FERREXPO PLC
Fitch Ratings has affirmed
Fitch has also affirmed the senior unsecured rating on the notes issued by
The 'CC' rating reflects DOG's high operational risks stemming from its operations in
Although DOG has continued to meet its Eurobond payments with support from affiliated companies, its access to foreign currency (FC) is limited because of the
Key Rating Drivers
Eurobond Amortisation Started: In 2023, DOG continued to service its dollar-denominated Eurobond due in
We have limited visibility on DOG's ability to make such payments due to NBU restrictions and volatility in working capital. Additionally, we do not have sufficient information to assess the likelihood of continuing support from affiliated companies.
Moratorium on Cross-Border Payments: After the war started, the NBU introduced a moratorium on cross-border FC payments, limiting companies' ability to service their FC obligations. Exceptions can be applied for (eg. for debt service) but are difficult to obtain. DOG obtained a permit to repay its 1H22 coupon; however, none have been granted for payments made in 2H22 and 2023.
Permit Being Reviewed: A permit that would allow DOG to make Eurobond payments in 2024 is currently under review by the NBU. In 2H22 and 2023, DOG's affiliated companies provided the needed FC for DOG to make Eurobond payments.
Operations Continue but
Lower Prices, EBITDA: We assume that DOG's average realised natural gas prices will decline to approximately
Moderate Leverage: Our projections assume that DOG's leverage will remain moderate - we estimate its EBITDA gross leverage will increase to around 2x in 2024, from 1.2x in 2023. However, the company's leverage and cash flow generation could be affected by related-party transactions and production volatility.
Complex Group Structure: DOG is part of
Transactions with Related Parties: While we recognise that support provided by affiliated companies has enabled DOG to make its Eurobond payments, significant transactions with related parties and working-capital volatility also make its cash flow profile less predictable. DOG sells gas domestically through an affiliated trader, and its working-capital movements were deeply negative in 2021-2023.
Derivation Summary
DOG operates three gas fields in the east of
DOG's Ukrainian peers include
Key Assumptions
Natural gas sold domestically at a discount to Fitch's TTF (Title Transfer Facility) assumptions
Natural gas production continues to decline to 2027
Capex remaining subdued at around UAH1.4 billion per annum to 2027
No dividends to ordinary shareholders paid in 2024-2026
Recovery Analysis
The recovery analysis assumes that DOG would be reorganised as a going concern (GC) in bankruptcy rather than liquidated
The GC EBITDA of UAH3 billion reflects Fitch's view of a sustainable, post-reorganisation EBITDA level based on normalised domestic prices and, potentially, lower production
Fitch uses an enterprise value (EV)/EBITDA multiple of 3.0x to calculate a post-reorganisation valuation, reflecting high operational risks due to the company's focus on
We assume that the senior unsecured Eurobond ranks equally with the company's deferred consideration for the acquisition of PrJSC Naftogazvydobuvannya
After deducting 10% for administrative claims, our analysis generated a waterfall-generated recovery computation (WGRC) in the 'RR4' band, indicating a 'CC' rating for the senior unsecured notes. The WGRC output percentage on current metrics and assumptions is 49%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
An upgrade is unlikely at present unless DOG experiences reduced operational risks, improved liquidity, and better access to external financing, along with relaxation of the restrictions on cross-border FC payments on a consistent basis
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Evidence that a default or default-like process has begun, including (i) DOG entering into a grace or cure period following non-payment of a material financial obligation, or (ii) formal announcement of a distressed debt exchange (DDE), could lead to a downgrade to 'C'
An uncured payment default or a DDE could lead to a downgrade to 'RD' (Restricted Default)
Liquidity and Debt Structure
Weak, Uncertain Liquidity: DOG's liquidity position is weak and uncertain, given its constrained access to FC and external funding, as well as significant working-capital movements. According to Fitch's estimates, DOG's end-2023 cash balance was minimal. DOG's ability to use its cash flows for debt repayments remains subject to FC payment restrictions or support provided by affiliated companies.
At end-2023, DOG's debt was dominated by a
Issuer Profile
DOG is a privately-owned natural gas producer in
Summary of Financial Adjustments
(i) We reclassified DOG's deferred consideration as debt; (ii) we reclassified a part of working-capital outflow as interest and principal debt repayments, given such repayments were executed by affiliated companies and involved a non-cash set-off with DOG's intra-group receivables.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
DOG has an ESG Relevance Score of '4' for Group Structure due to a large number of complex related-party transactions and a complex group structure. This has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.
DOG has an ESG Relevance Score of '4' for Governance Structure due to influence of the key shareholder, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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