25 Feb 2020 CEEMEA Biannual Magazine
‘Forum Shopping’ & CEEMEA corporates
OP-ED: Lebanon’s future TULLOW facing a disappointing OIL year 2
Contents
Primary A green path to good governance in emerging markets? 04 Secondary Africa bull run to continue into 2020 05 Tullow Oil: A disappointing year 07 Restructuring Nostrum faces down turbulent 2019 10 Republic of Congo: Glencore and Trafigura seek financial advisors for debt negotiations 12 Features African sovereigns boost borrowing with innovative credit enhancement measures 14 Uzbekistan begins a long journey of reform 16 Scoop Radar A selection of stories broken by Debtwire’s CEEMEA team ahead of any other news publication 18 Legal New DIFC insolvency law at cutting edge of global legal practice 22 Legal Case Profile: Ukraine 24 Restructuring Database ‘Forum Shopping’ and its appeal to CEEMEA corporates 26 Shareholder Profile Shareholder Profile: Ihor Kolomoisky 28 Op-Ed Lebanon hangs by a thread 31 CEEMEA Credit Research Cell C’s recapitalisation efforts ongoing 33 NMC Healthcare: Muddy Waters Report clouds positive 1H19 results 37 3
Elias Lambrianos Managing Editor
Welcome
The assassination of a prominent Iranian general; a far- Meanwhile, the hangover from Turkey’s currency crisis fetched peace plan for Jerusalem; a mounting financial is far from over. Large-sized debt reorganisations are crisis in Beirut; confirmation of Brexit blowing a hole in set to remain on the cards in 2020, although whether the EU project. The year could have had a better start. secondary market trades at a discount become a feature of the market remains to be seen. But the outbreak of a virus in Hubei quickly overshadowed other global events. Fear the novel Primary issuance continued apace in 2019. The coronavirus could reach pandemic levels prompted MENAT region topped issuance of bonds and loans, a flight for safety in the credit markets, with sellers accounting for 55% and 59% of total CEEMEA volumes of Russian and Middle Eastern credit, as charted in respectively, according to Debtwire Par. Debtwire CEEMEA’s weekly market comments. With low or negative yields in the US and Europe With so much happening, it’s been a challenge to find tightening credit spreads in emerging markets, Gulf time to contemplate the past year. issuers were in a prime position to tap the bond market – despite omnipresent geopolitical risk. It was full steam ahead for Debtwire CEEMEA’s sovereign coverage in 2019, with Lebanon’s economic But there are two sides to every trade. Last year’s crisis thrusting the nation into the limelight. The victim was the syndicated loan banker, with MENAT loan Mediterranean country was far from the only actor on volumes down some 27% year-on-year in 2019. the distressed sovereign stage – with Mozambique, Zambia and the Democratic Republic of Congo all Elsewhere in CEEMEA, despite ongoing Russia providing ample copy for headline writers. sanctions continuing to hamper debt-raising efforts in the country, a spate of bond placements from debut At the other end of the spectrum, Ukraine, just four and rare issuers from the CIS region offered plenty of years after a painful debt reorganisation, enjoyed a alternative destinations for investors to put their money remarkable rally. Its GDP-linked warrants soaring to to work. par and beyond from around the 30c mark post- restructuring. Sub-Saharan African markets remain dominated by increasingly sophisticated sovereign issuers, that – Our wider restructuring team was equally busy last year, having already stepped into the international issuance unravelling corporate failures and reporting on the market – are now seeking to diversify their funding latest negotiations between creditor and company. bases with syndicated loans, new currencies, and utilising novel credit wraps form the World Bank and A slowdown in construction and real estate in the trade insurance agencies. UAE ensured a steady stream of newly distressed candidates from the region, while the arrival of new The inaugural issue of the DEBTWIRE CEEMEA bankruptcy regimes in the UAE, Bahrain and Saudi MAGAZINE provides but a glimpse into the array of Arabia kindled optimism that several long-in-the-works scoops generated and situations covered by our restructuring deals may finally reach fruition in the Gulf. editorial and analytics team. 4
A green path to good governance in emerging markets?
PRIMARY David Graves – Deputy Editor
It is a widely accepted truism that corporate governance Issuers of green bonds are more frequently seeking standards in developing markets lag behind those in both this ‘second party opinion’ and an ESG the U.S. and Western Europe. Think back over the major rating, according to a spokesperson for research emerging market corporate restructurings of recent firm Sustainalytics, which provided both for DTEK years; in nearly every case, a serious governance failure Renewables. While investors with a specific ESG either caused or contributed to the crisis. mandate require the sort of reassurance a rating provides, conventional emerging market investors are An accounting scandal brought supermarket chain gradually coming to appreciate the benefits too. Agrokor, Croatia’s largest employer, to its knees. Endemic graft laid Brazilian construction behemoth Odebrecht An ESG rating offers hard evidence of whether a low. In South Africa, a black hole in the balance sheet company’s management is thinking for the long-term or rendered retail giant Steinhoff’s equity virtually worthless. just ahead to the next quarter. As the ESG movement These sins are not unique to the emerging markets. gains traction, investors will reward those that actively demonstrate their sustainability and governance However, the risk of a serious lapse in governance is, to credentials with lower interest rates and higher a far greater degree than in developed markets, simply valuations. accepted as part of the ordinary course of business As an oligarch-owned corporate based in Ukraine, Ukraine’s first issuance of a green bond came earlier currently ranked 120 out of 180 countries on the in November, as solar and wind farm operator DTEK Corruption Perception Index, DTEK Renewables may Renewables tapped the market for a five-year €325m seem an unlikely candidate to pioneer such governance note. practices. But it is exactly these types of businesses – based in high-risk jurisdictions or with controversial Green bonds work just like any other bond, except shareholders – that stand to gain most by embracing proceeds are allotted to environmentally sustainable these principles. projects. Quite aside from the environmental gains, the role sustainable finance plays in strengthening Of course, the green finance route is not for everyone. corporate governance is becoming increasingly For one thing, not all companies have eligible green apparent. projects to finance. There is nothing, however, preventing emerging market issuers from adopting the Investors can take comfort in the fact that funds are good governance practices that accompany it. earmarked for specific, pre-approved, projects – monitored over the life of the debt – rather than simply But state electricity company Eskom, drowning under disappearing into the company coffers under the guise $30bn of debt, desperately needs funds. Blighted by of “general corporate purposes”. years of corruption, it also desperately needs to regain investor trust. Incorporating sustainable finance into its More importantly, green bonds fit naturally into the funding mix, which would also necessitate making a firm broader Environmental, Social and Governance (ESG) commitment to high governance standards, could help agenda. Not only did DTEK Renewables commission to achieve both. a ‘second party opinion’ regarding the eligibility of its projects for green financing, it also licensed an Green finance is not a panacea and issuers of green overarching ESG rating – not dissimilar to a credit rating bonds are not immune from default. Two of most active for good corporate behaviour. developed market issuers – high-yield corporates 5
Abengoa and Senvion – ended up in insolvency While issuance of green bonds from emerging market proceedings. As always, credit analysts have their work corporates remains relatively scarce, volumes are cut out for them. expanding fast. According to the Climate Bonds Initiative, EM non-financial corporates raised $12.93bn But anything that encourages a closer alignment worth of green bonds in 9M19, up from $4.5bn in the between emerging market and developed market same period last year. Further growth in the industry is corporate governance standards is a step in the right to be warmly welcomed. direction.
An ESG rating offers hard evidence of whether a company’s management is thinking for the long-term or just ahead to the next quarter. 6
Africa bull run to continue into 2020
SECONDARY Michael Ogunleye – Assistant Editor
Africa’s unrelenting bull run has shown no signs of Fed tightening.” letting up and may still have legs going into 2020. Emerging Market (EM) bonds have rebounded strongly So what should the market expect as we approach the in 2019, with both hard currency and local indexes new year? More of the same, according to those polled. returning double digits last year. The Fed and ECB are not expected to raise interest rates next year, which should encourage further deal Favourable external factors contributed massively to flow. the EM rally, as central banks pursued a more dovish approach to interest rates. Several issuers rushed Even though recession fears have eased, the global to take advantage of these conditions, with the likes environment remains challenging. Low growth and of Ghana, Ivory Coast and Kenya among others falling industrial production should keep rates at record printing about USD 25bn worth of Eurobonds in 2019, low levels. according Ed Hoyle, vice president of Standard Bank’s DCM syndicate. “As Developed Market (DM) yields remain low, we’ll continue to see a trickle of DM investors into EM “This year’s African Eurobond volumes are in line with territory, which they never would have touched last year’s, showing they have stabilised after several otherwise,” said a London-based buysider. years of strong growth in the region,” Hoyle said. “We’ve also seen a very similar split in issuer type, with “They’ll have to start asking questions - should I buy sovereigns making up close to 65% of total issuance this single B-rated European company that hasn’t had a and the rest being made up of supra-nationals and positive cash flow in two years for seven-percent yield, some corporates and banks.” or a similarly rated Ivory Coast euro-denominated bond for 6.5%? Bearing in mind they have the IMF behind Ghana, for instance, was the standout issuer in 2019, them, stellar GDP growth rates, etc. So, this shift will having sold a USD 3bn multi-tranche Eurobond in both support primary demand and secondary pricing in March. The USD 1bn 8.950% 2051 tranche, which has a EM.” weighted average life of 31 years, is the longest dated note out of sub-Saharan Africa. Sovereigns will continue to be at the forefront of issuance in 2020, according to the sources. Nigeria, for Unsurprisingly, the largest deal of the year in the instance, will return to the bond market in 2020, Uche region was placed by South Africa. The sovereign Orji, managing director and chief executive officer of issued a USD 5bn dual-tranche bond maturing in 2029 Nigeria’s Sovereign Investment Authority exclusively and 2049, as reported. told Debtwire.
