Ukraine Markets Daily (February 09, 2017)

Market news

  • Ukraine’s GDP growth came up to 4.8% y/y in 4Q2016
  • Metinvest announces effective date of the restructuring agreement on its Eurobonds and PXF facilities

Market comment

The UX index increased by 0.9% Yesterday, and the PFTS index grew by 0.2% (in UAH term). The WIG-Ukraine index was up by 0.4%. On the interbank exchange market, the USD/UAH was down by 0.2% to UAH 26.93 (mid price), according to Bloomberg. The official exchange rate reported by the NBU was UAH 26.91.


Ukraine’s GDP growth came up to 4.8% y/y in 4Q2016

The State Statistics Service of Ukraine estimates Ukraine’s GDP to have marked a strong growth of up to 4.8% in 4Q2016, the Head of the institution Ihor Verner reported at a session of the Government on February 8, 2017. "Now we can allege that GDP growth accelerated in the fourth quarter, considering the data from different economic sectors. The GDP growth in comparison with the fourth quarter of 2015 is estimated in the range of 4.5% to 4.8%”, Verner stated. The preliminary GDP figure for 4Q2016 is scheduled to be published next week, the official announced. Overall a stronger value added generation in the construction sector, retail trade, agriculture, and transport has upheld GDP growth in 2016. Additionally, an increase in capital investment nearly by 25% was beneficial to the economy, Verner claimed. Strong performance in the agricultural and construction sectors allowed securing industrial growth, according to the statistical service. The economy ministry estimated that the country’s GDP grew by 2% in 2016.

Our view:

The report of the State Statistics Committee at the Government meeting reflects a highly POSITIVE assessment of the country’s economic performance in 2016, which has exceeded all expectations. We think that a strong agricultural result transmitted into robust growth in manufacturing of foods, retail trade, as well as exports in 4Q2016. The end of year achievement allows confirming the estimation of 1.8% GDP growth in 2016.


Metinvest announces effective date of the restructuring agreement on its Eurobonds and PXF facilities

On February 8, 2017, the English court granted an order sanctioning Metinvest’s Restructuring Scheme adopted by the note holders and PXF lenders on February 6, 2017, according to an announcement of the company on the Irish Stock Exchange. Accordingly, the Restructuring Scheme became effective on February 8, 2017, the company informed. In accordance with the Scheme the Company made a cash payment in an amount equal to 30% of accrued and unpaid interest under the Notes for the period from December 31 December 2016 to January 31, 2017. The January Cash Pay Interest Amount was USD 2.747 mn, according to another statement of the company. The remaining portion of the interest due worth USD 6.4 mn has been capitalized under the scheme agreement, sending the outstanding volume of the notes to USD 1.186 bn as of January 31, 2017, according to the statement. Under the restructuring scheme, the three outstanding Eurobond issues due in 2016 (USD 90 mn), 2017 (USD 305 mn) and 2018 (USD 792), together with the company’s debt on pre-export financing in an aggregate volume of USD 1.1 bn as of November 30, 2016, are replaced with a single issue of Eurobonds maturing December 31, 2021, implying no haircut. The new notes are issued with a coupon rate of 10.875% payable in equal quarterly installments. A waterfall coupon payment schema is allowed for the first year of the notes. During the initial period of the new notes, beginning from May 18, 2017 and ending on February 19, 2018, the coupon payments are distributed between Payment in Cash and Payment in Kind (one-year PIK Notes issued in form of additional notes), according to the following schedule: 2.793% of the coupon payment is made in cash, and the other part in Cash or in Kind, sending the overall coupon payment up to 6.5795% depending on liquidity issue. In addition to the aforementioned payments, the issuer may also pay 1.5025% coupon payment in cash pending availability of free fund. The agreement allows also a cash sweep arrangement, supposing that each Note shall be partially repaid, and redeemed in installments on each Interest Payment Date. The schema allows an early partial or full redemption of the notes.

Our view:

The news is POSITIVE marking the completion of the debt operation of the company, and therefore allowing proceeding with the implementation of its strategic development program. We think that the 2021 maturity term is quite tight, while the debt volume remains high, leaving a limited resource for the company to adapt the challenging operating environment under the new debt payment schedule.