Тематические обзоры ITI Capital

Тематические обзоры ITI Capital

Phosagro: participation in initial Eurobonds placement looks attractive

Olga Nikolaeva

23.01.2020

Since January 13, Phosagro (Baa3/BBB-/BBB-) has been holding meetings with investors, as it is seeking to place an indicative volume of 5Y USD Eurobonds. The book was closed on Wednesday, 15.01.2020. The guidance recently announced by the placement organizers is 3.375% per annum, which looks attractive, according to our estimates, and implies a 1.5% price upside in the secondary market. The new issue will be primarily intended to refinance short-term commercial loans (up to $350 mln) and to partially buy out Phosagro 21 (up to $150 mln out of outstanding $500 mln).

Phosagro is the largest phosphate-based fertilizer producer in Europe. Its main beneficiaries are the Guriev family (48.48%) and Vladimir Litvinenko (20.98%). According to IFRS 9M19, the net debt/EBITDA ratio was 1.5x (compared to 1.8x at the beginning of 2019).

Therefore, the fair yield of the new five-year issue approximately stands at 3-3.1% per annum. This yield corresponds to a 130 bps z-spread, an average for corporate issuers in the comparable rating group. Therefore, we recommend participating in the placement at the announced yield indicator level of YTM 3.375%. The placement of new bonds will have a positive impact on Phosagro’s credit profile, as it will contribute to reducing cost of borrowing and optimizing payment schedule.

Phosagro

ITI Capital Ltd. (hereinafter, the »Company») is not responsible for and does not give any warranties in connection with the transfer of marketing materials. This marketing document is for information purposes only. Any information in this document is based on data obtained from sources believed by the Company to be reliable, but no representations, guarantees or warranties are made by the Company with regard to the accuracy, completeness or suitability of the data. The information contained herein does not constitute the provision of investment advice. It is not intended to be nor should it be construed as an offer or solicitation to acquire, or dispose of, any of the financial instruments and/or securities mentioned in this document and will not form the basis or a part of any contract or offer.

Neither the Company, nor its affiliates, principals, directors, employees or agents accept any liability for any direct or consequential loss arising from any use of this marketing document and any accompanying materials. Investors should make their own investment decisions using their own independent advisors, as they believe necessary and based upon their specific financial situations and investment objectives when investing. This material is not intended for the use of Private Customers as that term is defined under the Financial Services and Markets Act 2000 in the United Kingdom. This material has been approved for publication in the United Kingdom and European Union by ITI Capital Limited, authorised and regulated by the Financial Services Authority and a member firm of the London Stock Exchange.

Olga Nikolaeva,
Senior Fixed Income Analys

Petropavlovsk eurobonds still look appealing

Olga Nikolaeva

23.01.2020

We maintain our Petropavlovsk 22 Eurobonds (YTM6.1%) idea despite the notes reaching our 104.5% target. We raise our short-term price growth estimate to 106% amid strong global demand for risk as well as ongoing optimization of the company’s credit profile. The next trigger for further positive revaluation may be publication of Q419 operating results scheduled for Thursday, 23.01.2020.

Recently, the issuer’s credit profile went through some additional changes:

  • Pressure Oxidation facility (‘POX Hub’) launched in late 2018 keeps ramping up production, processing both own and third-party raw materials. Concentrate offtake contracts have been signed with companies from Russia (Polyus) and Kazakhstan. The total concentrate volume purchased from third parties in 2019 will stand at 38,000 tonnes. The management is actively working on new supply contracts. The 2020 target is 130,000 tonnes
  • Deleveraging is going smoothly. As of 2019, the net debt/EBITDA ratio fell to 2.9x against 4x in 2018, according to the management’s estimates. Petropavlovsk is seeking to reduce the leverage to 2x (by net debt/EBITDA) within the next two years. Reducing investments after successful launch of several major projects and increasing operational performance amid persistent favourable price environment will contribute to this goal
  • The company is still seeking to sell a stake in IRC (31.1%). At the same time, the subsidiary’s operational performance has recently increased, allowing IRC to service its obligations on its own. Therefore, Petropavlovsk’s shareholders will consider a potential transaction only if it brings them additional speculative profit. Deconsolidation of IRC will improve the rating agencies’ assessment of Petropavlovsk’s credit quality as it will reduce the company’s total debt (currently, the IRC loan guarantee overstates total debt under the rating agencies’ methodology)
  • Petropavlovsk has significantly improved its corporate governance. The company has formed a new investor relations team and enhanced information transparency
  • The issuer is taking a number of steps to increase shares’ liquidity. In particular, shareholders structure has recently undergone changes. Sothic has reduced its share in the equity capital from 9.36% to 0.54%. Abu Dhabi sovereign fund (ADIA) bought a stake in the company. Its share in recent months has varied from 4.5% to 2.91%. Moreover, Petropavlovsk is considering a listing on MICEX

Against this backdrop, we expect positive rating with respect to Petropavlovsk soon. In 2H19 S&P and Fitch already assigned «positive» outlook to the company. Thus, if upcoming earnings results for 2019 show further strengthening of the company’s financial profile, they may be followed by a rating upgrade to «B». This will certainly have a positive impact on market participants’ risk perception. Thus, we expect that positive revaluation of Petropavlovsk 22 will continue. Our new price target is 106%.

Petropavlovsk key financial and operational performance 

Petropavlovsk
Petropavlovsk

Olga Nikolaeva,
Senior Fixed Income Analyst

Основные виды деятельности: Работа на финансовых рынках Консультирование и сопровождение в работе на финансовых рынках Юридические услуги, связанные с регистрацией, перерегистрацией, ликвидацией российских юридических лиц Консультирование в сфере кредитования и защиты прав заёмщика Информационные услуги связанные с ведением бизнеса