Ukraine’s largest state-owned oil and gas company Naftogaz has asked bondholders of nearly $1.5bn of bonds to defer coupon payments by two years, Interfax reported on July 12.

The company was expected to pay a $335mn 2022 Eurobond coupon payment on July 19, but asked holders, via Kondor Finance plc, to postpone the repayment by two years, placing the blame on Russia’s invasion of Ukraine, which has devastated the company and caused a fuel crisis in the country. Many are now seriously concerned about the coming heating season.

"In light of the protracted circumstances affecting Ukraine as a result of Russia's ongoing military intervention and its impact on Ukraine's energy security, the issuer, at the request of the borrower, has initiated this consent request in order to obtain the approval of the noteholders to facilitate the borrower's retention of available cash to support Ukraine's strategic priorities," according to the stock exchange report.

Naftogaz needs to repay three Eurobonds that were all placed in 2019. The company said it will pay all coupons on 2022 and 2024 Eurobonds on July 19, 2024 and redeem 2022 Eurobonds on the same day. It also said it will aim to pay coupons for 2026 Eurobonds on November 8, 2024.

The three outstanding Eurobonds are $335mn of three-year bonds at 7.375% and €600mn of five-year bonds at 7.125% placed in July 2019, and $500mn of seven-year bonds yielding 7.625% placed in November 2019. The European Bank for Reconstruction and Development (EBRD) brought a fifth of the €600mn five-year bonds.

The company has been severely affected by the war and Ukraine now has the lowest gas storage in Europe, with tanks only 21% full. Unless it can pump more gas into its tanks before the heating season starts, Ukraine will face a crisis this winter.

Ukraine’s current amount of gas would run out on October 29 if deliveries were turned off tomorrow, and at best the end of November if the autumn is mild. Ukraine is very likely to have an energy crisis this winter, as it has not imported gas from Russia for over three years and its European friends will be short of gas for themselves this winter.

Naftogaz’s decision has also raised fears that Ukraine will default on a $2.2bn sovereign bond in November. The possible default puts extra pressure on Western nations to speed up plans to extend emergency budgetary support.