“I think the global backdrop is still favorable for high The country decided against selling Eurobonds yield debt,” said Omotola Abimbola, a senior economist this year, opting instead to prioritise borrowing from at Chapel Hill Denham in Lagos. concessional lenders like the AfDB and the World Bank, but is set to make a return to the Eurobond market next “Largely favorable external financing conditions year. contributed in large part to the outperformance, considering the dovish policy tilts of key central “Nigeria is more of a reform story,” said a portfolio banks. But I think the assets also entered the year manager. “Its growth is considerably lower that most undervalued given the risk aversion seen in the later sub-Saharan African countries. It’s still struggling with part of 2018 following the escalation of trade wars and tax collections and overreliance on oil. But ultimately 7
its debt is still very low. It also has a decent current account, so if they do come, I expect there to be plenty of interest there.”
An Accra-based buysider agreed, adding that neighbouring Ghana could also tap the market again in 2020. The country exited a three-year IMF programme earlier this year, which has led some investors to believe the nation could return to the days of fiscal flagrance. The buysider, however, remained optimistic the country will show some restraint.
Ghana’s sale of a USD 3bn Eurobond was devoured by Highlights from 2019 in Africa investors in March. The success of the issue, which was six times oversubscribed, is indicative that investors still Investors optimistic on Ghana as IMF programme believe in the country, he said. ends but fears of fiscal flagrance remain
“I think a lot would depend on the prevailing market South Africa’s Ramaphosa holds onto presidency, conditions and the credit story sold to investors on but questions remain over the country’s short-term the roadshow,” said Courage Martey, an economist at prospects Databank Securities in Accra. Zimbabwe faces arrears clearance setback as riots “The success story of the 2019 Eurobond - with shake Harare respect to pricing and duration sold - at a time when the country was exiting the IMF-supported Extended Ivory Coast’s euro offering to reduce currency risk, Credit Facility program amidst sharp exchange rate but political risk creeps in deterioration is a reference point for me to keep an open mind,” said Martey. Standard Bank’s Tier 2 notes a welcome addition to dwindling South African bank bond universe Away from sovereigns, Nigerian banks have been a noticeable absentee from the market this year. Strong Gabon’s botched military coup divides opinion as internal liquidity has allowed many of these banks to investors weigh up country risk redeem Eurobonds as they came due. A strong local market has also meant a lot of these banks decided to Petra Diamonds working with Rothschild & Co on go down the local route to support their funding needs strategic review instead. First Quantum Minerals’ poison-pill shareholder Nevertheless, we may see one or two banks tap the plan negative for creditors market next year, according to Standard Bank’s Hoyle. Oil and gas companies in Nigeria may also issue, with Amni Petroleum currently exploring the possibility of a debut Eurobond in 2020.
As we pull closer to year-end, next year is expected to be a game of two halves, said the portfolio manager. There remains room from bid compression on certain high beta name, he continued, but investors should lower their expectation given the fact that yields are already quite low.
“US elections will play an important role in second half of next year. We also need to be wary of the idiosyncratic stories of Argentina and Lebanon, which should offer a cautionary tale for both investors and potential borrowers. 8
Tullow Oil: A disappointing year
SECONDARY Alex Dooler – Credit Markets Reporter
Tullow Oil, an Africa-focussed exploration and Tullow ended FY19 with an average production of only production company, ended 2019 on a disappointing an average of 86,700 bopd. note, with its USD 800m 7% 2025 senior unsecured bond price sinking by almost 21 points within three days Investors then faced another blow, when in January to an all-time low. 2020 the results of its Carapa-1 well offshore Guyana were announced. It had encountered only four metres Problems with its TEN and Jubilee fields in Ghana had of net oil pay, which was again below Tullow’s pre-drill caused its guidance for FY20 to fall to approximately estimates. 70,000 – 80,000 bopd at 9 December 2019, with the average over the next three years expected to The future of Tullow will now rest its ability to effectively be around 70,000 bopd. This was compared to the manage its oil assets, to refinance upcoming maturities 100,000 bopd expected by investors in each of FY20 and to manage liquidity. and FY21 before the guidance reduction.
Tullow Oil plc – Overview Presentation MAINTAINING A DIVERSIFIED CAPITAL STRUCTURE
Capital structure Year-end 2019 debt position • A balance of funding sources • Net debt ~$2.8bn • Revolving RBL provides long-term flexibility • Gearing ~2.0x (net debt:EBITDAX) • No material near-term maturities • Liquidity headroom of ~$1.1bn • First contractual debt repayment - $300m convertible bond in July 2021
1,200 Debt Maturity Profile (as of 31 December 2019) 1,000
800 650
600 300 $m 922 400 800
200 422 422 422 211 0 2020 2021 2022 2023 2024 2025 RBL Facilities - undrawn RBL Facilities - drawn Senior Notes Convertible Bonds
Slide 5
Source: Company January 2020 Presentation 9
Squeezed liquidity Tullow declined to comment on whether the size of the available RBL facility would decrease following Tullow’s liquidity will tighten in 2020, as its USD 2.45bn December’s oil reserves announcement, but a Reserve Based Lending (RBL) facility begins its USD spokesperson did confirm that its RBL capacity is tied 200m bi-annual amortisation in October 2020. to 2P reserves. The company will refinance its RBL facility in “due course”, the spokesperson continued. This comes amid concern that the size of the RBL facility could be downsized following a contraction The amortization and potential downsizing of credit in Tullow’s proven and probable (2P) oil reserves and lines, combined with the poor performance of its price assumptions in January 2020. TEN and Jubilee oil fields and a potentially reduced operational free cash flow for FY20, will likely apply Tullow had utilised some USD 1.34bn of its USD 2.45bn pressure to the company’s liquidity and its ability to RBL facility at end-FY19, leaving around USD 1.11bn of refinance the larger USD 650m 6.25% 2022 bonds, available liquidity under the facility for the oil and gas said market participants. explorer. But by end-FY21, Tullow will have amortised USD 633m of headroom under the RBL facility and will Tullow’s absolute level of 2P reserves fell from 280 also have had to repay its USD 300m 6.625% 2021 mmboe at FY18 to 245 mmboe at FY19, and the bond maturity. company also accounted for a USD 10 per barrel reduction in the long-term oil price assumption to USD Additionally, as is often the case under RBL facilities, 65 per barrel in its release in January 2020. the size of the loan facility available to draw down upon is tied to the company’s 2P reserves. As of end-1H19, Tullow reported cash and cash equivalents of USD 362.3m. It forecasts free cash flow
–
West Africa oil production
• • •
d’Ivoire
Source: Company January 2020 Presentation 10
of USD 350m in 2019 at an average oil price of USD “It is landlocked and very far away from the shore […] 64/bbl, reducing to around USD 150m in 2020 at an oil there is a lot of capex requirement to get to the shore price of USD 60/bbl. and in Uganda there is a lot more government uptake (i.e. taxes),” said a sell-side analyst. Farming-down assets Tullow’s bargaining power has also been weakened Tullow has appointed investment bank Natixis to sell following its announcement of reduced output and down its 50% stake in the 10BA, 10BB and 13T blocks board changes last week, a buysider said. onshore Kenya, reported Debtwire’s sister publication Mergermarket on 22 January 2020, citing three However, the potential upside for the asset is sources familiar with the situation. considerable, said a second sell-side analyst. The Ugandan development is forecast to produce 230,000 The farm down process has already been initiated, boepd gross at its peak. If Tullow reduced its stake to according to the Mergermarket report. 10%, it would still boost production by an additional 23,000 boepd and will have significantly reduced its Tullow had reiterated its commitment to farm-down capex requirements, a second analyst continued. assets in both Uganda and Kenya, in a statement to Debtwire in late December 2019. Although Tullow can likely repay its USD 300m 6.625% 2021 convertible note from internal resources, Tullow’s earlier 2017 farm-down agreement with development of the Kenyan and Ugandan assets will be Total and CNOOC, under which the international oil crucial in creating a convincing refinancing narrative for companies took a 21.57% interest in the license, was its longer-dated maturities, he continued. terminated earlier this year following the expiry of a Sale and Purchase Agreement (SPA). The future of Tullow now rests on its ability to effectively manage its oil assets, to refinance upcoming maturities The company can likely still get a deal with Total and and the recovery in oil prices. CNOOC for its Ugandan asset, noted a sell-side analyst, however the consideration Tullow can expect to receive may disappoint 11
