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24.05.2005
NJC "Naftogas Ukraine" credit rating is on Credit Watch
May 25, 2005 – Credit-Rating, Ltd has opened for revision the long term credit rating “ uaАА,” which was earlier given to Naftogaz Ukraine, a national joint stock company, and changed the rating to “developing.” The rating agency used in its analysis the consolidated financial accounting records of Naftogaz for 2004, as well as other sources of information that were available to the agency.
The long term credit rating “uaАА” reflects the very high capability of Naftogaz Ukraine to fulfill its debt obligations under conditions of the Ukrainian financial market and it differs inconsiderably from the highest evaluation consistent with those obligations. The developing forecast shows the higher probability of rating changes during the year in the connection with the deterioration of the company’s activities results and changes in the work conditions of the company. The influence of the latter on the debt repayment capacity of Naftogaz over the longer term is currently being analyzed by Credit-Rating.
The activity of the company in 2004 was unprofitable for the first time in the last five years; the amount of losses was 1,515,500,000 UAH. Further, during this period the capital of the company decreased by 28 percent to 18,082,500,000 UAH. The fact of price increase limitations in the domestic consumption market since the beginning of the year coupled with price increases on gas that was imported from Turkmenistan would negatively influence the projected financial indices of the company in 2005.
New management of the company has to fulfill the tough financial plan ratified by the Cabinet of Ministers of Ukraine (predesignated profit of the company is 1.6 billion UAH, with tax funds increase to the budget from 4.1 billion UAH up to 8.725 billion UAH in 2004) that complicates provision for capital investments necessary for the development of the company at the expense of decreasing working capital volumes that will be left at Naftogaz’s disposal.
The credit rating level takes into consideration the fact that Naftogaz has monopoly status in the oil and gas market and plays a strategic role both in the energy supply system of the country and oil and gas transit to the European markets. In order to guarantee the energy security of the country, Naftogaz strives to diversify the sources of energy. Therefore, a number of contracts for gas and oil exploration were concluded in the United Arab Emirates and oil and gas production Kalmikiya, (Russia). In order to fulfill international projects on gas transportation and exploration, Naftogaz signed an agreement with Deutsche Bank for a credit line of 2 billion euros. The low interest rate (Libor + 5 percent per annum) and the term (7 years) will permit the Company to diversify the structure of borrowings considerably.
