20180711-法国巴黎银行-KAZNMH_tender_and_solicitation_–_not_all_that_it_seems_7页_235kb

Summary of KAZNMH Tender and Solicitation Analysis

Core Content

Kazagro, a state-owned agricultural lender in Kazakhstan, has announced a tender and consent solicitation for its KAZNMH €3.255% 19 notes and KAZNMH $4.625% 23 notes. The move aims to relax an Incurrence Covenant and reduce hard currency debt, facilitating additional long-term funding in the local market to support its role as the primary lender to the agricultural sector, as outlined in the government's Development of the Agriculture Sector for 2017-2021 program.

Key Details of the Tender and Consent Solicitation

• Tender and Consent for 2019 Notes:

  • Kazagro offers a tender price of €101.5 for up to €500mn in notes.
  • A 1% early tender premium is available for bondholders tendering before 19 July 2023 (London time).
  • A 0.5% consent fee is offered to those who consent to changes, regardless of whether they tender.
  • The consent fee is conditional on the passing of the 2023 Resolution.
  • The tender deadline is 3 August 2023 (10am London time).
  • The results announcement is scheduled for 7 August 2023.
  • The settlement date is 10 August 2023.

• Consent for 2023 Notes:

  • A 1.5% consent fee is offered to bondholders who consent to changes, provided the 2023 Resolution is passed.

Market Reaction and Analysis

• The market reacted positively to the announcement, but the move is not as creditor-friendly as it appears.
• The 2019 tender is expected to have a high uptake due to the attractive tender price and early premium.
• The 2023 bonds show some positive price movement, with a tightening of around 30bp to the KAZAKS $3.875% 24.
• Despite the attractive valuations (3x the Sovereign spread), the probability of the 2023 Resolution passing is a key determinant of price momentum.
• The probability of the 2023 Resolution passing is estimated to be nearly 70% based on current pricing.
• The positive price momentum is expected to be limited in the near term due to uncertainty around the Resolution.

Financial Impact of the Covenant Relaxation

• The proposed relaxation of the total assets/equity covenant from 5 to 8 will allow Kazagro to incur KTZ850bn / $2.5bn in additional debt, pro-forma 2017 results.
• This adds to the existing debt stock of KZT792bn / $2.4bn as of the end of 2017.
• The Government's unwillingness to contribute extra equity is seen as a mixed signal, indicating potential reliance on other funding sources.

Funding and Implications

• The 2019 tender is expected to be funded by the Government, likely through bridge financing.
• A reduction in hard currency debt for a domestic lender is considered a medium-term positive.
• The covenant relaxation is viewed as significant, but the related consent fee is considered moderate.

Key Dates

• Early participation deadline: 19 July 2023 (London time)
• Tender expiration deadline: 3 August 2023 (10am London time)
• Meeting and results announcement: 7 August 2023
• Settlement date: 10 August 2023

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