Nostrum faces down turbulent 2019
RESTRUCTURING David Graves – Deputy Editor
Among the universe of CEEMEA corporate bond B- in late-November 2018. Nostrum’s London-listed issuers, few – if any – can have faced a more turbulent shares declined 40% between the release of its 3Q18 year than Nostrum Oil & Gas. While the Kazakhstan- financials and the end of the calendar year. focused oil and gas company has so far avoided a debt restructuring, the scarcity of large, liquid and distressed The deteriorating state of affairs was all the more capital structures in CEEMEA ensured Nostrum piqued startling because just one year earlier the company the interest of emerging market distressed investors. was riding high. By this point, a contentious shareholder issue had been put firmly in the past, following the As 2019 began, Nostrum was already on the backfoot. departure of Frank Monstrey as executive chairman in April 2017. Operational issues – namely the discovery of water in Nostrum’s wells in the Chinarevskoye field – put In litigation brought by Kazakh-lender BTA Bank, pressure on production guidance and S&P Global Monstrey – who at one time held as much as 28% of Ratings subsequently downgraded its credit rating to Nostrum’s shares – was accused of being a proxy for
9M 2019 Financial Results Snapshot of key figures
Production and sales volumes [kboepd] • FY 2019 guidance revised down following quicker 32.6 31.6 31.1 29.2 28.9 27.5 than expected decline YTD in producing reservoirs • New FY2019 guidance: • 28kboepd production after treatment • 27kboepd sales volumes
Q1 2019 H1 2019 9M 2019 Production after treatment Sales volumes
Operating costs under control [US$ / boe] • Continued focus on cost reduction 9.5 9.1 9.4 • Continue to generate stable cash flow from existing 4.4 4.1 4.2 production 3.4 3.4 3.5 • 9M 2019 OPCF3 = US$160.2m 1.7 1.7 1.7 Q1 2019 H1 2019 9M 2019 General & administrative1 Operating costs2 Transportation costs
Note: Per barrel equivalent metrics based on sales volume 1 General & administrative costs less depreciation and amortisation 2 Cost of sales less depreciation, depletion and amortisation 3 Net cash flows from operating activities 9M 2019 Financial Results 3
Source: Company 9M19 Presentation 12
Mukhtar Ablyazov, who defrauded BTA Bank during his be completed in 2018 and generate higher free cash time as chairman of the lender. BTA Bank eventually flows and no debt maturities until 2022. took over Monstrey’s shares as part of a confidential settlement, although Monstrey continued to deny the But Nostrum’s turnaround singularly failed to materialise. allegations. Commissioning of the GTU3 – with a total cost of more With Monstrey no longer in the picture, Nostrum went than USD 500m – faced repeated delays and was not on to issue two relatively well-received bonds in July completed until October 2019. Moreover, even when 2017 and February 2018 – a USD 725m 8% 2022 and completed, Nostrum has insufficient gas to match the a USD 400m 7% 2025 note – both of which garnered GTU3’s considerable 4.2bcm processing capacity, orderbooks of more than USD 1bn and were used to leaving it reliant on securing contracts with third-party refinance existing indebtedness. suppliers.
At that time, Nostrum enjoyed a reputation for Two prospective wells, which the company initially managing to refinance its way out of a tight spot, believed could prove lucrative, failed to yield market participants told Debtwire. Leverage – which commercial flows. Production guidance was reduced stood at 0.7x in 2013 – had spiked in the years following over the course of the year and is now expected to the 2014 oil price collapse and stood at 4x by the time average 28,587 boepd in 2019. the company sought to refinance its 2019-maturing bonds. Even more worryingly, Nostrum faces a natural decline rate of around 15% per year at its producing assets, The issuance of these bonds was supposed to say analysts. Having failed to find replacement sources herald a new chapter in the company’s deleveraging of oil in its 2019 drilling campaign, the company now strategy, with the Gas Treatment Unit 3 (GTU3) set to guides that it will produce just 20,000 boepd in 2020.
9M 2019 Financial Results Capital discipline
Balance sheet Hedging programme • US$91.3m1 cash and cash equivalents as at 30 • No hedges currently in place September 2019 • Company continues to assess market conditions and • Net debt of US$1,021.7m2 as at 30 September 2019 look at options for hedging the Group’s production • No debt maturities due until 2022
Cash flow generation Drilling programme
3 4 200.0 OPCF [US$m] EBITDA margin 75% • Wells 42 & 41 tested without commercial flows of 180.0 160.2 160.0 70% hydrocarbons 140.0 116.8 120.0 65% • Well 361 drilling complete and initial testing showed 100.0 80.0 63% 63% 60% no commercial flows of hydrocarbons 60.0 42.2 40.0 55% • Guidance for 2020 will be provided following internal 20.0 62% 0.0 50% analysis on the PM Lucas and Schlumberger reports Q1 2019 H1 2019 9M 2019 which should be concluded before year end
1 Cash and cash equivalents including current and non-current investments and excluding restricted cash 2 IFRS Long-term borrowings plus current portion of long-term borrowings less cash and cash equivalents 3 Net cash flows from operating activities 4 Profit before tax net of finance costs, foreign exchange loss/gain, ESOP, depreciation, interest income, other income and expenses 9M 2019 Financial Results 4
Source: Company 9M19 Presentation 13
In a bid to shore up liquidity, Nostrum has cancelled valuable downstream assets – namely the GTU3 – or all drilling plans for the year ahead, as it studies third- so the theory went. And such rumours may well have party reports into the geology of its licenses. Of course, provided a degree of support for the company’s bond the trade-off for preserving cash is that there is little price, an investor told Debtwire. By this stage, the notes prospect of the company replenishing its production in had traded down into the 40s. the foreseeable future. In mid-December 2019, CEO Kai-Uwe Kessel stepped In June 2019, Nostrum drafted in investment banking down from his role after 15 years with the company, heavyweight Goldman Sachs to assist in a strategic with no replacement found to date. Soon after, Nostrum review and to advise on a potential sale of the business. announced its sales process had elicited no binding As the months went by and the company remained offers – effectively scotching market hopes that a silent regarding a possible sale, market speculation white knight investor would ride to the rescue of bond filled the vacuum. investors.
Rumoured potential acquirers included state-owned As reported by Debtwire, the company intends to pay energy behemoth KazMunaiGas, as well as vehicles its upcoming coupon payments due in January and associated with Timur Kulibayev, the influential son-in- February. Even so, a long-anticipated restructuring now law of Kazakhstan’s president Nursultan Nazarbayev. appears to be a matter of when, not if. Kulibayev already holds a stake in Nostrum via his ownership, alongside Arvind Tiku and Lakshmi Mittal, of Mayfair Investments BV.
Despite the company’s ongoing geological challenges, prospective buyers could be tempted by Nostrum’s
Nostrum’s turnaround singularly failed to materialise. 14
Republic of Congo: Glencore and Trafigura seek financial advisors for debt negotiations
RESTRUCTURING Laura Gardner Cuesta – Senior Reporter
Glencore and Trafigura are seeking financial advisors trade finance facility as of September. However, the for the restructuring of their trade finance debt trader and a group of lenders backing the facility were facilities with the Societe Nationale des Petroles du reluctant to accept principal haircuts. As of May 2019, Congo (SNPC), the Republic of Congo’s state-owned Brazzaville’s total debt included USD 623m of oil- oil company, according to four sources familiar with the prepurchased debt owed to Glencore, according to the situation. IMF.
