S&P upgrades MHP’s rating by three notches to B-

Standard & Poor’s has raised its local and foreign currency long-term corporate credit ratings for Ukraine’s largest poultry producer MHP (MHPSA) by three notches to B- from CCC-, having upgraded Ukraine’s sovereign ratings just a week earlier. The agency referred to MHP’s strong market position. It also cited its solid reported EBITDA margin, stressing that it expects “its debt-to-EBITDA ratio will likely be around 2x-3x over the next two years.” S&P was also impressed by MHP’s EBITDA coverage of interest payments of around 3x-5x. The agency admitted it will not automatically downgrade MHP’s rating should reasons emerge to cut the rating of Ukraine’s sovereign debt if the company shows resilience to country-specific risks.

Roman Topolyuk: Despite MHP being the most solid public borrower among Ukrainian corporates and such a rating upgrade positively affecting sentiments, we don’t like MHP bonds at its price of 87 cents per dollar and YTM of 12.3%, as its downside risks to exceed upside potential. The possible cancelation or reduction of agricultural subsidies, which could occur in November-December when Ukraine’s 2016 state budget will be drafted and voted upon, can become a negative driver for the bonds. In 2014, MHP generated 16% of its USD 555 mln EBITDA from the special treatment of its VAT.