Fitch Ratings downgrades Naftogaz, Ukrenergo, and Ferrexpo
The international rating agency Fitch Ratings has downgraded the ratings of three Ukrainian corporate issuers: NJSC Naftogaz of Ukraine, National Energy Company Ukrenergo, and mining company Ferrexpo plc, the agency said in a statement on its website. Interfax-Ukraine.
“The downgrade reflects the outstanding payment default, the announcement of a distressed debt swap, and the deterioration of operating conditions, respectively,” Fitch explains, adding that the rating action also follows the downgrade of Ukraine’s sovereign rating on July 22 from ‘CCC’ to ‘C’.
Specifically, the agency downgraded Naftogaz's long-term foreign currency Issuer Default Rating (IDR) to 'RD' (restricted default) from 'C' following the expiration of the grace period for the Eurobond redemption on July 19 and rejected bondholders' requests for a payment deferral. Naftogaz plans to submit an alternative consent request, but for now, the senior unsecured rating has been affirmed at 'C' with a Recovery Rating of 'RR4,' the release stated.
Fitch clarifies that Naftogaz's current rating reflects its creditworthiness on a standalone basis, but once the debt restructuring is completed, the agency will consider Naftogaz's relationship with the state and its potential impact on the company's rating.
The agency downgraded Ferrexpo's Long-Term Foreign Currency IDR to 'CCC+' from 'B-' and removed it from the Rating Watch Negative (RWN) due to deteriorating operating conditions in Ukraine and increased country risks.
"The rating reflects the high uncertainty surrounding Ferrexpo's operating and financial performance amid the ongoing war. However, Ferrexpo's net cash position and lack of significant financial debt make it more resilient than other Ukrainian companies," the statement noted.
Fitch notes that logistical bottlenecks have reduced Ferrexpo's export capacity and increased logistics costs, leading the company to declare force majeure on some of its maritime contracts and to continue operating at reduced capacity in the medium term.
The agency expects Ferrexpo's free cash flow to be broadly neutral in 2022-2024, but notes that its financial forecasts are not precise enough due to the war in Ukraine.
Regarding Ukrenergo, which followed the government in proposing a two-year payment deferral on its $825 million state-guaranteed five-year Eurobonds for 2026, Fitch downgraded the senior unsecured rating of these bonds from 'CCC' to 'C'. The Recovery Rating is 'RR'.
"The Russian invasion of Ukraine has impacted Ukrenergo's operating results and created uncertainty regarding our financial forecasts for the company's operating results... The need to maintain the energy grid is draining the company's available resources and putting pressure on its weak liquidity," the release stated.
According to the agency, new revenue sources from increased electricity exports, primarily to Slovakia and Romania, may prove insufficient to alleviate liquidity pressure, and the company will therefore be unable to repay the principal and interest payments due in November of this year. Fitch adds that Ukrenergo is actively working to repurpose its available credit lines, primarily for liquidity investments, and is monitoring the collection of its accounts receivable.
The agency clarified that today, approximately 5% of Ukrenergo's power transmission infrastructure has been damaged by the war, and 15% of its assets, based on the length of transmission lines and the number of substations, are located in territory currently occupied by Russia.
SkeletInfo
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