MHP asks Eurobond holders for four year prolongation

Myronivsky Hliboproduct (LSE: MHPC LI), Ukraine’s largest chicken meat producer, offered its existing bondholders to swap their USD 250 mln Senior Notes due 2011 for new dollar-denominated Senior Notes due 2015. The new notes will have par value 3.3% to 6.3% higher than the old ones, depending on the date the offer is accepted. The swap is intended to be completed by May 13, 2010. The purpose of the exchange is: (1) to lengthen MHP’s debt maturity profile; (2) to repay an estimated aggregate USD 100 mln in short-term loan facilities to Ukrainian banks; and (3) use the remaining balance to finance construction of the Vinnitsya factory and extend the land bank by 120 ths ha to 300 ths ha. Currently, MHP Notes trade at ~106% of par, which implies ~10.2% YTM for new notes. Ruslan Patlavskyy: We estimate the terms offered for the new notes as attractive for current note holders and expect them to accept the offer. Our view is supported by yesterday’s 4% increase in the Notes’ price. We see the upcoming refinancing of the Eurobonds as positive for MHP’s shareholders as: (1) refinancing of the current Eurobond facility should add more headroom to the company’s aggressive 2010-18 CAPEX plans; and (2) allow for an increase in the company’s net working capital, associated with its land bank growth, while alleviating the pressure on MHP’s liquidity. That said, we do not see the current financial leverage of MHP as critical (FY2010 net debt/EBITDA: 1.5x (in case no additional notes are issued this year) as the company’s export sales of sunflower oil and grains, are fully covering its USD-denominated financial expenses, which we estimate to remain within USD50-65 mln annually over 2010-14.