Ukrexim Offers Seven-Year Maturity Extension If Vote Passes

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Ukraine’s third-biggest bank said it will seek to extend the maturity of its 2015 bond by seven years if creditors vote to push back the redemption date on the securities by three months at a meeting next week.

The State Export-Import Bank of Ukraine, known as Ukreximbank, said it will pay 50 percent of the principal amount of the notes in April 2019 and will redeem the rest in semi-annual installments starting October that year, the state-owned trade bank said in a statement on its website. The coupon on the notes will be increased to 9.625 percent from 8.375 percent with effect from April 27, the lender said.

The bank failed to get enough attendance at a meeting on April 13 for the three-month maturity extension. The lender lowered the quorum threshold for the forthcoming meeting, requiring one third of investors to attend rather than two thirds the first time around. Of those who vote, it needs 75 percent in favor to pass the motion.

“The offer looks good enough for both sides,” Andreas Rein, a money manager who helps oversee $470 million in assets, including Ukreximbank Eurobonds, at Uniqa Capital Markets GmbH in Vienna, said by e-mail. “I expect the initial three-month maturity extension to pass.”

The bank is planning to hold a web cast at 10 a.m. London time on Tuesday to discuss the proposal. Ukreximbank will probably default if creditors reject the extension at a meeting on April 27, when $750 million of notes fall due, it said last week.

Special Treatment

Ukreximbank is one of three state-owned companies, including AT Oschadbank and Ukrainian Railways, whose creditors will receive preferential treatment relative to the sovereign in the nation’s debt restructuring because they don’t have government guarantees. For that reason, their bonds will only be used to meet the first of three targets mandated by the International Monetary Fund as part of its bailout.

For the first, Ukraine needs to reduce financing costs by $15.3 billion over the next four years. The second is to bring Ukraine’s public and publicly guaranteed debt-to-gross domestic product ratio to below 71 percent by 2020, while the third seeks to keep the budget’s gross financing needs at an average of 10 percent of GDP in the 2019-to-2025 period.

The bank will ask the Ukrainian government for a letter expressing its intention to “ensure the fulfillment by the borrower of its obligations under the loan and its other international obligations,” although it won’t provide “grounds for any claim against or the basis of any obligation of the cabinet of ministers of Ukraine,” according to the statement.

“The statement expresses an intention to seek further guarantees from the government, but those guarantees will not be worth much unless the government’s debt burden is reduced,” Per Hammarlund, the chief emerging-markets strategist at SEB AB in Stockholm, said by e-mail. “Whether Ukreximbank will be able to honour its obligations will depend on by how much the government will be able to reduce its sovereign debt.”

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