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Naftogaz farce more than a near miss

Naftogaz did itself few favours this week with its farcical approach to repaying holders of its $1.6bn Eurobond. When Ukraine’s state owned oil and gas company missed its bond payment on September 30, it risked more than a few irate investors.

Despite having five years to ensure its funds were in order, the company was still trying to secure dollars on D-day. It then reassured investors with a casual, “We will pay, we’re just not sure when.”  

Sweaty palmed bondholders were relieved when the company finally issued an official statement on Wednesday night to confirm the funds were on their way, but the performance did Ukraine's borrowers no favours.

That the company was well within its 10 day grace period for repayment still fails to address quite why it left everything to the last minute. Poor paperwork is no excuse, especially given what is at stake.

The bond comes with a sovereign guarantee and, had Naftogaz not been able to make the payment, the sovereign would have stepped in. Though the potential of a sovereign default was realistically a long way off, mere allusions to an event of that scale could spook flighty investors further.

This week Russo-Ukrainian relations have deteriorated further and fighting by pro-Russian rebels around Donetsk airport has led to reports of civilian casualties.

Investors are nervous enough with escalating tensions in Syria and Hong Kong and Pimco's loss of Bill Gross (and a lot of cash) to deal with. A near miss is not going to ease their concerns.

Should Ukraine need to access the bond market, the whiff of Naftogaz will be lingering. Paying up for someone else’s mistake is something Ukrainian corporates cannot afford to do.

At a time when Ukraine really needs the support of the financial markets, one of its largest companies was scrambling around for loose change thanks to some bad admin. Although Ukrainian bonds have held firm, nobody appreciated the white knuckle ride. 

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