The Ukrainian TSO Successfully Issued Green Bonds to Cover Debts Owed to RES Producers and Second Investment Arbitration Initiated by UA RES Producer

Ukrenergo’s Bonds

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On 3 November 2021 PrJSC “NPC Ukrenergo” (Ukrenergo) issued a press release that it successfully issued debut 5-year Green and Sustainability-linked Eurobond for a USD 825 million size at 6.875% yield. ?

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As part of the issuance, the order book was oversubscribed almost three times, indicating strong interest from international investors in Ukrenergo’s Eurobond.

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Ukrenergo’s Eurobond is the largest debut international bond offering ever done by a Ukrainian non-sovereign issuer as well as the largest green Eurobond so far out of Ukraine and the CIS region. In addition, the Eurobond represents the first Green and Sustainability-linked instrument from a Ukrainian issuer and is one of only a few instruments combining green and sustainability-linked elements issued in international capital markets globally.

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The Eurobond is irrevocably and unconditionally guaranteed by the state of Ukraine. This issuance was rated in line with Ukraine’s sovereign rating by Moody’s and Fitch.

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An amount equal to the net proceeds from the transaction will be used to finance or re-finance eligible green projects, as described in Ukrenergo’s Green and Sustainability-Linked Bond Framework. Principally, Ukrenergo will use such amount for the repayment of debt owed to the Guaranteed Buyer, with any remaining proceeds after repayment of the debt owed to the Guaranteed Buyer used to finance or re-finance other eligible green projects. The Green and Sustainability-Linked Bond Framework and the Second Party Opinion (issued by Sustainalytics) are available on Ukrenergo’s website.

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Settlement of the Eurobonds is expected to take place on 9 November 2021.

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As informed earlier on 11 October 2021 the Cabinet of Ministers adopted Resolution No. 1049 (the “Resolution”), available in Ukrainian at https://www.kmu.gov.ua/npas/pro-nadannya-u-2021-roci-derzhavno-a1049, which approved state guarantee for securing obligations under a loan to be attracted by PrJSC “NPC “Ukrenergo” via issuing and placement of bonds at international financial markets in order maintain its liquidity and stable work (the borrowings).

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The Cabinet of Ministers the following conditions for the borrowings:

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• the amount up to UAH 22.8 bln (approximately $874,5 mln);
• the state guarantee will be issued by Minister of Finance;
• PrJSC “NPC “Ukrenergo” provides 100% security for the state guarantee, in particular receivables the structure of the transmission tariff to repay the borrowings;
• the fee for the provision of a state guarantee is set at 0.5% of the annual balance of the amount of warranty obligations for the relevant interest period;
• the term of the state guarantee is until full settlement of the obligations in respect of the borrowings.

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Before issuing the state guarantee PrJSC “NPC “Ukrenergo” should have approved the borrowings with the Ministry of Finance and enter into the agreement with this Ministry in respect of debt settlement to the state under guarantee obligations. The agreement with this Ministry in respect of debt settlement to the state under guarantee obligations should have been approved by National Commission on State Regulation in Energy and Utilities Spheres (the “Regulator”) on 23 October 2021 but the respective hearings were postponed several times (on 3 November 2021 there was the last postponement until 4 November 2021).

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When the funds are attracted under the bonds and directed via State Enterprise “Guaranteed Buyer” to RES Producers, this will considerably improve the situation in the renewable energy market which is not developing now due to the existing debts.?

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Second Investment Arbitration of RES Producers against the Ukraine

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In accordance with the website of ?International Centre for Settlement of Investment Disputes (ICSID) SREW N.V. (Belgian) on 28 October 2021 filed an investment arbitration claim against Ukraine under BIT Belgium-Luxembourg - Ukraine 1996 (information is available at https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/21/52). Based on information in the Ukrainian company’s registry SREW N. V owns 75% of the charter capital of LIMITED LIABILITY COMPANY "DNEPRO-BUGSKY WIND POWER STATION". The company was in process of implementation of 100 MW project in Kherson region of Ukraine and even managed to obtain a positive decision of EBRD to finance its project. The total value of the project estimated at EUR188,64. ?Details of the claim are not yet publicly available.

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SREW N.V. (Belgian) is not the first RES producer who filed an investment claim against Ukraine. As informed earlier, in March 2021 Modus Energy International B.V. (“Modus”), which is a part of Modus Energy, filed a claim against Ukraine under the Energy Charter Treaty and the Cabinet of Ministers of Ukraine (the “CMU”) adopted on 28 April 2021 Resolution No. 2021 No. 383-р available https://www.kmu.gov.ua/npas/pro-zastosuvannya-peregovornoyi-proceduri-s280421 approved the application of negotiation procedure to hire a counsel to represent the Ukrainian state in this investment arbitration.

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Modus requested the arbitral tribunal to declare that Ukraine breached requirements of Articles 10 (1) and 22 (1) of the Energy Charter Treaty and collect from Ukraine damages Modus suffered and reimbursement related to breach of the Treaty as well as interest and arbitration costs incurred by Modus. The preliminary amount of claims is not less than EUR 11.5 mln.

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Modus is the first investor who filed a claim and there were up to 10 investors who filed trigger letters and now also considered filing a claim against the Ukrainian state for the same or similar reasons.

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We cannot exclude that the discussed legislative changes and developments in the RES market will be considered adverse to investors to such extent so even more investors will be forced to initiate individual or collective (mass) claims via investment arbitration. Our firm held webinars on collective claims in arbitration and consider holding them to discuss the above mentioned and other developments as well as queries raised by interested investors. If you want to register for future webinars, please contact our PR Specialist Myroslava Tretiak via e-mail [email protected].

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This information does not constitute legal advice and is merely the opinion of the author.

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Best,

Maksym