gas for the 2019/2020 heating season.

Have you considered alternative options for financing the purchase of gas?
Naftogaz considered all possible financing options and chose the most optimal one at that time.

Issue: Naftogaz, 7.125% 19jul2024, EUR

StatusCountry of riskMaturity (option)AmountIssue ratings (M/S&P/F)
outstandingUkraine07/19/2024600,000,000 EUR-/-/B

Company: Naftogaz

Full company namePJSC "Naftogaz of Ukraine"
Country of riskUkraine
Country of registrationUkraine
IndustryOil and gas


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