Ukraine Markets Daily (April 19, 2017)

Market news

  • MHP seeks restructuring on USD 350 mn Eurobonds

Market comment

The UX index increased by 0.1% Yesterday while the PFTS index remained unchanged. The WIG-Ukraine index increased by 0.7%. On the interbank exchange market, the USD/UAH remained unchanged at UAH 26.82 (mid price), according to Thomson Reuters. The official exchange rate reported by the NBU was UAH 26.81


MHP seeks restructuring on USD 350 mn Eurobonds

On April 18, 2017 MHP S.A. (MHP) offered to the holders of its USD 750 mn 8.25% Eurobonds due on April 2, 2020 to redeem up to USD 350 mn aggregate principal amount of the notes for cash. The Tender Offer is being made in connection with a concurrent offering of new longer dated unsecured and unsubordinated notes by the Company, according to the Tender Offer Memorandum. Therefore, Note holders may tender their Notes for cash and also subscribe for the New Notes. The Company seeks to lengthen its debt maturity profile through refinancing of a portion of the notes by way of issuance of the new notes. MHP proposes a Tender Offer Consideration of USD 997.50 for each USD 1000 of principal amount of Notes validly tendered before the Tender Offer Deadline due on May 15, 2017, however setting a more attractive Early Tender Offer Consideration at USD 1027.50 for each committed USD 1000 of principal amount before the Early Tender Deadline set for April 27, 2017. The Company will also settle all interest on the Notes accepted for purchase, accrued and unpaid between the previous interest payment and the final Payment Date, tentatively on May 17, 2017. The overall operation is conditional upon successful placement of the new notes, as soon as MHP intends to use the proceeds from the placement to finance the partial redemption of the 2021 notes. MHP is arranging meetings with fixed income investors in connection with the planned new Eurobond transaction and the tender offer. No details of the new notes offering have been disclosed yet. Meanwhile, on April 18, 2017, MHP published its Pre-close trading update for the first quarter ended March 31, 2017. The Company's poultry production facilities continued operating at full capacity during the reporting period, according to the Company. The overall production volumes of chicken meat decreased by 0.9% y/y in 1Q2017, and amounted to 141.8 thousands of tons, as a result of higher production of small broiler and carcasses for exports, the Company notes. The total sales volume grew by 15.5% y/y to 123.9 thousands of tons, thanks to a strong 59.5% y/y increase in exports. The expansion on foreign markets largely offset the 2.4% y/y contraction of domestic sales. Exports generated 39.7% of sales volume in 1Q2017, increasing from 28.7% in 1Q2016. The share of domestic sales decreased from 71.4% to 60.3% correspondingly. On a geographical breakdown, MHP has especially targeted the Middle East (24% of export volume), the EU (21%), and Northern Africa (over 14%). Meanwhile, oil sales volume decreased by 1.1% y/y to 89.9 thousands of tons as the sale of sunflower oil declined by 0.7% y/y to 82.1 thousands of tons, while the sale of soybean oil dropped by 4.5% y/y to 7.8 thousands of tons

Our view:

The Company’s decision is POSITIVE, fitting into its comprehensive long-term strategy manifested in the recent corporate changes. We see the offer on the Eurobonds to be reasonable, especially considering the pattern of decreasing interest rates on the domestic market, together with the positive market outlook for the poultry sector in the medium term. With the notes currently trading in the range of 102 cents on the dollar, the premium for Early Tender Consideration is more or less attractive. Meanwhile, we think that MHP may seek a maturity extension by 3 to 4 years together with a downward adjustment of the coupon rate on the restructured Eurobonds.