The international rating agency Fitch Ratings confirmed the long-term issuer default ratings (IDR) of the MHP agricultural holding in foreign and national currencies at the CC level, the company's senior unsecured rating was confirmed at the C level with an asset recovery rating at the RR5 level. This is reported by Business.Censor with a link to Interfax-Ukraine.
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< p>“The confirmation of MHP's ratings reflects our view that even after the partial repurchase of bonds due in 2024, credit risk remains high. MHP continues to face serious operational disruptions due to the Russian invasion of Ukraine, the company’s main production and supply region, as well as high refinancing and liquidity risks, which together lead to a high probability of default,” the agency said in a statement.< /p>
The ratings assume that MHP will continue to be able to refinance existing short-term credit lines for its operating needs, while access to new financing is likely to remain limited in the near future.
Fitch recalled that MHP has been operating since September 2023 to January 2024 partially repaid $289 million of the $500 million Eurobond with a rate of 7.75% due in May 2024 thanks to a new $400 million credit line provided by three organizations and development financial institutions.
Fitch does not view the repurchase as an exchange of distressed debt, despite the fact that the price was below par, since the exchange was conducted with the voluntary participation of investors without any signs of coercion.
The repurchase improved MHP's liability management by reducing refinancing requirements , but refinancing risk remains high.
According to Fitch estimates, the available balance of $400 million at the end of 2023 and the expected moderate generation of free cash flow (FCF) in 2024 will allow the agricultural holding to repay the remaining outstanding bonds by amount of $211 million.
It is clarified that by the end of last year, about 80% of funds were kept abroad, and only 50% of the enterprise’s export income was subject to regulation.
Given the recent support received by MHP from banks, and also the fact that most of it credit lines were refinanced, the agency believes that the company will maintain access to these loans to ensure the continuity of its operations until 2026.
The disruption to operations impacted profitability: Fitch estimates that MHP's EBITDA fell to $517 million in 2023 from $544 million in 2022, as its pricing structure only partially offset lower sales volumes, higher logistics, utilities and personnel costs, and impact of hryvnia devaluation
“We expect a moderate decline in commodity prices on international markets in 2024, which, together with our cautious sales volume estimates, will lead to a decline in EBITDA margin to 16.7% in 2024 with a limited recovery profits by 2026,” the agency noted.
Fitch's key assumptions are a 2.8% decline in revenue in 2024 due to normalization of prices compared to 13% growth in 2023, EBITDA margin of about 17% in 2024-2026 compared to a projected 17.3% in 2023 logistics and personnel costs, capex of $160 million per year for 2024-2026 compared to a projected $180 million in 2023, and no dividends or mergers and acquisitions until 2026.
Recall
The Ministry of Finance wrote that the MHP agricultural holding purchased ahead of schedule for 95% of the par value of Eurobonds worth $138 million with maturity in May 2024.
MHP is the leading producer of chicken in Ukraine. The holding controls all stages of chicken production: from the cultivation of grains and oilseeds, feed production to the production of hatching eggs and livestock rearing, processing, marketing, distribution and sale of poultry meat.
Owner – Yuriy Kosyuk, total number of employees – 30 thousand. MHP trademarks – “Nasha Ryaba”, “Legko”, “Bashchinsky”.
