Concorde Capital Research: ULF and Avangardco bonds: Under pressure

The recent campaign of Ukrainian law enforcement bodies to prosecute businessmen who owe large amounts to the state did not bypass Oleg Bakhmatyuk, the owner of Ukrlandfarming (UKRLAN) and key shareholder of Avangardco (AVINPU). Being incapable of pressuring the really “big fish” like the former shareholders of Privatbank, the state has concentrated its efforts on prosecuting Bakhmatyuk and Kostyantyn Zhevago. While the pressure on Zhevago does not look very harmful for his key business Ferrexpo – which has some stable corporate governance system – attacks on Bakhmatyuk could be disastrous for his farming business, which looks like a one-man band. As we discuss below, we see it as very probable that Bakhmatyuk and his alleged partners at the National Bank, all of whom are suspected in conspiracy, will be able to prove in court the lack of grounds in the allegations of the National Anti-Corruption Bureau (NABU). However, this does not guarantee that state pressure on Bakhmatyuk will stop. Feeling the heat, Bakhmatyuk revealed a possible debt resolution plan that he claimed to be actively discussing with government authorities. Commenting to Debtwire last week, Bakhmatyuk said he was close to reaching a deal in which he would pay up to UAH 8.5 bln to the State Deposit Guarantee Fund during eight years, which is 60% less than the total claim made by the fund and the central bank. If fulfilled, the plan would have paved the way for Bakhmatyuk to continue debt restructuring talks with international creditors, perhaps on even better conditions than had been offered last winter. At the same time, a possible debt deal with the state entities looks too good to be true. Taking this into account, as well as the recent NABU pressure, we see the worst-case scenario as being more probable now. This scenario assumes continuing government pressure on Bakhmatyuk and his loss of control over Ukrlandfarming, which will likely result in this business falling apart. This assumes little recovery of any of Bakhmatyuk’s debt, particularly the claims of international creditors and state entities. Our negative outlook on ULRLAN and AVINPU bonds remains in place.

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