Ukrlandfarming offers deeper haircut in latest debt proposal

Ukrlandfarming (UKRLAN) and Avangardco (AVINPU),
controlled by Oleg Bakhmatyuk, refreshed their international debt restructuring
proposals last week, Debtwire reported on Feb. 27. The companies have offered a
70% face value haircut to unsecured creditors and a 65% haircut to secured
ones, according to Debtwire. They offered to repay the residual debt in ten
years with a two-year grace period, carrying an interest rate of around 8.6% in
dollars and 6.5% in euros. The debtors also offered a cash-sweep mechanism if
their financial performance will better than anticipated. The new proposal is
“neither attractive for international creditors, nor materially different from
a proposal floated last summer,” according to an anonymous source cited by
Debtwire. Creditors “can sign up to the proposed deal on an ongoing, bilateral
basis,” a source of Debtwire commented.

Recall, Ukrlandfarming’s deputy CEO reported on Nov. 6
that the company had offered creditors last year a 70% haircut
(50% haircut for secured creditors) and ten-year extension of the loans at an
interest rate of around 8%.

Alexander Paraschiy: The new
proposal looks closer to what we estimated in our July report on
Ukrlandfarming, in which we estimated an NPV of such deal being about 11% of
the unsecured debt’s face value. For some creditors, such a deal might look
attractive, given that a comparable case of farming company Mriya (MRIYA)
brought just 7% recovery value in four years after the company’s default.
However, the biggest creditors of  Ukrlandfarming are likely to demand
much more than just rescheduling of debt payments. For instance, they may
demand that Bakhmatyuk share with them control over the company’s strategy or
operations, which looks logical in this situation.

Also, reaching a deal with international creditors, if
any, won’t guarantee the company’s ability to generate enough cash flow for
such creditors, as Ukrlandfarming and its owner Bakhmatyuk have a lot of debt
obligations to Ukrainian banks, the State Deposit Guarantee Fund and the
National Bank (NBU). The latter is active in claiming debt from Bakhmatyuk,
whose two failed banks had borrowed from the NBU about UAH 10 bln, and some of
Ukrlandfarming assets had been used as collateral under such borrowing. Recall,
recently the NBU managed to gain a court ruling allowing it to foreclose
on one of Avangardco’s minor egg farms, which might be the beginning of a story
of Ukrlandfarming’s gradual loss of assets to creditors.

All in all, we see that as time passes, the risk of
Ukrlandfarming losing some of its assets is growing, which implies that new
restructuring proposals from the company may become increasingly unattractive.
Therefore, to maximize the recovery of their debt, creditors should either
unite as soon as possible to demand more from Bakhmatyuk, or sign a deal with
Ukrlandfarming in the nearest future.