CIS Credit Monitor: Ukrsibbank, KZOS

In this issue:
• BNP Paribas increases its stake in Ukrsibbank
• KZOS triggers cross-default covenant
BNP Paribas increases its stake in Ukrsibbank (NR/B3/B)
The French bank BNP Paribas is increasing its stake in the Ukrainian subsidiary Ukrsibbank to 81.4% following the arrival of the UAH 1.275bn ($166m) capital injection announced earlier this year. This move signals the commitment of the parent company to support the Ukrainian subsidiary going forward. As a result, we see some room for tightening on the UKRSIB curve.
Following the acquisition of a controlling stake back in 2006, BNP Paribas has always been a supportive shareholder, providing capital and liquidity injections when needed. In April, the French bank committed to an equity increase worth UAH 1.275bn ($166m) when the stress test conducted in the Ukrainian banking sector revealed weak capitalisation levels for Ukrsibbank as a result of the hryvnia devaluation and a sharp deterioration in the quality of the loan portfolio. The equity injection, which arrived this month, translates into a rise in BNP Paribas’ shareholding in its Ukrainian subsidiary to 81.4%, and therefore significantly reduces the stake of local businessman, Oleksandr Yaroslavsky to 18.58%.
Ukrsibbank has a moderate repayment schedule due in 2009, with only a $55m syndicated loan due in October, since most obligations were redeemed in the first half of the year. The next large repayment is a $200m eurobond due in summer 2010. The peak of the bank’s foreign liabilities will not fall due until 2011, when two Eurobonds, together worth $750m, mature. Given the moderate foreign obligations and the committed shareholder, we remain confident of the bank’s ability to repay its obligations in the short to medium term.

KZOS (CC/NR/C-) triggers cross-default covenant
Today’s Vedomosti newspaper reports that BoNY, the trustee for Kazanorgsintez (KZOS) eurobonds has informed creditors of a borrower’s default on debt worth over $20m. This triggers the cross-default covenant of the $200m KZOS 2011 eurobond, and therefore enables creditors to request early debt redemption if 25% of bondholders apply for it. In its Q1 2009 report under RAS, the company had already warned that in the IFRS accounts for 2008 covenants on RUB 14.2bn in loans could be breached. The eurobond is quoted at c. 35% of par, which reflects restructuring risk. The reluctance of TAIF holding to support the daughter company’s debt repayments gives a negative impression for its other holdings’ debt, such as NKNK. However, we believe that NKNK has a much stronger standalone profile, and will be able to refinance part of its debt and cope with repayments (see CIS Credit Monitor published 10 June 2009).