July 18, 2013 | Cbonds
Investment bank BCS, Leonid Ignatyev, Head of Fixed Income Research:
Ukraine’s major agricultural producer Agroton (NR/CCC/C) set tough restructuring terms for investors in its $50 mln Eurobond. Essentially, it is almost uncured default, on the brink of bankruptcy. This news is negative both for Eurobonds of local agricultural companies and Ukraine’s entire debt market.
Agroton group is Ukraine’s major diversified vertically integrated agricultural producer. It specializes in production, processing and sale of grains and oilseeds. In July 2011, the company placed a debut three-year $50 mln Eurobond with a 12.5% coupon.
Yesterday, Agroton proposed to the bondholders that its Eurobond terms should be amended by postponing the payment of the interest income by half a year (to January 14, 2014), prolonging the maturity by 60 months (to January 14, 2019) and lowering the interest rate by as much as 450 bp to 8%. In addition, the company requested that investors approve softer leverage covenants.
The restructuring offer followed the failure by the company to make a regular $3 mln payment on July 14. The extremely tough restructuring terms may indicate that the company operates in a pre-bankruptcy state. The company’s offer is far from market levels and, importantly, provides no warranty against another (double) default. However, bondholders, probably, have no choice but to accept it. If the company faces difficulties only with coupon payments, we doubt that investors should await any material compensation in the case of the asset selloff.The first default on Eurobonds in the CIS universe lately is landmark event in the debt market. Its consequences may lead to a selloff in Ukraine’s agricultural Eurobonds. Given the complex macroeconomic conditions in the country, the situation around Agroton may be interpreted in a wider sense and affect investor perception of risks relating to other Ukrainian Eurobonds, including companies with government ownership.