Restructuring of Avangardco’s Eurobonds approved by court

Ukraine’s largest egg producer Avangardco (AVINPU) has obtained the approval of its notes’ maturity extension to Oct. 29, 2018 from the London High Court just a couple of days before the bonds would mature on Oct. 29, 2015, Debtwire reported on Oct. 26. Before the court’s decision, holders of 99.89% of Eurobonds voted in favor of the scheme, with a minimum threshold of 75%.

The bond is to be paid in its entirety Oct. 29, 2018, according to the conditions of the scheme. The coupon rate will be kept nominally at 10%, but starting on Apr. 29, 2016, only 25% will be paid in cash and the rest will be redeemed with payments in kind (i.e. capitalized). The cash proportion of the interest will gradually increase to 50%, 75% and 100% semi-annually as the bond approaches maturity.

Roman Topolyuk: Avangardco has become another corporate borrower in Ukraine’s universe that has secured a positive ruling of London court, supporting its position in negotiations with public lenders while its financial position and performance are in dire straits. Accounting for interest capitalization and the new maturity date, we estimate Avangardco’s Eurobonds currently offer YTM at 42.5%. However, in order for such a yield to materialize, which would make the new maturity extension unnecessary, Avangardco will have to demonstrate a significant turnaround in its operating and financial performance soon. We see so far few drivers for that to happen.

In 1H15, Avangardco’s production of shell eggs tanked 49% yoy to 1.9 bln units, and the company reported negative EBITDA of USD 98 mln compared to positive USD 108 mln in the same year-ago period. Another risky event for Avangardco is the bonds of its parent Ukrlandfarming (USD 500 mln), maturing in March 2018, which we estimate Ukrlandfarming will have to restructure or refinance. Unless that happens, the maturity of the parent’s bonds may create a liquidity event for Avangardco. We reiterate our negative view on AVINPU.