Ukreximbank asks for 3M delay of April bond, to prepare for restructuring

State Ukreximbank (EXIMUK) has asked holders of its USD 750 mln Eurobond maturing on April 27 to agree to change the maturity of the notes until July 27, according to a consent solicitation published on Mar. 27. The bank explains the extension request by the need of more time to “negotiate a long-term solution with the noteholders” in accordance with targets established by the IMF.  Recall, on Mar. 13, Ukraine’s Finance Minister announced that the Eurobonds of Ukreximbank would be included in the government’s general talks on restructuring with bond holders. Such talks should be concluded by mid-June 2015.

Ukreximbank claims that the smooth repayment of the notes “may be deemed to contravene” the agreement with the IMF. It sees a “substantial risk” that it will be unable to repay, according to the Mar. 27 document. It also warns that non-payment of the bond may result in the introduction of temporarily administration of the bank.

The bank has called for two bondholder meetings, for Apr. 13 and Apr. 27, to approve the proposed amendments in the Eurobond documents. The quorum at the meetings should be 2/3 of the total outstanding bonds, and 3/4 of the meetings participants should vote in favor of the amendments.

Ukreximbank has also provided its IFRS financials for the year 2014, reporting an end-2014 cash balance of UAH 16.79 bln, including UAH 11.90 bln (or USD 754 mln) in deposits in OECD and CIS banks. The bank also held UAH 30.2 bln in state bonds, as of end-2014, some of which are dollar-denominated local government bonds.

Alexander Paraschiy: The bank has not provided any sweeteners to bond holders in its maturity extension request, and the approval of the delay will increase the likelihood that the Eurobonds will be subject to distressed restructuring. So, we see little reason for the holders to agree to the delay offer. The bank’s reference to the IMF agreement also does not look like a serious argument.

Ukreximbank’s end-2014 cash and securities position hints that it has accumulated enough dollar liquidity to smoothly repay the USD 750 mln Eurobond. Things might have changed since then, but we still believe that the bank has enough liquidity to repay its notes on time, if the holders fail to vote in favour of the delay. In any case, we recommend that the holders wait until the second scheduled meeting and let the bank offer something more convincing.

Meanwhile, such a presentation of the maturity extension request significantly worsens the bank’s image as a secure deposits keeper. As of end-2014, the bank held USD 1.6 bln in foreign currency corporate deposits and USD 0.9 bln of foreign currency retail deposits. By threatening that temporary administration could be introduced to the bank (which implies a deposits freeze), Ukreximbank faces a risk that its deposit base will start shrinking very fast. In fact, the bank can lose more money from a deposits run than it could save from the possible restructuring of the 2015 Eurobond. That said, we see the maturity extension request, in itself, might significantly decrease the bank’s ability to repay the bond on time.