MHP to place new Eurobonds, purchase part of 2020 notes

Ukraine’s largest poultry producer MHP (MHPC LI, MHPSA) announced on April 18 it is arranging meetings with investors in connection with its planned new Eurobond placement and has initiated a tender offer for up to USD 350 mln of its USD 750 mln Eurobonds maturing in 2020.

Later on the same day, Fitch Ratings assigned MHP’s planned Eurobond an expected rating of B- (EXP), which is in line with the rating of MHP’s existing Eurobond and Ukraine’s sovereign rating.

Fitch expects an improvement in MHP’s liquidity and a reduction of refinancing risks after the new Eurobond placement, with USD 150 mln of new Eurobond proceeds to be used to refinance short-term debt, while the remaining proceeds will be used to refinance the existing Eurobond.

Fitch’s major assumptions include MHP securing about USD 30 mln in government subsidies in 2017, but no subsidies thereafter; neutral to positive FCF in 2017-2020; 5% CAGR in sales volumes in 2017-2021; an EBITDA margin of about 30%; no M&A; CapEx at 10%-15% of revenue in 2020; and dividends not exceeding USD 80 mln per year.

Igor Zholonkivskyi:  The news about the planned new Eurobond did not come as a surprise, as the repayment of the existing USD 750 mln Eurobond maturing in 2020 could only be managed via refinancing. The timing seems to be rather good, as Ukraine’s economy seems to be slowly recovering with the hryvnia remaining relatively stable, which should support domestic poultry demand. 

Also, MHP has increased its export share of chicken meat in 1Q17 to 40% from 27% a year ago, and continues to slowly expand its export operations. Nonetheless, with around 45% of MHP’s 2016 revenue generated by domestic operations, the company remains exposed to ForEx risks, which explains Fitch’s lower rating of MHP’s Eurobond than Kernel’s. We retain our neutral view on MHP bonds.