• The takeover of Privatbank, the largest private bank of Ukraine, announced on December 19, 2016, and executed by the Government on December 21, 2016 came as a surprise for the market, despite long-standing rumors about such a development.
  • Overall, we see the measures of the National Bank and the government towards its nationalization to be highly qualified, allowing avoiding a crisis spillover throughout the banking system, stabilizing the bank over a very short time period, while abstaining from increasing government exposure to the financial risks of the bank.
  • On a longer term, however, we see the bank to face huge challenges due to the legacy of its business model, which is highly dependent upon related parties and regional economy.
  • We consider three highly speculative post-nationalization scenarios for the banks along a full write-off of the bank’s unsecured debt, a debt-to-equity swap, or a Eurobond restructuring deal.

Ukrlandfarming: defending the core (November 24, 2016)

  • The Eurobonds of Ukrlandfarming (“ULF”), a major Ukrainian agroholding, have declined in prices by 40% YTD amid the uncertainty of the operational environment, company’s continued debt restructuring efforts and the beneficial owner’s standoff with the National Bank of Ukraine (“NBU”) regarding his personal liabilities to the NBU.

We note that the market has overreacted to the news flow, and consider the expected YTM of 55% (post-restructuring) as being highly-attractive compared to other Ukrainian corporates.

Ukrlandfarming and its Vanguard (September 28, 2015)

Quoted at about 45% of face value currently Ukrlandfarming Eurobonds maturing in 2018 are quite attractive compared with other corporate bonds of the same length, leaving room for upside price development. However, in our view, the ambiguities about the company’s debt management policy have been hanging upon the quotations of Ukrlandfarming bonds recently. On the other hand, the success of the company is tightly related to the results of its main subsidiary the Avangard egg specialist company. 

Ferrexpo: The Finance and Credit Headwind (September 19, 2015)

After seven months of intensive negotiations to avoid a bankruptcy of the Ukrainian Finance and Credit Bank (‘Bank F&C’), a related party of Ferrexpo ultimately controlled by Ferrexpo’s largest shareholder Kostyantin Zhevago, the National Bank of Ukraine (‘NBU’) finally declared the bank insolvent on September 17, 2015. As a result, USD 174 mn of cash (of total USD 280 mn) held by Ferrexpo at Bank F&C will be likely lost. Though this won’t likely impact company operations and liquidity in the short-term, it puts the company’s ability to repay USD 350 mn of syndicated loan in 2016 under question, and leads to the breach of covenants on Eurobonds and syndicated loan.

Ukraine's Debt Restructuring: Playing on the Edge (June 19, 2015)

While the negotiations on quasi-sovereigns debts and notes have been much acclaimed by market players, the negotiations on the sovereign bonds have virtually stalled. Finalizing a restructuring deal is a condition for the disbursement of the next tranche of IMF loan, scheduled for July 2015. Nevertheless there are no signs that the parties will find any viable and mutually suitable deal toward that timetable. We see any default of the country in the current condition to be mostly preemptive and technical, aimed at prompting all parties to start negotiating a mutually acceptable solution and find a quicker way out of the stalemate.