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Concorde Capital Research: ULF, Avangardco bond restructuring offers imply NPV over 30%

January 03, 2018 | Cbonds

Bakhmatyuk-related agricultural and food holdings Ukrlandfarming (ULF, UKRLAN) and Avanagardco (AVINPU) published debt restructuring offers to some of their bondholders, said on Jan. 2 Reorg Research, a distressed debt information provider. The bonds offer a NPV of about 35% of the original amount of bonds outstanding, assuming a 10% discount rate, according to restructuring materials.

ULF offered a 50% haircut to par value of the bond as of end-2016, based on information from Reorg Research. It proposed a coupon of 2.5% to be paid semi-annually (down from 10.875% originally). The restructured bond would amortize by 10% in 2022, 15% in 2023, 20% in 2024, 2025 and 2026, and 15% in 2027. One year after ULF’s Net Debt to EBITDA ratio falls below 3.0x, the company will offer additional recovery compensation: the bonds will get an additional USD 54 mln tranche (10% of end-2016 par value) paying a 5% coupon and maturing in five years.

ULF expects that its operating cash flow before working capital changes will increase from USD 93.6 mln in 2017 to USD 154.9 mln in 2019, and will be between USD 145 mln and USD 160 mln in 2020-2023, and then will gradually grow to USD 196 mln by 2027.

Avangardco also offered a 50% haircut to par value of the bond as of end-2016. It proposed a coupon rate of 3.0% for 2017-2019, 4.0% for 2020-2021 and 5.0% afterwards, to be paid semi-annually (down from 10.0% originally). The restructured bond would amortize by 10% semi-annually in 2023-2027.

One year after Avangardco’s Net Debt to EBITDA ratio falls below 3.0x, it will offer additional recovery compensation: the bonds will get an additional USD 22.2 mln tranche (10% of end-2016 par value) paying a 5% coupon and maturing in five years.


Avangardco expects that its operating cash flow before working capital changes will increase from USD 0.2 mln in 2017 to USD 29.2 mln in 2019 and USD 37.0 mln in 2020, and will gradually grow to USD 55 mln by 2025.


Alexander Paraschiy: The suggested restructuring offer implies a NPV of the ULF bond of 32% of the current par value (assuming a 12% discount rate) and about 36% assuming recovery compensation starts working as of 2025. For Avangardco's bond, the NPV would be 36% of the current par value (and 41% in case of recovery compensation as of 2023).


The offers look generous taking into account the current prices of ULF and Avangardco bonds (21% and 24% of par, respectively). It is very likely that bondholders will be glad to approve the offered conditions. But as we wrote many times before, the most important issue for Bakhmatyuk's creditors is not tiny cash flow, but a lack of trust in the results of his companies and in their investment decisions.

Therefore, it will be vital for the bondholders and banking creditors to gain better access to control over the spending of Bakhmatyuk’s companies, via their representatives in the controlling bodies of ULF and Avangardco. Without such control, a further debt restructuring is very likely.

We are not rating the bonds due to the still-huge risks, but we do not rule out positive market reaction to the fact that the companies finally presented some tangible offer after more than nine months of silence.

Ukraine introduces 15.2% anti-dumping duty on Russian long steel

Ukraine’s Interagency Commission on International Trade imposed a 15.2% anti-dumping duty on imports of rebar and wire rod from Russia, Uriadoviy Kurier, the official government newspaper, reported on Dec. 29. The duty will become effective on Feb. 27, 60 days after its publication, and will stay in force for five years. The decision marks the end of an investigation that was initiated in February 2017 on a complaint by ArcelorMittal Kryvyi Rih.

The 2017 volumes of Ukrainian imports from Russia were 13.5 kt for rebar (26.0 kt in 2016) and 14.0 kt for wire rod (14.7 kt in 2016), estimated Metal Expert, a steel industry consultancy. Ukraine’s 11M17 consumption volumes were 820 kt of rebar (806 kt in 2016) and 395 kt of wire rod (432 kt in 2016), according to Metal Expert. Ukraine’s 11M17 production volumes were 2.6 mmt for rebar (3.0 mmt in 2016) and 1.2 mmt for wire rod (1.5 mmt in 2016).

Dmytro Khoroshun: The import volumes of rebar and wire rod from Russia are low in comparison with both domestic consumption and production volumes. Therefore, Ukrainian producers will have little immediate benefits from the protective measures. The two plants that are still under Ukraine’s control and that produce rebar and wire rod are ArcelorMittal Kryvyi Rih (produces almost 100% of rebar and 80-90% of wire rod) and Dniprovskyy Steel, which was restarted in late July and has a part of its products resold by Metinvest (METINV), Ukraine’s leading steel holding.

Considering the global trend of increasing trade protectionism, as well as Russia’s aggression in eastern Ukraine, this development is a welcome step for the Ukrainian steel industry. However, the potential for further substitution of steel imports from Russia for domestic Ukrainian production is limited, in our opinion. This is because rebar and wire rod are the less sophisticated products for which Ukraine has ample production capacity. In contrast, other steel products that Ukraine imports from Russia, such as cold-rolled flats (81 kt in 2016, according to Metal Expert), galvanized coils (11 kt), pre-painted coils (12 kt), sections and bars (168 kt) and rails (13 kt) are more sophisticated rolled products for which Ukraine might not have production capacities of similar quality.


Issue: Ukrlandfarming, 10.875% 26mar2018, USD

StatusDefaultCountry of riskRedemption (offer)VolumeEmission Rating (M/S&P/F)
redemption defaultYesUkraine03/26/2018500,000,000 USDNR/-/Withdrawn

Company: Ukrlandfarming

Full company nameUkrlandfarming Public Limited Company
Country of riskUkraine
Country of registrationCyprus
IndustryAgriculture

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