Ukraine: Naftogaz repays bonds, but economy sinks further

Yesterday, Ukrainian state gas company Naftogaz repaid its Eurobond of $1.595 billion in principal, with a total accumulated coupon (or interest) of $75.76 million. It had been a source of concern to bondholders that Naftogaz would be forced to default with Ukraine facing its current political situation – an ongoing civil war and fraught relations with Russia. The bond’s maturation date was on September 30, after which Naftogaz had 10 days to return cash to investors to avoid sending the country into structured, interest repayments of billions of dollars of government debt. This was widely seen as an optimistic sign for Poroshenko’s Kiev government.

However, Ukraine still has more than $20 billion in sovereign bonds still outstanding. To secure additional funds to keep its liabilities solvent, it secured a loan of $17 billion from the International Monetary Fund to pay for continued Russian imports of gas after a scheme to re-export Russian gas to Ukraine by EU countries of Eastern Europe failed. In other words, Moscow through Gazprom maintains a huge financial lever over the Kiev government and this has prompted senior Ukrainian officials like Poroshenko to endorse much closer economic trade deals with the European Union. Russian officials fear this will be the first step in a closer association with the West and will bring NATO to the doorstep of Russia.

Some economists, given the situation and how many emergency loans have been given to Ukraine to remain solvent, if it is the new “Greece,” whose insolvent government was the target of much lending early on in the financial crisis in 2010-2011. The restructuring of the Ukrainian government’s finances thanks to the IMF loan constitutes one of the largest in modern history.

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News Briefs:

  • Russian state oil company Rosneft has purchased a 100% stake in the Bishkek Oil Company. This past February, a framework agreement was signed by the Kyrgyz government that would allow for purchase of the company before the end of the fiscal year. “The deal allowed Rosneft to take a strong position in the oil market in Kyrgyzstan, expand distribution channels of products with high added value,” Rosneft director Igor Sechin.
  • The brothers of former President Hamid Karzai are among 19 entities that owe a total of $633 million from a 2010 fraud scandal at Afghanistan’s largest bank. President Ghani decided to reopen an inquiry into the bank collapse, calling for more prosecutions and aggressive measures to recover $1 billion in loans lost, a good step for a president who promised to attack corruption while on the campaign trail. The Afghan justice department is aiming for higher sentences for those who still refuse to repay their loans.
  • Russian security forces exchanged fire with militants in the Untsukul district of the Dagestan Republic, Russia’s restive southwestern province.  Russian media reported that the exchange took place when militants inhabiting the area ambushed a team of Russian forces as they were conducting searches of homes in the area.
  • Russian oil production has reached record highs despite sanctions levied against the Russian economy by the United States and Europe. The sanctions have purportedly not taken effect yet due to the slow impact that they will have on the Russian energy sector, but production remains high and will presumably continue to be exported without issue to nations in its immediate vicinity.
  • Turquoise Hill Resources Ltd, a subsidiary of global mining giant Rio Tinto Plc., has failed to make headway with the Mongolian government that would extend the underground extension of the Mongolian Oyu Tolgoi gold and copper mines. The project had been rumored to be making headway as recently as a month ago, but concerns over profit sharing expressed by the Mongolian government have negated recent momentum.
  • Online retailers in Iran have continued to enjoy considerable success and financial gain despite the impact of international sanctions on the Iranian economy. Demand in Tehran and throughout the country for ecommerce platforms that offer discounted clothing and other retail items have been encouraged by the roughly 70% of Iranians under the age of 35.
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