Avangard - Time to Refinance (February 2, 2015)

After approving a dividend payment of USD 29.5 mn on September 30, 2014 and declaring it to be paid by December 30, 2014, Avangard hasn’t made any transfers to investors yet. Moreover, the company has remained silent with regard to the reasons of the delay, which in our view has resulted in a stock price drop of 9%  m/m to a historic low to USD 1.83 per GDR, while prices of the company’s Eurobonds have plummeted by 15 points to 50 cents on the dollar in January 2015. However, on Thursday, January 29, Avangard issued a press-release, announcing that the company intends to only pay the dividends to minority shareholders, while delaying the payment to its majority shareholder UkrLandFarming, which may reflect the limited access to capital necessary to finance the redemption of USD 200 mn of Eurobonds maturing in October 2015 and could signal a pending refinancing of the Eurobonds. Our scenarios indicate a fair price of 43-58 vs. the current price of 45.

Ukrainian Eurobonds - Kicking the Can (January 28, 2015)

Considering the deteriorating political and economic environment in Ukraine coupled with the rapid UAH devaluation, we expect the government to restructure sovereign and quasi-sovereign Eurobonds due in 2015 (and possibly 2016). The private sector has already felt the trend with Metinvest and Ferrexpo being the first to offer restructuring terms. We consider most of other 2015-2016 corporates to follow and have run several restructuring scenarios which indicate most these corporates being overpriced in our view. 

UkrLandFarming (December 9, 2014)


The Eurobonds of UkrLandFarming (ULF) due in 2018 trade at a YTM of 37%, while the sovereign Eurobonds with the same duration trade 1,656 bps lower. We thus see  significant upside in the bond’s price in the intermediate term. The company has a high share of export sales (25% of revenues). These are dollar-denominated, constituting a natural hedge to FX risks. The company also benefits from vertical integration: its operating margins tend to be higher than peers’ due to lower crop farming costs resulting from in-house production of seeds and fodder. Moreover, the company’s total debt/EBITDA ratio stands at 2.0x as of 30.06.2014, which is lower than MHP (2.7x), Kernel (3.4x), and Astarta (2.5x).

Avangard (December 9, 2014)


The company’s Eurobonds due in 2015 trade at a YTM of 66% and a 3,451 bps spread to the sovereign curve, which is unreasonably high, in our view, considering the large share of export sales (41% in 9M2014), USD 158 mn cash position as of 30.09.2014, low leverage (net debt/EBITDA ratio of 0.9x as of end-September 2014) and Avangard’s leading position in the non-cyclical egg market. We expect a significant appreciation of the company’s Eurobonds in the intermediate term, presenting a unique opportunity for early investors. 

Ukrzaliznytsia (December 9, 2014)


The Eurobonds of Ukrzaliznytsia due in 2018 trade at a YTM of 27%, which is 717 bps higher than the sovereign Eurobonds of the same duration. We find the spread unjustified given their quazi-sovereign nature and the company’s monopolistic position. We forecast a considerable rise of the bond’s price in the intermediate term due to upcoming reorganization and reform of the railway sector.