First Ukrainian International Bank (PUMB, PUMBUZ) announced on May 31 its intention to purchase about USD 40 mln of its outstanding Eurobonds maturing in December 2018. The minimum purchase price will be 101.5% of par, while the final price will be determined based on “modified Dutch auction” rules after the bank received offers from its bondholders. The deadline for submitting offers is June 13, while the company expects the settlement date will be June 30. PUMB also said it reserves the right to purchase more or less notes than it announced, or not purchase any.
PUMBUZ bonds, currently USD 118.5 mln outstanding, are repaid in equal quarterly installments (USD 19.76 mln) at the last day of each quarter (until Dec. 31, 2018) and have a coupon rate of 11%. Now the bonds are priced at 101.4% of par.
Alexander Paraschiy: With a YTM of 9.7%, PUMB Eurobonds offer among the best returns in Ukraine’s fixed income universe. PUMB’s intention to repurchase some of the notes is a good indicator of the bank’s satisfactory financial stance. Based on this, we believe the sale of bonds only makes sense at a price that will significantly exceed PUMB’s minimum purchase price. We believe the fair price range of PUMBUZ bonds is close to 103.0%-103.5%, which implies a YTM of 6.5-7.5%. This YTM is above the interest rate at which PUMB is now attracting one-year dollar deposits from households (at 4.5%).
On the other hand, the poor liquidity of PUMBUZ notes does not offer existing bondholders a sensible range of exit options ahead of their maturity. Those not willing to keep them until the end of 2018 may use this opened window to exit at any price by submitting a non-competitive offer before the deadline.