Ukrzaliznytsia to offer 3Y extension, higher coupon on Eurobond

Ukraine’s railway monopoly Ukrzaliznytsia (RAILUA) reported on Dec. 8 it gained approval from an ad hoc committee to restructure its USD 500 mln Eurobond initially maturing in May 2018. The committee members reportedly agreed to exchange the existing RAILUA bonds into new ones, with an amortization schedule and final maturity on Sept. 15, 2021. In particular, 30% of the new bond will be repaid on Mar. 15 and Sept. 15 of 2019, and 10% of the bond will be repaid semi-annually between Mar. 15, 2020 and Sept. 15, 2021. The coupon rate on the new bond will be 9.875% (up from the current 9.50%). The first coupon period of the new bond will start on Nov. 21, 2015 and end on Mar. 15, 2016. Other periods will be semi-annual starting Mar. 16, 2016.

Ukrzaliznytsia is going to officially publish an exchange offer with the mentioned conditions soon. The conditions will be subject to approval by bondholders at their meeting.

Alexander Paraschiy: Ukrzaliznytsia’s Eurobond signifies the last among the publicly listed paper of Ukraine’s debt operation, initiated in March 2015, to finalize its exchange conditions. The conditions are superior to any of the sovereign and quasi-sovereign bonds that underwent the restructuring. Therefore, we see little risk that a majority of its bondholders won’t approve them.

The good news for RAILUA bondholders is that the company has offered a relatively smooth bond repayment schedule (no more than USD 150 mln in a semi-annual period). Although we remain skeptical on the company’s ability to smoothly service its debt in the mid- to long term, such a schedule allows us to believe it is doable for the new Eurobond.

Assuming the restructuring is performed on the above-mentioned conditions, the RAILUA bond (at the current price of 87% of par) offers a 14.4% yield to its extended maturity (compared to 16.1% of YTM for the unrestructured bond). This is about 300 bps more than the yields on the bonds of state banks (EXIMUK and OSCHAD) and 500 bps above the sovereign yield. At this stage, we believe the spread is high enough to make RAILUA paper attractive.