Ukraine's Naftogaz sweetens debt restructuring offer, some creditors balk

By Marc Jones

LONDON (Reuters) -Ukrainian state energy firm Naftogaz sweetened a debt-restructuring offer on Friday in a bid to break a months-long deadlock and bring the company out of default, although it immediately got the thumbs down from one group of its creditors.

The main improvements to the Naftogaz proposal included offering to pay 5% of its already-defaulted 2022 bond and an overdue 'coupon' payment, which together would add up to around $30 million.

It also offered to increase the interest rate on that bond's coupon to 7.65% from 7.375% and pay a 0.5% "consent fee" to holders of its 2026 bond if they, like 2022 bondholders, agreed to split-up the payments of their debt into two separate lumps.

"We are trying to make a fair and dignified proposal," Naftogaz's new CEO Oleksiy Chernyshov told a conference call, describing it as a huge effort for the state firm during a full-fledged war.

A group of international creditors representing "a large percentage of the total outstanding amount" of the 2026 notes said in a statement it does not support the proposal.

"The Noteholder Group does not believe the New Proposal represents appropriate terms on which it could support a restructuring of the notes," they wrote.

Naftogaz accounted for almost 17% of Kyiv's budget revenue and employed more than 50,000 people before Russia's invasion just over a year ago.

Its underground storage facilities can hold over 30 billion cubic metres of gas, making them the third largest in the world after the United States and Russia. It also has Europe’s second largest oil transportation pipeline network.

Ukraine's head of public debt management, Yuriy Butsa, who was speaking alongside Chernyshov on the call, said Naftogaz would also be suspending some of the dividends it pays to the government.

The sweetened offer will also add what was dubbed a "rendezvous clause", which means its can reassess the situation in mid-2024 and potentially bring forward some payments if the situation regarding the war is dramatically improved.

It was not specified exactly when bondholders would vote on the new offer but both Chernyshov and Ukraine's restructuring advisors Lazard said that some of calculations were based on a mid-April agreement.

If it is brought to a vote, creditors holding 75% of the amount outstanding would have to approve the proposal for it to pass.

(Reporting by Marc Jones in London, additional reporting by Rodrigo Campos in New York; editing by Jorgelina do Rosario, Louise Heavens and Diane Craft)