Not chicken feed
A US$500m seven-year corporate bond wouldn’t ordinarily grab headlines but what Ukrainian poultry producer MHP achieved with its transaction in April was far from ordinary.
Like many Ukrainian entities, MHP’s business has been through the wringer since Russia’s annexation of Crimea. The company only returned to net profit in 2016, when it made US$69m after net losses of US$126m in 2015 and US$412m in 2014.
In the capital markets an outstanding April 2020 note issue was yielding more than 20% on the bid side in February 2015. At the time its credit ratings were languishing in Triple C territory.
To return to the bond markets just two years later was an achievement in itself but to do so by coming about 100bp through the sovereign’s curve was nothing short of remarkable.
One big thing in MHP’s favour was that despite all the hardships, and unlike other corporates from Ukraine, it did not undertake a debt restructuring and continued to service its debt.
MHP (rated B/B–) was not quite the first Ukrainian corporate to issue as a standalone in the international markets since the Russia crisis.
That honour went to Kernel, an agribusiness, which issued in January. But Kernel is much less reliant on the domestic economy and much less prone to Ukraine country risk. That deal also came about 60bp back of the sovereign.
MHP made its intentions clear from the start, announcing initial price thoughts on a May 2024 bond in the low 8% range, which at the tight end was already 75bp through the sovereign.
Demand for MHP’s deal peaked at US$2bn, which enabled the leads to ratchet in pricing to initial guidance of 8% area and then to a final level of 7.75%, the tight end of the final guidance range.
That 7.75% coupon was the lowest-ever for a corporate issuer from Ukraine, with the yield just 24bp back of where the company’s outstanding 2020s were trading in the secondary market.
Moreover, the trade had the highest-ever discount to the sovereign curve for an issuer from the CEEMEA region. Ukraine’s September 2024s were quoted at a bid yield of 8.79% but soon rallied by more than 50bp thanks to MHP’s trade.
Some bankers argued that the sovereign’s curve was trading artificially wide at the time, partly for technical reasons. But even so, that doesn’t take away from MHP’s achievement, especially as there were doubts about Ukraine’s broader economic story and reform process. The sovereign eventually returned to the market five months later.
The deal also helped improve MHP’s credit profile, with S&P upgrading the company by one notch to Single B in June and Fitch to the same rating in September. The notes had already been assigned a Single B rating from S&P ahead of the corporate upgrade.
ING and JP Morgan were the lead managers on the transaction, which also included a tender offer for the company’s April 2020s.
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