Both commodity traders are in advanced but Trafigura has also been unwilling to take accept a separate discussions with potential advisors, and reduction on principal or interest, after reaching a mandates could be awarded in the coming weeks. The preliminary agreement with SNPC in May to simply advisors will be expected to hammer out an elusive debt extend maturities. The preliminary agreement relates restructuring deal with SNPC after almost two years of to two oil-backed loans with margins close to 9%, as failed negotiations. reported. As of May 2019, Congo’s total debt included USD 819m of oil-prepurchase debt owed to Trafigura, The current stalemate stems from the level of haircuts according to the IMF. traders are expected to take for Congo to comply with debt-to-GDP requirements set out by the International Glencore and Trafigura’s advisory hire plans Monetary Fund (IMF), as reported. come ahead of an International Monetary Fund (IMF) executive board meeting tomorrow (17 January) to Under the USD 449m three-year ECF signed with the discuss the Republic of Congo’s Article IV Consultation, IMF in July 2019, Congo has to reduce its debt-to-GDP according to the board’s official calendar. No mention is ratio to 30% in net present value (NPV) terms by 2023. made of Congo’s USD 500m Extended Credit Facility Congo’s total public debt-to-GDP was close to 85.5% (ECF) with the IMF and the meeting is not expected as of May 2019, according to the IMF. This implied a to result in any further disbursements being approved, need for substantial debt relief from private creditors according to a source close to the IMF discussions. after Congo’s deal to restructure USD 2.5bn debt with China simply extended maturities with no meaningful Congo is also on the agenda at an invitation-only Paris haircuts on principal or interest. Club meeting tomorrow alongside other distressed sovereign debt situations such as Argentina, Venezuela, Congo did not receive the USD 45m loan from the IMF Zambia, Sudan and Zimbabwe, according to a copy of originally planned for December, because of the lack the agenda seen by Debtwire. As of May 2019, Congo’s of agreement between SNPC and its trade finance post-HIPC official arrears to Paris Club bilateral creditors creditors, which include Glencore, Trafigura and Orion amounted to USD 129.6m and other official bilateral Oil, as reported. As of May 2019, Congo’s gross public creditors to USD 31.2m. debt included USD 3.54bn owed to private creditors, including USD 1.641bn in oil pre-purchase debt, SNPC’s debt also includes a USD 580m facility according to the IMF. Congo did, however, receive other (original principal) to prepay oil cargoes taken out with DFI funds scheduled for December, notably EUR 187m Congolese oil trader Orion Oil. Tranches were set to from the African Development Bank to support reforms mature in December 2019 and February 2020 and were in the country. provided by United Capital, UBA Nigeria, Afreximbank and BGFI Capital. The margin on both is Libor+ 800bps, But getting traders to agree to haircuts has so far been according to Debtwire Par. As of May 2019, Congo’s total difficult. After Glencore’s threat of legal action against debt included USD 199m of oil-prepurchase debt owed SNPC early last year, both parties eventually agreed to to Orion Oil, according to the IMF. extend maturities on a USD 740m (original principal) 15
The national oil company also raised a loan of about Both official and commercial creditors originally USD 900m in 2014. That loan, which had been set to announced their intention to restructure USD 9bn in mature in 2019, was partly a corporate deal and partly debt with Congo and SNPC in June 2018, as reported. a reserve-based lending (RBL) facility, as reported. The mandated lead arrangers on that facility were Congo’s USD 322m 6% 2029 bond (original size USD Attijariwafa Bank and the BGFI Bank group, Ecobank 477.79m) is not included in the restructuring talks, as Nigeria, Qatar National Bank and United Bank for Africa. reported. Eurobond amortisations are close to USD SNPC was in discussions to restructure the loan in 27m each year between 2020 and 2024, according to 2016 in the wake of the 2014 oil price cash. a Fitch Ratings report from 2019.
Congo is also facing a EUR 1.2bn claim (close to The Eurobond was restructured in 2007, when USD 7.5% of Congo’s GDP according to Fitch) from 2.3bn in London Club bank claims were exchanged for construction firm Commisimpex as part of a long- the USD 477.79m bond. running commercial dispute related to non-payment of contracts to perform public works and supply Both Glencore and Trafigura declined to comment. materials in the 1980s. The company secured a full and Lazard acts as financial advisor to the Republic of final arbitral award from the International Chamber of Congo and Cleary Gottlieb acts as its legal advisor. Commerce (Paris) in January 2013 (see full timeline of arbitration here), but its efforts to enforce this have so The Republic of Congo is rated B- by S&P Global far failed. Ratings, Caa2 by Moody’s and CCC by Fitch.
Republic of Congo: Selected Economic and Financial Indicators, 2017-22
2018 2019 2020 2021 2022
GDP at constant prices (annual % change) 1.60% 2.20% 4.60% 1.90% 0.00%
Consumer Prices (period averages – annual % 1.20% 1.90% 1.80% 2.60% 2.80% change)
Current account balance (% of GDP) 7.20% 8.00% 5.80% 1.20% -2.10%
Total public debt 87.10% 77.50% 70.50% 66.90% 62.50% (% of GDP)
External public debt (% of GDP) 61.30% 55.20% 52.70% 52.80% 51.50%
External public debt service (% of total government 24.60% 37.40% 32.20% 23.10% 19.10% revenue excluding grants)
Source: IMF, Note: 2020-2022 are projected forecasts 16
African sovereigns boost borrowing with innovative credit enhancement measures
SOVEREIGN Laura Gardner Cuesta – Senior Reporter
Africa’s funding requirements are well documented, with international loan paved the way for a debut Eurobond something between USD 130bn and USD 170bn needed months later. a year to finance infrastructure alone. The last decade has seen an explosion of African sovereigns taking on One of the key innovative features is that the multilateral commercial debt, as lower global yields push investors providing this type of insurance make use of the into riskier terrain in search of return. Eurobond issuance reinsurance available on the Lloyd’s market in London, has exploded in Africa, allowing Nigeria and Ghana to said Christopher Marks, head of emerging markets borrow upwards of 30-year money. Kenya has been able (EMEA) at MUFG, the lead arranger on the Benin to push tenors on sovereign loans to an unprecedented transaction. 10 years. Reinsurance allows ATI to reduce its own exposure This improved access to commercial debt has partly and issue larger guarantees to sovereign obligations made up for stagnating overseas development than would be possible without reinsurance, said assistance. But commercial borrowing costs are in the the multilateral’s acting Chief Executive Officer John high-single digits for many single-B African credits, and Lentaigne. This allows African sovereigns to benefit from the Eurobond market in particular remains volatile. ATI’s A-rating to borrow for cheaper and longer. As of FY19, ATI’s total portfolio was USD 6.45bn but ATI’s net African countries have for some time resorted to exposure was only USD 1.07bn, having reinsured the multilateral credit guarantees to lower these borrowing difference (USD 5.38bn, or around 83.4% of its portfolio). costs, notably from the World Bank. But the availability of guarantees from multilateral institutions is limited, Benin’s transaction was emulated by the governments and the process of getting them can be expensive and of Ivory Coast and Togo, which also signed similar lengthy because of structural considerations and the deals insured by ATI in 2019, arranged by MUFG and conditionality attached, a sovereign debt advisor said. distributed to institutional investors. Niger is set to become the next sovereign to do so with Deutsche This has boosted the development of more inventive Bank. State-owned enterprises have also been able credit enhancement measures, with African sovereign to harness these instruments, such as CI Energie, the borrowers harnessing tools available in the private Ivory Coast’s state-owned electricity company, with a insurance and reinsurance markets to cover events like EUR 300m loan led by Deutsche Bank in 2019, which non-payment or unilateral breach of contract. used the World Bank as first loss guarantor and ATI as second loss insurer and guarantor, a source close to the In a landmark transaction in 2018, the Government of situation said. Benin signed a 12-year EUR 260m loan paying a margin under 3.5%, underwritten by MUFG and distributed to European and Asian life insurance and pension fund institutional investors who had never lent to an African have been drawn out of their comfort zone thanks to sovereign before. this type of format. For example, Japan’s Dai-ichi Life Insurance Company, which made its first investment into Such terms and distribution were achieved thanks to a African infrastructure and social projects with its EUR novel insurance scheme provided by the African Trade 50m participation in the EUR 230m Ivory Coast loan last Insurance Agency (ATI) in addition to a 40% World Bank June. The loan was structured as a repackaged note, for principal guarantee. Benin used the proceeds to buy which ATI provided principal and interest payment cover. back more expensive and short-term domestic debt, “This multilateral insurance has created 10- and 12-year and this money in efficient form that didn’t previously exist for these countries,” said MUFG’s Marks. 17
Room for growth To take Togo’s example, although the all-in margin is close to 500bps over Libor, the insurer will have in While the benefits for African sovereigns are clear, the fact absorbed a large chunk of that margin, leaving depth of this market in Africa is yet to be developed. So financiers with something closer to 200bps, the first far, there are only a few multilaterals using reinsurance banker said. to amplify the reach of their guarantees, including ATI, the World Bank’s Multilateral Investment Guarantee This may suit yield-starved European and Asian pension Agency (MIGA) and the Islamic Corporation for the funds, but it means that only larger banks with lower Insurance of Investment and Export Credit (ICIEC). costs of funding can underwrite or participate, the first banker said. However, there is nothing preventing other development institutions, in particular regional ones willing to deploy These credit insurance deals have also had the effect their balance sheet strategically, from entering this of setting a very low precedent for the cost of financing market and covering credit facilities against events like for these countries, which may not be available in the non-payment, the sovereign debt advisor said. quantities they need, the first banker said.
