Ukraine’s Naftogaz has become the first Ukrainian government entity to default since the start of the Russian invasion, after the state energy firm said it would not make payments on international bonds before the Tuesday expiry of a grace period.
The default may accelerate repayments on the two other Naftogaz bonds, but does not trigger a sovereign cross-default.
The energy company said in a statement that it had failed to get creditors’ support on a proposal to freeze payments on some of its bonds for two years, which it launched on July 12 saying Russia’s invasion meant many of its customers were now unable to pay their bills.
The proposal failure meant that to stay current, it would have had to pay $335 million in principal plus interest on its 2022 issue, as well as a separate interest installment on a 2024 bond, before the end of the day.
“Naftogaz has not received consent from the cabinet of ministers of Ukraine to make the necessary payments,” the company said in a statement.
“Certain events of default have or will occur as a result of the resolution and the resulting failure to pay.”
Central bank Governor Kyrylo Shevchenko said a Naftogaz default does not cross-default into the sovereign.
“I hope that Naftogaz, together with the ministry of finance of Ukraine, that they will find a solution. The consequences will be solely relating to Naftogaz,” he said of the default announcement.
Naftogaz, which issues its bonds through its financing arm Kondor Finance, accounted for almost 17% of Ukraine’s public revenue last year.
Naftogaz also said that it was working to launch a fresh proposal for debt treatments that had been drafted by the Cabinet, while a government source said Kyiv ordered Naftogaz to begin a second round of talks with bondholders.
The government launched its separate deferral solicitation last week, and said key creditors had already backed its plan.
Separately, Kyiv said it asked holders of $1.5 billion in bonds from state agencies Ukravtodor and Ukrenergo to also defer payments for two years.
“We expect that creditors will support Ukraine’s appeal,” Prime Minster Denys Shmyhal wrote of the proposal via Telegram. “In today’s unprecedented challenges, this policy will apply to all of our commitments.”