Fixed Income Daily Watch_08.02.11_Alfa Bank Ukraine

Alfa-Bank Ukraine
Fixed Income Daily Watch
Tuesday, February 08, 2011

MARKET COMMENT
New Metinvest did not propose great upside, so Metinvest 15 was in lifted yesterday and has grown by 150 bps. These bonds took most attention yesterday against a background of better situation in Egypt and stronger risk appetite.
We see the tendency of lower demand for Ukrainian sovereign bonds and more clients` interest in strong corporate names: demand for Metinvest was 2.3 bln, Alfaua +25 bps, MHPSA +50bps, DTEK +100bps, Eximuk15 +50bps.

UKRAINIAN NEWS

Metinvest makes successful Eurobond placement

Metinvest, the largest vertically integrated holding in Ukraine, successfully placed its new USD 750 mn Eurobond with 8.75% coupon, while initially there was planned to sell USD 500 mn. In our daily report dated 24.01.2011, we forecasted that the volume of placement is likely to be greater than initially planned, but we expected the rate to be set lower, in the range 8.1-8.5%. The Eurobond was sold with yield 9% (at the bottom end of the guidance, reflecting significant demand for the issue) and the price 98.722%. Currently the new issue trades with yield 8.8%, which implies 200 bps premium to Severstal-17 and 180 bps over Evraz-18. These spreads are even tighter than spread between Russia and Ukraine sovereigns, which currently stands at 210 bps. We see the risk that the market might pull back a little to the levels of sovereign spreads soon.

We see the coupon rate set at 8.75% as fair basing on the issuer’s strong financials. The net cash from operating activities received by Metinvest in 9M2010 amounts to USD 1.17 bn and fully covers the CAPEX program planned by the holding for the whole 2011. Metinvest’s adjusted EBITDA in 9M2010 stood at USD 1.938 bn comparing to USD 1.074 bn in respective period 2009. After 9M2010, the Company had Net Debt/EBITDA at 1.2x, which we regard as very moderate level. When the new USD 750 mn issue is added, we estimate Net Debt/EBITDA of Metinvest at 1.6x, which is still not much.

Please find full version of report in the attached file