News: State-owned Ukreximbank issued a consent solicitation with respect to its $750m 8.375% LPNs maturing on Apr. 27, 2015, requesting to extend the maturity date for three months to July 27. The deadline for voting by bondholders was set for Apr. 9, with a meeting to approve the results scheduled for Apr. 13 (in the event that an adjourned meeting needed to be convened, the voting deadline was set for Apr. 23 and meeting date for Apr. 27).
According to Ukreximbank, the purpose of the short-term maturity extension is to allow the issuer to negotiate a long-term solution with bondholders pursuant to targets set in the framework of the IMF’s $17.5bn Extended Fund Facility (EFF) for Ukraine. Ukreximbank said that should the maturity extension request be rejected, it would be at risk of being unable to repay the bond as such payment may be deemed to contravene the terms of the EFF. The bank further said a default on the 2015 bond was likely to lead to a cross default on its other indebtedness, resulting in significant cash outflows and potentially leading to the imposition of temporary administration on the bank by the NBU. (Bank)
Dragon view: Ukreximbank is facing difficult negotiations with bondholders, who may require a sweetener in the form of a consent fee or guarantees that no sizable haircut will be imposed. We think a compromise will eventually be reached as neither the bank nor the bondholders are interested in letting an outright default happen. EXIMUK 15s are currently quoted at 47.0/49.0 (approaching EXIMUK 18s) and are likely to slip from these levels as the latest announcement implies a less favorable scenario and time constraints for properly negotiating the restructuring terms.
Separately, news came out this morning that the government appointed Lazard Freres, its debt restructuring adviser, to also advise on restructuring the debts of quasi-sovereign issuers including Ukreximbank Oschadbank, Ukzaliznytsia and the City of Kyiv. As long as this may suggest pooling the sovereign and quasi-sovereign issuers under one restructuring umbrella, the news may be taken negatively in view of the market’s earlier assumption of higher recovery values for quasi-sovereign bonds compared to the sovereign.
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