The transaction size has so far been relatively modest, “If a commercial bank now tries to pitch a loan deal ranging from EUR 150m to EUR 250m compared with higher margins to one of these countries, they will to quantities over EUR 500m raised through most be more reluctant to accept it,” said the first banker. commercial avenues. “Unfortunately, African sovereigns cannot rely exclusively on institutional investors to meet their immense In terms of geographical expansion, these transactions financing needs. Perhaps, in time, a mid-range pricing have so far primarily taken place in Francophone ground can be reached between the purely commercial Africa, but the expectation is for such structures to be and the credit wrapped deals that have so far taken extended to other pan-African regions such as East place.” Africa, according to Lucy Konie, head of distribution and loan syndications at Standard Bank Group. As more As things stand, such blended finance instruments countries become members of multilaterals offering should be used as part of an investor diversification this type of insurance product, it is likely new joiners will strategy and a way to get additional liquidity outside seek their benefit. of the Eurobond space rather than to establish market access, the sovereign advisor said. “We are at the early stages of developing this market, and the hope is that more institutional investors can be Still, insurance instruments and wrapped financings by brought on board with this,” said MUFG’s Marks. multilaterals have unlocked fresh liquidity for African sovereigns, said Standard Bank’s Konie. ATI estimates Another tool in the toolbox they alone will support USD 2bn in additional flows in the next two years. And with financiers’ increased focus While some attempts have been made to distribute on environmental, social and corporate governance these loans among other banks, this avenue has not (ESG) issues, and borrowers’ desire to accommodate had much traction, according to two Africa-focused them, multilateral credit insurance can only stand to bankers. This is because the tenor proved too long benefit. and the margins too low for most commercial banks to participate, to the point it borders on concessional lending, they said. 18
Uzbekistan begins a long journey of reform
SOVEREIGN Alex Dooler – Credit Markets Reporter
Ministers in the Republic of Uzbekistan are unpicking Meanwhile, SOEs such as Uzbekistan Airways and some 30-years of dictatorial rule. As the country’s Uzbekistan Railways are being privatised in a bid to economy opens to the world, a credit boom has taken boost performance and reduce dependence on the off, spurring much-needed investment into education government. and infrastructure. The country’s future prosperity is not, however, guaranteed and depends on the success of As part of SOE reform, state-owned banks also face ambitious raft of reforms. change. There are 13 state-owned banks in Uzbekistan, which collectively control 54.9% of the sector’s assets. The new president, Shavkat Mirziyoyev, recently ended some 25-years of dictatorial rule in the country. State- State-owned banks currently receive a large portion of owned enterprises (SOEs) are set to be privatised, their funding from international financial institutions (IFIs) banking reform enacted and corruption obstructed. and, more recently, from the proceeds of Uzbekistan’s dual-tranche USD 500m 4.75% 2024 and USD 500m These are, however, only the first steps on a long journey 5.375% 2029 bond issuance earlier in 2019. of reform. Uzbekistan’s government must go further before investors feel completely comfortable with the legitimacy Around two thirds of the sovereign issuance was of its institutions and the stability of its economy. funnelled to the state-owned banks in order to stimulate cheap credit to the economy, according to press reports. A journey of reform The reliance on external funding, as opposed to customer It is 9pm in Uzbekistan’s capital, Tashkent, and the streets deposits, has allowed the state to exert a certain are quiet and restaurants largely empty. In contrast, civil degree of pressure on state-owned lenders, said senior service and government buildings are still alive and government officials. As a result, public lenders have been buzzing with activity. encouraged to lend to certain industries and companies that the government views as beneficial. “This is normal. We tend to work 12-hour days here,” one government official told Debtwire, as Uzbekistan’s But now state-owned banks are expected to reduce civil service works around-the-clock to implement direct lending at the behest of the government; switch to liberalisation at break-neck speed. market funding sources such as the local deposit market or local and international capital markets; and partially sell Such efforts have reaped rewards; the business their shares to foreign investors, a November 2019 report environment has evolved rapidly and the economy by RAExpert said. significantly liberalised. Reforms can be categorised into three main areas: currency and market liberalisation, SOE The move was demonstrated in November 2019, as privatisation and enforcement of the rule of law. Uzpromstroybank took a foray into the international bond markets. In 2017, the government lifted currency controls, which beforehand allowed two exchange rates to co-exist for The third pillar of reform relates to the enforcement of its Uzbek s’om (UZS) - one an official rate, the second a Uzbekistan’s rule of law. widely used black market rate. Corruption in Uzbekistan was described by Vahit Güneş, Now, with just one standardised exchange rate for the a Turkish businessman who claims to have been arrested s’om, the cost of foreign direct investment (FDI) into and tortured in the country in 2011, as a “cancer that had Uzbekistan has been reduced. Indeed, FDI has risen by spread everywhere”. some 268% since 2016. 19
Following the 2016 demise of Islam Karimov, Uzbekistan’s include corporate governance and takeovers, a consultant long-ruling leader, the issue of corruption is now more noted during a October 2019 conference in Tashkent. widely discussed, with one government official suggesting low pay and long hours for government workers were a “Takeover codes are missing in Uzbekistan, and this contributory factor. is essential to protect minority investors. Without a substantial set of takeover legislation, some big issues are Uzbekistan was ranked 158 out of 180 countries for its remaining” said the consultant. corruption in 2018, by Transparency International. This reflects an absent legislative framework to protect Things are beginning to change regarding Uzbekistan’s minority shareholders if an individual company or person legal framework to tackle corruption, starting with a acquires more than 50% of a company in Uzbekistan. simplification of its legal code for investors. Room for more debt? During the Karimov era, Uzbekistan had a substantial body of laws and regulations to protect the business and With the fervour of reform in Uzbekistan, a second investment community. But “the difficulties companies sovereign bond issuance was hinted at in October 2019 face fall under the enforcement and interpretation of by Deputy Prime Minister Jamshid Kuchkarov. these laws”, according to the US Department of State. With Uzbekistan’s debt-to-GDP levels at a modest 23.6% Uzbekistan is now creating a new single law, the Capital in 2018, the country has room to grow its debt level. The Markets Law, intended to strengthen the ability of Ministry of Finance last week proposed a debt ceiling regulator Capital Markets Development Agency (CMDA) of 50% of GDP, the country’s Deputy Finance Minister and to streamline the rules and regulations that govern Odilbek Isakov said. This limit includes both external and the country, said Atabek Nazirov, director at the CMDA. domestic debt.
One of the first laws enacted in the reform process was External debt stood at around 23.5% of GDP for 1H19, the Law on Combatting Corruption. Isakov confirmed. Domestic debt is a further 10%, but this includes money lent from the government to state-owned “Changes are now being implemented to improve public banks he said. administration, modernize procurement, and help courts run more efficiently,” said Christine Lagarde, president of With the economy expected to further grow, this will give the ECB, in a 2019 speech in Uzbekistan. the country further opportunity to grow its debt both in absolute terms and relative to the level of GDP. Just the beginning Looking to the future Uzbekistan needs to make improvements in three key areas if investors are to become comfortable putting It is often said that ‘where there is a will, there is a way’. money to work in the country, said the lawyer. Firstly, Uzbekistan has shown great intent to liberalise and open courts need to be reformed so judges feel comfortable its economy to the global markets. ruling in favour of investors. This includes the ability to overturn actions of the state. But more needs to be done before investors will be at ease with the former Soviet satellite state. A bloated and Currently, the Government of Uzbekistan can still veto overbearing government tainted by chronic corruption actions and overturn companies, according to the lawyer. and ineffective regulation can only stunt the economy. “The quality of judges in those courts is still below the quality that it needs to be,” he said. But in a world of negative yields, a US-China trade war and volatility in other markets, “Uzbekistan is highly Secondly, amid wide-scale corruption, better disclosure attractive”, Ayuna Nechaeva, head of Europe in primary of the ultimate owners of companies will be important to markets at the London Stock Exchange, said at a assure transparency. The wages of government workers, conference in Tashkent in November 2019. especially judges, will also need to increase by four-to-five times at least, he said, to ensure workers are not tempted Despite all the talk of bond issuances, regulatory by corruption. reform and investment inflows, one thing remains clear: Uzbekistan is charting a new history and its people are Thirdly, a regulatory framework needs to be extended to looking to a better future. 20 SCOOPSCOOP RADAR RADAR A selection of stories broken by Debtwire’s CEEMEA team ahead of any other news publication
PRIMARY - LOANS
Tanzania launches US dollar-denominated loan into syndication, TDB arranging
flydubai launches five-year USD 500m Islamic loan at L+ 160bps
PRIMARY – BONDS EuroChem in talks for international loan, also considering project financing Angola working with Standard Chartered on US dollar bond Sonangol’s USD 1bn loan pays margin of Libor+ 425bps
ChelPipe Group mandates banks for debut Eurobond Emirates Global Aluminium to close general syndication soon Georgian Oil and Gas Corporation considering new bond Meraas in the market for eight-year club loan with 275bps-290bps margin Qatar readies USD 2bn bond issue for 1Q19 Cocobod launches general syndication of USD 1.3bn PXF Lebanon sends out RFPs for USD 2bn bond, deadline end of September Dubai's ICD finalising six-year loan with 155bps margin:
CEZ Group sneds RFP for Eurobond Omantel seeking amend and extend on its five-year loan
Pearl Petroleum pulls bond deal as price thoughts Al Dhafra: banks prepare USD 1.3bn project finance as diverse bids go in
Commercial Bank of Qatar plans to issue 5-year Mozambique’s ENH to meet investors next week for USD benchmark bond next year 1.3bn Area 1 debt facility
Ardshinbank planning Eurobond placement Nigeria LNG to launch syndication for construction of Train 7 Uralkali considering US dollar bond Enlight Renewable Energy seeking approximately EUR Kenya hires banks for Eurobond 100m debt for 105MW Kosovo wind farm
