Fitch Ratings says the implications of the Ukrainian government's recent decision to split NJSC Naftogaz of Ukraine (CCC) into two entities - gas transportation and gas storage - is already captured in the company's IDR. Naftogaz continues to be badly affected by weak operations and cash generation, the ongoing gas price dispute with Gazprom, and the secession of its E&P subsidiaries in the Crimea peninsula.
Splitting up Naftogaz has been discussed for some time, and despite the recent government decision, Fitch expects that the restructuring process is likely to be prolonged. Fitch does not have sufficient details at this point about the structure and allocation of debt between the newly created entities to fully assess the impact on Naftogaz.
The decision to separate the stable revenues of gas transit from those of gas production and storage reduces diversification and is likely to result in two operationally weaker entities. Although Ukraine remains an important gas transit country, accounting for about half of Russian gas flows into Europe, its gas transportation network is believed to be outdated and in need of upgrades. While Naftogaz has not published its IFRS accounts since 2011, Fitch expects that most of its borrowings relate to the E&P segment, rather than the transit operations.
Naftogaz's ratings continue to be aligned with those of Ukraine (CCC), its only shareholder. Fitch expects Ukraine to provide Naftogaz with cash for repayment of its USD1.5bn Eurobond maturing in September 2014, or repay the bond from the sovereign assets