Naftogaz’s $1.595 billion government-guaranteed notes are affirmed at ‘B’ with a Recovery Rating of ‘RR4’.
“The IDRs continue to reflect that default is a real possibility due to the continued weakness of Naftogaz’s business and particularly its financial profile and its ongoing dependency on the Ukrainian government for timely liquidity support,” reads the statement.
According to Fitch, one of the key concerns for Naftogaz is the disparity between the prices for gas imported from Russia’s Gazprom (‘BBB’/Positive) and regulated tariffs for heating companies in Ukraine (‘B’/Stable). Tariffs for residential customers and heating companies increased by 50% from 1 August 2010, but plans for further increases did not materialize. Additionally, the price for imported gas jumped by almost 60% between Q410 and Q411 which means that the tariff deficit significantly widened.