Dar Al-Arkan seeks USD sukuk in 2019 Dubai Waste-to-Energy Project’s banks in credit stage
CPI Property Group readying debut green bond Slovak Road PPP's lenders tightening grip on issuance Macquarie-led sponsors
South Africa mandates banks for US dollar bond Saudi's The Red Sea Project to receive guarantees form PIF Morocco working with Natixis, JPMorgan and BNP Paribas on Eurobond with deal expected in November Saudi's REPDO extends Round II bid deadline to January; 2019 Category A fate uncertain
Amni plans up to USD 500m Eurobond in 2020, RCF on Qatar's Facility E IWPP request for proposals expected the cards to land by end of August 21
RESTRUCTURING & DISTRESSED AHAB's financial restructuring application gets green light Binladin Group set to seek advisor for up to USD 30bn restructuring Cell C creditor group hires Moelis to advise on restructuring; airtime collateral poses challenges Celsa Huta creditors working with Moelis as debt restructuring talks progress SOVEREIGN Gulf Marine Services creditors choose PwC as restructuring advisor Mozambique bondholder talks restart, gas-linked instrument could be dropped Gulf Marine Services hires Evercore to advise on capital raise Republic of Congo: SNPC and Glencore progress with restructuring talks Nostrum Oil & Gas initiates bondholder identification process Advisors circle Lebanon as November Eurobond maturity approaches, reform proposals fail to quell protests IMG Theme Park lenders seeking to hire restructuring advisor Sudan creditors to withdraw London filing interrupting SOL on 1980s loan if new government recognises debt Liquid Telecom owner Econet Group seeks advisor for debt restructuring South African Airways hires turnaround veteran as business rescue practitioner Bereket Enerji agrees 11-year debt extension; deal set to close by end-May Gabon holds non-deal roadshow, liability management expected next year Russian Standard bondholder group working with A1 to enforce share pledge LEGAL Etlik Hospital PPP plans to reprofile debt stack Mozambique: Privinvest arbitrating against government Gama Enerji appoints KPMG as financial advisor and SOEs in both ICC and SCC
Er-bakir in discussions with creditors for restructuring Privinvest and Safa to seek stay of proceedings in London against Mozambique in USD 2bn loan scandal Gama Holding works with Turkish Development Bank as case restructuring progress falters Litigation funders eyeing UAE NPL portfolios for asset ACICO Industries Company seeks advisor for balance recovery opportunities sheet review Qatar sues three banks for currency manipulations Limitless asking lenders for new money following claiming more than USD 40bn in damages December default Kazakhstan set to appeal against recent Stati arbitral Stanford Marine debt auction fails to find buyer award enforcement decision
Aabar bonds fall on auditors’ “adverse opinion”; cross Intercontinental Bank of Lebanon loan at the heart of default clause with international loan offers reassurance Orange-owned Korek Telecom scandal
Al Jaber: creditors to seek enforcement against related AHAB accepts 137 claims worth around USD 5.6bn, party balances contests 13 and asks Saad for USD 7bn
Aabar bonds offered with 2.5x leverage; TIBC chunk sells TIBC awarded USD 223.5m judgment against AHAB for north of four cents and interest piqued on JBF RAK - Market Snapshot 22
New DIFC insolvency law at cutting edge of global legal practice
LEGAL Asli Orbay-Graves – Legal Reporter
The Dubai International Financial Centre Low. This incorporation eases recognition of foreign (DIFC) enacted its new Insolvency Law on 30 May proceedings as well as access to the DIFC courts, 2019, introducing internationally utilised insolvency and which will assist with multi-jurisdictional cases, said restructuring tools to offshore DIFC jurisdiction. Cohen.
The new law has been warmly welcomed as a great A tool is only as good as its user step forward by legal advisors in the region. However, the law’s scope of applicability is still narrow, as it is As much as the law itself ticks all the boxes contextually, limited to the relatively small number of companies the scope of applicability is one concern raised by registered in the DIFC. two of the market participants. One slight caution would be about the law being limited to the stock of The new legislation is in line with international companies established under the DIFC, according to a insolvency standards and trends, and also reflects the Dubai-based lawyer. The new law is not drafted to be EU Insolvency Directive, said Adrian Cohen, partner at applicable to onshore [non-DIFC] companies, even if Clifford Chance LLP. the loan agreement itself is governed by the DIFC law, said Low. The previous insolvency law had been in place for 10 years, said Adrian Low, partner at law firm Clyde & Co’s There are 2,137 active companies registered with the Dubai office. The authorities in Dubai took Singapore as DIFC, according to its website. an example and developed a law which maintains [the jurisdiction’s] competitiveness, Low added. “This is a different approach than the English courts have taken, for example. The English courts have It introduces a new debtor-in-possession recognised the ability of EU based companies to (rehabilitation) regime, as well as administration restructure under an English scheme of arrangement proceedings, both of which provide for a moratorium, because their loan agreement was governed by English composition and cram-down, Cohen noted. This law. I don’t think this will be the case for the onshore new law gives debtors an opportunity to protect companies [in Dubai],” Low continued. enterprise value and to turn the situation around. Debtor-in possession-financing gives both debtor “In time we will see if the scope can be widened, and and administrator the opportunity to finance the to what extent the lawyers will argue to widen the business during the restructuring, he continued. applicability of the DIFC insolvency law to onshore companies”, added the Dubai-based lawyer. Another interesting development is the ability to investigate the wrongdoings of directors, managers Upgrading the toolbox and shareholders of a company as part of restructuring proceedings, according to Low. This is a very useful There is unlikely to be a wave of DIFC companies concept to make sure that the directors, managers and making insolvency applications after the enactment, shareholders are cooperating with the creditors, he the market participants agreed, because this is not the added. main purpose of the new law. Distress is rather limited within DIFC jurisdiction and the new law is aimed to Moreover, the UNCITRAL Model Law on Cross Border meet a developmental need, said Cohen. Insolvency is incorporated into the new legislation, with the purpose of making life as easy as possible Amendments introduced by the new law have the for cooperating on cross-border insolvencies, noted purpose of modernising proceedings rather than 23
promoting usage, said Low. The law is not being Enforcement proceedings in Dubai are straightforward, introduced because there is a demand for change and and there are Memorandums of Understanding with the existing laws have not been fit for purpose – in fact, local courts, according to Low. However, trying to use there are not that many distressed companies within the DIFC as a backdoor conduit would be harder since the jurisdiction of DIFC apart from Abraaj, as a current the local courts would hardly accept enforcing a DIFC high-profile exception. The aim has been to modernise judgment in such situation, he added. the law and to take it to a more global level, he added. At the level of recognition and enforcement, it will be The new law has an onshore/offshore dynamic and interesting to see the arguments that will be brought in this mix of jurisdictions will be interesting to see, said by the lawyers as to the applicability of the DIFC law, Cohen. The UAE has its own federal insolvency law, but said the Dubai-based lawyer. it is not used much, said Cohen. This new DIFC law may be a shot in the arm for the UAE in terms of developing Foreign investor point of view the country’s law, he added. There have been studies by the World Bank in relation There is an onshore bankruptcy law in place that was to Emerging Markets, according to Cohen. Decent enacted a couple of years ago, said Low. The onshore insolvency law, which is fit for purpose, is very important law has – so far – been little utilised, and it remains to from an international investor point of view. Investors be seen whether the new DIFC law will be different, he expect a predictable, efficient system in place, he noted. added.
There are some similar provisions in the UAE insolvency “A good insolvency regime is a last resort regime,” said law compared to the DIFC law. The onshore legislation Low. Creditors can work on consensual restructurings is improved, but it is still different from the DIFC knowing what the alternative is likely to mean in terms insolvency law, the Dubai-based lawyer added. of recoveries, he continued.
For example, the onshore regulation is more traditional For the onshore companies, creditors still appear to be with a court heavy-process, according to Low. willing to avoid going to court as there is uncertainty as to how the process will work, he noted. If examples Regional Trend can be seen in practice, it will give more confidence in the law. At the moment there are uncertainties as to the In terms of the regional market there has been an time and cost of any outcome, so it acts as a deterrent, upward trend in terms of restructuring activity - it is he said. slow but upward, said Cohen. There have been many new insolvency laws enacted in the region, including As the previous DIFC Insolvency Law had already in Saudi Arabia, Bahrain and Oman, he added. been in use, there is already confidence in how it will apply, and these new changes can be seen as further On the other hand, regionally, there is a different alternatives, Low added. Obviously, there is going to be inception about how to utilise the insolvency provisions, some uncertainty as to how the changes will work in said the Dubai-based lawyer. In the Middle East, the practice and only time will tell, Low continued. perception of insolvency is different than the rest of the world. We still haven’t seen people wanting to use It is still very early days to comment on how it will unfold – or actively using – the tools yet; how it will unfold in in practice, all the sources agreed. Time will allow us to practice remains to be seen, the lawyer continued. see how it works in practice, especially in the context of international proceedings, noted Cohen. Enforcement
As to the recognition and enforcement of a DIFC court decision, there is a protocol between jurisdictions, Cohen added. In principle, a DIFC judgment can be enforced onshore in the UAE, since the UAE federal law provides for this kind of enforcement. But practice can be a little uneven, noted Cohen. 24
Legal Case Profile: Ukraine
LEGAL Asli Orbay-Graves – Legal Reporter
As Ukraine finally appears to be moving past the On the due date, 21 December 2015, Ukraine failed economic crisis and debt restructuring that has to repay the Eurobonds based on the moratorium. characterised its recent history, the Supreme Court in Initially, the moratorium was set to expire on 1 July the UK is set to rule on the highly controversial so- 2016, however on 12 April 2016 the cabinet decided called “Russian bond” issuance – a decision that could to declare the moratorium indefinite. Due to the non- result in USD 3bn more liabilities being added to the payment, Russia brought the case before English courts government balance sheet. in February 2016.
