Alfa Bank recognizes technical default on Eurobonds

Yesterday Alfa Bank Ukraine informed holders of its USD 100 mln Eurobonds (Moody’s: Ba3) that it was unable to redeem the issue on May 4, de facto recognizing it is in technical default. The bank cited its inability to purchase a sufficient amount of US dollars on the Ukraine interbank market and named NBU restrictions on F/X purchases as a culprit. In an official letter from the bank, it said it was taking steps to comply with payment obligations within five business days. Alexander Paraschiy: We do believe the bank will comply with its obligations this time, but looking forward, we believe Alfa will default on the early redemption of its ’11 USD 250 mln Eurobond issue puttable this August. This will effectively turn the 3-month note into a 2.3 year security, with YTM of some 28%, half as much as the YTMs on similar issues of comparable banks, which implies massive price adjustment (see our flash note yesterday).