Corporate Ukraine Rocked by Missed Payment: East Europe Credit

Ukrainian businesses are being punished by bond investors after restructuring plans by Mriya Agro Holding Plc sparked an exodus from the market.

Company Eurobonds tumbled 7.6 percent in the three days through yesterday, the worst loss among 55 nations in the Bloomberg Dollar Emerging Market Corporate Bond Index. Notes due April 2018 from Ternopil, Ukraine-based Mriya led the selloff with a 41 percent drop after the farming group said on Aug. 1 it had missed debt payments and was seeking to revamp its business.

Fighting between government troops and pro-Russia rebels in eastern Ukraine is deepening the country’s recession and driving up companies’ costs as the hryvnia depreciates. The sovereign bonds fell as the military said yesterday Russia had massed 45,000 soldiers on its border, while Ukrainian troops advanced on rebel strongholds Luhansk and Donetsk.

“The Mriya restructuring fuels concern” at a time when corporate refinancing options are very limited, Oleksandr Parashchiy, head of research at Concorde Capital investment company, said by phone from Kiev yesterday. “Financial markets are now completely closed to Ukrainian businesses.”

Mriya said last week its “liquidity position” had worsened amid rising costs and falling prices of farming products. Blackstone Group International Partners LLP and Dragon Capital will review its finances and propose remedies that “are likely to include the restructuring of the group’s balance sheet,” the company said.

Business Disrupted

The $400 million of 2018 notes from Mriya fell to 40 cents on the dollar earlier this week from 78.5 cents the day before the announcement. The security rose today, climbing to 45.7 cents and yielding 37.87 percent by 5:30 p.m. in Kiev. It’s shares gained 8.6 percent in Frankfurt, paring the slump this month to 44 percent and valuing the company at 241 million euros ($322 million).

Olena Glemba, head of investor relations at Mriya, wasn’t available to comment when contacted by phone and e-mail.

As the military conflict keeps disrupting economic activity and hurts corporate earnings, some companies may seek to conduct “opportunistic” debt restructuring to curb their dependence on foreign financing, according to Timothy Ash, a London-based emerging markets economist at Standard Bank Group Ltd.

“The only question now is how far that process will proceed,” Ash said by e-mail on Aug. 4. It remains to be seen “which corporates will use the cover of the country’s ongoing problems to cleanse their own balance sheet,” he said.

Rinat Akhmetov

Bonds of DTEK Holdings BV, Ukraine’s biggest utility, and Metinvest BV, the largest steelmaker, also fell. Their dollar-denominated notes due 2018 lost 4.6 percent and 5.3 percent, respectively, in the three days after Mriya’s announcement, data compiled by Bloomberg show.

Metinvest and DTEK are controlled by Rinat Akhmetov, the richest Ukrainian and the 86th wealthiest person worldwide with $12.8 billion of assets, the Bloomberg Billionaires Index shows.

DTEK, which has $200 million of debt coming due in April next year, stopped work at two mines, including Ukraine’s largest, due to military operations in the proximity, the company said in a July 31 statement on its website. The company doesn’t plan to restructure the 2015 Eurobonds and will meet its obligations, Chief Financial Officer Vsevolod Starukhin said yesterday.

Military Conflict

“If the situation in Ukraine stabilizes and international financial markets reopen, DTEK will consider options to make new public offerings,” he said in response to e-mailed questions. “Until then DTEK will use other sources to finance its activities.”

Metinvest will meet payments on its 2015 and 2018 Eurobonds with cash or additional borrowing and would only consider debt restructuring in an “extreme case,” Chief Executive Officer Yuriy Ryzhenkov told journalists today in Kiev.

The hryvnia has depreciated 34 percent against the dollar this year, the second-worst slump among all currencies tracked by Bloomberg.

“Everything depends on how the military conflict will develop,” Concorde’s Parashchiy said. “If the situation stabilizes in the next half a year, this could also help Ukrainian companies’ refinance their bonds.”

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