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. 

 A veil of uncertainty has been formed around the Ukrlandfarming business, as the company did not make public its financials since the end of 2014, whereas the company was in breach of certain covenants of Sberbank loan due in 2016. Nevertheless, the USD 195 mn of cash and cash equivalent recorded on the company’s balance at end of 2014 was fairly enough to support the current debt servicing of Ukrlandfarming. However, the tight liquidity ratio of the company commands negotiations with lenders to restructure the debts of Ukrlandfarming, above all handling the issue of bank loans. 

As for Avangard, it has reported a worsening financial state in 1H2015, which nurtured doubt as to its ability to redeem its Eurobond maturing on October 29, 2015. With a reported cash and cash equivalent of only USD 52 mn by the end of 1H2015, and a net debt to EBITDA level of 3x, it is hardly conceivable that Avangard will be able to redeem the notes.

On September 17, 2015, Avangard issued a Practice Statement Letter containing the major outlines of the restructuring that it intends to offer to note holders. Though not so attractive compared to the offers of other corporates, in our opinion the restructuring scheme of Avangard is viable.

Overall, we see Avangard to remain attractive for investments, given its key position in the structure of the Ukrlandfarming holding, its leading position on the global eggs and poultry market. Additionally, Avangard is well positioned to benefit from the rising role of the Ukrainian agricultural sector in the framework of the country’s economic modernization and integration with the European market.

 

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