ULF bondholder initiates call amid risk of coupon miss

A bondholder of Ukraine’s biggest agricultural company Ukrlandfarming (UKRLAN) has organized a March 21 conference call to try to coordinate efforts to protect bonhdholders’ rights, according to a notice issued on March 13. The “requesting noteholder” expressed his interest in discussing ULF’s Jan. 17 letter and March interest payment date, according to the notice.

Recall, in the Jan. 17 open letter to Ukraine’s top officials, ULF key shareholder Oleg Bakhmatyuk blamed the head of Ukraine’s central bank (the NBU) in “harming its financial position,” which Concorde Capital interpreted then as a pretext to try avoiding meeting its obligations to bondholders. 

Alexander Paraschiy: From the latest letter, we understand that some bondholders see a high risk that ULF won’t pay its upcoming coupon (about USD 30 mln due on March 26). We share this risk, given the ULF’s poor cash position as of the recent reported date (it had only USD 51 mln in cash and equivalents as of end-3Q16, -17% YTD). Besides the UKRLAN coupon, the holding is also due to pay about USD 5 mln in AVINPU coupon in late April and some USD 15 mln interests on other debts in 1H17. On top of that, ULF already has an experience of missed coupon – in late March 2016, it recognized a default on coupon and initiated restructuring talks, making the bond holders to agree on partial capitalization of all coupons due last year.

While we are not believers in ULF’s story as a smooth payer, we see some chance that the holding will do its next coupon payment. Sooner or later, Bakhmatyuk will have to initiate a long-term restructuring of its debts, but we believe he will rather postpone talks on the restructuring this time, if he is capable to pay the upcoming interests. The recently initiated call may lead to more consolidated position among the bondholders who might chose to withstand a possible ULF’s coupon restructuring proposal. This may lead to long negotiations and may harm Bakhmatyuk’s ability to sell a control stake in ULF (if such his intention is sincere). Also, Bakhmatyuk seem to be trying to simultaneously restructure all his debts, including his debts to the central bank (the NBU). If it’s true that the current central bank head is the main impediment on his way to restructure debts to the NBU, Bakhmatyuk may get a chance to raise this question again to a new NBU head, as the incumbent head is rumored to leave her position soon (possibly in 2-3 months). If so, the right time to initiate debt restructuring may appear a bit later, not now.

Regardless of a probability of payment of the next ULF coupon, we remain bearish about UKRLAN notes.