Background Case-specific evaluation
On 24 December 2013, the Law Debenture Trust and The starting point of Ukraine’s defence is based on a Ukraine executed a trust deed and accordingly, the claim that the Eurobonds are not commercial debt, and notes were issued with a coupon of 5% and were due that the case was brought before the court for the sole on 21 December 2015. Russia was the sole subscriber. benefit of Russia. Ukraine claims extensive pressure was The trust deed was signed by the minister of finance of applied by the Russia forcing Ukraine to withdraw from Ukraine. the execution of an association agreement with the EU, and therefore Ukraine was indirectly forced into getting On the same day, Ukraine also executed an agency financial support from Russia. agreement with the trustee and Citibank London Branch. The trust deed was governed by English law Ukraine restructuring and the English courts had exclusive jurisdiction. Ukraine completed the debt restructuring of USD The notes issued were structured as standard 15bn of debt in November 2015. Under the agreement, Eurobonds, and were therefore tradable, and Ukraine creditors were subjected to a 20% haircut, a 7.75% listed them on the Irish Stock Exchange. Ukraine coupon and a four-year maturity extension. The blow received the USD 3bn, and met interest payments three was softened by GDP warrants, upside participation times when they were due in total of USD 233m, before instruments giving holders a route to recover lost stopping payments. principal. These have rallied sharply in the past 18 months. Origin of the dispute Under the terms of the deal, any subsequent On 31 May 2015, the Ukrainian parliament adopted agreement with other creditors offering more a law allowing the cabinet of ministers to impose a favourable terms must be in turn be offered to the moratorium on external debt payments, including the restructured notes. Ukrainian law was changed offering 5% 2015 notes. Subsequently, on 18 December 2015, payment priority to accepting holders, meaning that the cabinet issued a decree and suspended the holdouts such as Russia would be prevented from payment of all governmental debt - including the notes. seeking attachments to funds destined for restructured Eurobonds. 25
20-Dec-13 Ukraine issued the prospectus of the Notes in the amount of USD 3bn
24-Dec-13 Ukraine received USD 3bn
20-Jun-14 Ukraine made the first interest payment ‘without reservation or objection’
24-Sep-14 A statement was published by Ukraine stating that there has been several criminal proceedings initiated against the former Minister of Finance, Yuri Kolobov. Allegations also included the violation of 2013 Budget Law
20-Dec-14 Ukraine made the second interest payment ‘without reservation or objection’
31-May-15 Ukrainian parliament adopted a law authorising the cabinet to impose a moratorium on external debt payments
20-Jun-15 Ukraine made the third interest payment ‘without reservation or objection’
9-15 October 2015 Ukraine invited Russian Federation for a meeting in order to restructure the debt—Ukraine announced that all of the bondholders approved the proposed restructuring except from the holder of the Notes
18-Dec-15 Cabinet issued the decree imposing a moratorium until 1 July 2016, suspending payment on all governmental debt, including the notes
21-Dec-15 Ukraine failed to make payment when due
6-Jan-16 Ukraine announced that they are aware of the legal proceedings initiated by the Russian Federation in and ready to defend itself
Feb-16 Lawsuit filed to the High Court of London by the Russian Federation
12-Apr-16 Cabinet announced that the moratorium declared on 18 December 2015 is decided to be indefinite
27-May-16 Ukraine filed its defence with the English High Court of Justice stating that the underlying agreement is ‘invalid and unenforceable’
1-Sep-16 Ukraine submitted a letter to IMF stating that the negotiations for restructuring are ongoing and the Notes are subject to an ongoing litigation in England.
29-Mar-17 Russia secured a summary judgment from the English High Court for repayment of bonds and Ukraine’s request for a full trial before the English courts was dismissed. Ukraine appealed the decision.
14-Sep-18 Court of Appeals has ruled that the dispute will have to adjudicated through a full-trial. The decision has been appealed by both parties on different grounds
9-12 December 2019 Supreme Court hearings came to an end, Supreme Court concluded the hearings by stating that it will take time to consider its decision 26
‘Forum Shopping’ and its appeal to CEEMEA corporates
RESTRUCTURING DATABASE Asli Orbay-Graves – Legal Reporter
The UK Scheme of Arrangement is a popular Yuksel’s 2015 scheme had the longest duration with restructuring process often carried out by companies 71 days, while the shortest duration was DTEK’s 2016 that are financially distressed and burdened with Scheme at 4 days. The average case length of schemes unsustainable debts. Through a scheme, a company involving CEEMEA companies was 26 days compared and its stakeholders, generally financial creditors and to 41 days for companies domiciled in Western Europe. equity holders, can come to agreement which will allow The metals & mining sector featured significantly, the company’s debt to be restructured (e.g. debt write- making up 50% of scheme companies, followed by the off or exchange, debt-for-equity swap, and amend & transportation and construction sectors with 20% and extend). In order for a scheme to pass, a 75% majority 10%, respectively. of each class of creditors must vote in favour of the proposal, although whether the Scheme is approved is Looking at outcomes, bond exchanges were the subject to court approval. If the class of creditors can most frequently used restructuring tool, comprising achieve the 75% majority, it can ‘cram down’ dissenting over 50% of the CEEMEA schemes. The Frigoglass, creditors, subject to fairness and other conditions laid Stripes US Holding, and DTEK schemes, which took out in the Companies Act. place in 2017 and 2018, were among those who chose to exchange distressed debt for new debt with more The scheme process is popular among companies favourable terms for its existing creditors. In slightly over domiciled outside the UK due to the speed, flexibility one-third of the schemes, prepetition debt instruments and commercial attitude of the High Court. The were pushed through the restructuring unchanged. scheme, as a debt restructuring tool, allows for an This is a useful feature of schemes, as not all debt indebted company to utilise the UK courts by having, instruments need to be restructured at once. or shifting, its centre of main interest (known as COMI) to the UK to implement a debt workout. Generally, Full or partial debt equitization were also frequently COMI is recognized if a company can demonstrate used by scheme companies; just over 30% saw equity a sufficient enough connection to the UK. This can ownership pass over to creditors. Gulf Keystone’s 2016 occur via amendments to finance documents that are restructuring saw a combination of treatments, where made subject to English law and jurisdiction—or if such 86% of the post-restructuring equity was handed to its documents are already operative—but may include creditors through a debt-for-equity swap, while part of other factors such as operational matters and presence its existing debt was also reinstated. In the most recent of creditors within the UK. English judges have laid out scheme involving a CEEMEA based company, Agrokor a process that is now well established and followed, saw the interest on its super-senior secured loan and as a result, companies domiciled in a Central & amended, while the holders of the instrument gained Eastern Europe, Middle East, and Africa (CEEMEA) the rights to 40% of the assets of the reorganised region have frequently undertaken debt restructurings group Fortenova. via UK schemes of arrangement. In summary, the process and utilisation of Schemes Since 2016, there have been 34 large UK Schemes, of is well established, avoids the stigma of formal which 10 (29%) were from countries domiciled in the insolvency procedures, can be effective in dealing with CEEMEA region. Of those 10 cases, three were carried troubled debt and is an attractive tool to accessible out by companies domiciled in Ukraine (Metinvest and to companies based in the CEEMEA region seeking DTEK’s two Schemes), while companies from Russia, to bring its debt to a sustainable level. We expect the Croatia, and Turkey also featured (Agrokor). In terms UK courts to continue to be a restructuring haven for of a timeline, schemes utilised by CEEMEA companies distressed CEEMEA companies. peaked in 2017 with 4 cases, with 2 more since then. 27
CEEMEA Schemes Plotted Against Total Schemes
4.0
3.5
3.0
2.5
2.0
1.5 Number of Scheme Cases Scheme of Number
1.0
0.5
0.0 Q2 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q3 Q1 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2020
Foreign UK CEEMEA
Source: Debtwire’s Restructuring Database
This article was prepared analysing data from Debtwire's Restructuring Database. 28
Shareholder Profile: Ihor Kolomoisky
CREDIT RESEARCH
• Ihor Kolomoisky and his partners control oil-and-gas, first private commercial lenders, acquired stakes in metals, airline and media companies collectively known as metals plants in the Dnipropetrovsk region through Privat Group. voucher privatization programs in the mid-1990s. Especially in its early days, Privat Group was accused • Kolomoisky and his partners owned PrivatBank, of appropriating businesses through armed invasions Ukraine’s largest commercial lender, until it was declared and collusion with regional courts, a practice known as insolvent by the government and nationalized in 2016. “raiding”. The nationalization included a bail-in of USD 555m in international bonds. Last month, a Kyiv court ruled the Kolomoisky had favorable relations with successive nationalization unlawful, and an appeal is planned. governments before his falling out with Poroshenko. His influence peaked after the outbreak of war in eastern • Volodymyr Zelensky’s victory in last month’s presidential Ukraine in 2014. In March of that year, Kolomoisky was election may benefit Kolomoisky, who is widely seen as appointed governor of the Dnipropetrovsk region by having backed the comedian’s campaign. Zelensky’s shows the interim government created in the aftermath of are broadcast on Kolomoisky’s Studiya 1+1. Ukraine’s Euromaidan Revolution. He won praise for funding volunteer military units and containing pro- When Ihor Kolomoisky returned to Ukraine on 16 May Russian agitation in Dnipropetrovsk. The tactics he after living for nearly two years in Switzerland and Israel, used are unclear, but he told Politico in 2015 that “were it reflected a dramatic reversal of fortune for an oligarch I to disclose what we did, [President] Poroshenko would who in 2016 saw his flagship PrivatBank nationalized declare that I was part of an organized crime group and amid accusations of massive fraud and a public battle file criminal charges tomorrow.” with then-president Petro Poroshenko. On 20 May, popular comedian and actor Volodymyr Zelensky was As governor, Kolomoisky was accused of using the sworn in as president. Zelensky’s ties to Kolomoisky position to advance his business interests, and became have fueled speculation that PrivatBank could return to a target of Poroshenko’s “deoligarchization” program. its former owners, reinforced by a Ukrainian court ruling After a dramatic confrontation over oil refiner PJSC in April that the nationalization had been unlawful. Now Ukrtatnafta and pipeline operator PJSC Ukrtransnafta riding a series of political and legal victories, Kolomoisky in March 2015, Kolomoisky resigned as governor, has been vague about his next move. However, he told reportedly under pressure from Poroshenko. RBC Ukraine that he would take a proactive approach and had “a good instrument” in TV channel 1+1, which In late 2016, the Ukrainian government nationalized supports Zelensky and has long hosted his shows PrivatBank amid allegations that Kolomoisky and Bogolyubov had stolen over USD 5.5bn via related- Background party loans, which represented over 95% of total lending. The former owners have since been embroiled Kolomoisky was born in the eastern Ukrainian city of in legal disputes with the government, with hundreds of Dnipro in 1963. He received an engineering degree lawsuits filed in Ukraine and abroad. from the Dnipropetrovsk Metallurgical Institute in 1985 and worked at a Dnipro-based consumer-goods On 18 April, in a victory for Kolomoisky, a Kyiv court trading company where he met Gennadiy Bogolyubov declared the nationalization of PrivatBank unlawful. and Oleksiy Martynov. After founding office- Ukraine’s central bank is preparing to appeal. Zelensky equipment importer Sentoza Ltd LLC in 1990, the was elected president in a landslide three days trio, along with Leonid Miloslavsky, co-founded PJSC later, and his ties to Kolomoisky have been a topic CB PrivatBank in 1992. PrivatBank, one of Ukraine’s of speculation, especially in relation to the future of 29
Shareholder-related Risk
Political Risk: Political exposure High Kolomoisky had a number of disputes with the government during the Poroshenko and government relations administration, and lived outside the country for two years before returning this month. Newly inaugurated president Zelensky is viewed as being more sympathetic toward Kolomoisky. PrivatBank has been attempting to recoup billions of USD allegedly stolen by its former owners. Kolomoisky may also face risks from US policy. Trump lawyer Rudy Giuliani reportedly said this month that Zelensky must distance himself from “criminal oligarchs” including Kolomoisky
Succession Risk: Transfer of Low Kolomoisky’s partner Gennadiy Bogolyubov appears to be the most likely successor wealth and control as leader of Privat Group. Kolomoisky’s wife, son and daughter are not active in his business.
Legal & Regulatory Risk: Lawsuits High Kolomoisky and his companies are the targets of lawsuits by the Ukrainian government and regulation to recoup funds allegedly stolen from PrivatBank. He is also reportedly under investigation by the FBI for alleged financial crimes in the US.
Transparency Risk: Structures of High Most of Kolomoisky’s companies are controlled by offshore entities. A review of ownership and control PrivatBank’s finances from 2006 to 2016 by Kroll found misrepresentations of the bank’s exposure to related-party loans.
Governance Risk: Corporate High The Ukrainian government has accused Kolomoisky of embezzling USD 5.5bn from governance PrivatBank through insider lending before its nationalization. He has also been accused of fraud and embezzlement in other cases
Expansion Risk: Growth and Moderate Kolomoisky’s past diversification efforts, such as airlines in Ukraine and metals plants in diversification the US, have faced controversy and financial difficulty.
Credit History Risk: Shareholder High PrivatBank was declared insolvent in 2016 and nationalized, resulting in the bail-in of history and reputation the bank’s USD bonds. Kolomoisky controlled airlines and US-based steel producers have a history of bankruptcy.
Source: Debtwire. Note: ratings indicate probability of business disruption or investment loss. High: over 50% or already occurring; Low: not of concern in the foreseeable future
PrivatBank. Zelensky has repeatedly denied receiving clearly defined. Despite owning most of his companies support from him or favoring the denationalization of with partners who hold similar stakes, the gregarious and PrivatBank. The case has far-reaching implications, volatile Kolomoisky is viewed as Privat Group’s leader. with central bank officials arguing that reversing the nationalization would risk Ukraine’s USD 3.9bn aid Kolomoisky and Bogolyubov own a 42% stake in state- package from the International Monetary Fund and controlled oil-andgas producer PJSC Ukrnafta, which damage foreign investor confidence. The central also operates filling stations. Kolomoisky and Bogolyubov bank has also said that it will be forced to declare the also indirectly own a roughly 28% stake in PJSC bank insolvent if it is returned to its ex-owners. In an Ukrtatnafta, which operates Ukraine’s sole functioning oil interview with the Financial Times published on 25 May, refinery. The largest shareholder of both is state-owned Kolomoisky called for Ukraine to default on IMF loans, NJSC Naftogaz of Ukraine. Kolomoisky and Bogolyubov citing Argentina and Greece as positive examples. also control a 27.54% stake in UK -based JKX Oil and However, Oleksandr Danylyuk, a senior aide to Zelensky Gas plc through BVI-based Eclairs Group Ltd. JKX and former finance minister, told Ukrinform on 28 May owns a 99.87% stake in Poltava Petroleum Company that default was not an option. JV and a minority stake in oil-and-gas producer PrJSC Ukrnaftoburinnya. Shareholdings Kolomoisky’s metals holdings are mostly in eastern Since PrivatBank’s nationalization in late 2016, Ukraine, but also include steel plants in the US, and Kolomoisky’s main assets have been in the oil-and-gas, a manganese mine and processor in the Republic of metals, airline and media sectors. He holds most of his Georgia. He co-owns two iron-ore processors and two companies together with Bogolyubov through offshore limestone and gypsum miners with Rinat Akhmetov, entities. The conglomerate is known as Privat Group, the controlling shareholder of mining and steel group although it is not a legal entity and its holdings are not Metinvest. 30
In the last decade, Privat Group’s expansion efforts, in the 2015 local elections and 2016 parliamentary by- including in overseas metals assets and airlines, have elections, but hold only 27 of 423 seats in parliament. run into difficulties. According to the Kyiv Post, by By comparison, the Petro Poroshenko Bloc holds 130. the late 2000s Privat Group had gained control of roughly 40% of the global manganese market through Nationalist, right-wing UKROP was co-founded in 2015 expansion into the US and Australia. Privat Group by business partners of Kolomoisky, including Gennadiy companies controlled more than half of the US output Korban and Borys Filatov, who were his deputy of silicomanganese, which is used to make structural governors in Dnipropetrovsk. Kolomoisky became an steel products. official member of UKROP in 2016, and has since been chairman of its control commission. Vidrodzhennya However, as of 2017 some of Privat Group’s US targets voters in eastern and southern Ukraine, and is metals holdings had declared bankruptcy or ceased mostly made up of former Party of Regions members. operations. It was the most successful party in the Kharkiv region’s local elections in 2015, and played a key role In 2010, Privat Group reportedly controlled 60% of in supporting Volodymyr Groysman’s appointment as the Ukrainian aviation market. However, two of the prime minister in 2016. Groysman, a Poroshenko ally group’s airlines in Ukraine and one in Denmark declared whose bid for prime minister was also supported by bankruptcy and ceased operations in 2012-2013. Kolomoisky, has relied on votes from small outside Kolomoisky’s airline business now comprises flag carrier parties like Vidrodzhennya to pass legislation. PrJSC Ukraine International Airlines and charter airline Vitaliy Khomutynnik, a co-chairman of the party’s Windrose. parliamentary faction, is a co-shareholder of JKX. Andrei Shipko, a Vidrodzhennya member of parliament, 1+1 Media group’s flagship is TV channel reportedly accompanied Kolomoisky when he returned Teleradiokompaniya Studiya 1+1 LLC, in which to Ukraine from Tel Aviv in May 2019. Kolomoisky holds a 24.87% stake. Kolomoiskycontrolled online news publisher Ukrainian Independent Neither UKROP nor Vidrodzhennya had prominent Information Agency LLC (UNIAN) is also part of 1+1 candidates in the 2019 presidential election, with Media, along with UNIAN TV LLC. Before becoming Kolomoisky widely seen as backing Zelensky. president, Zelensky owned a 12.5% stake in channel Poroshenko accused Kolomoisky of funding Zelensky, Kvartal TV LLC, a related party of Studiya 1+1. who he described as “Kolomoisky’s puppet,” and helping him through biased coverage on 1+1. Zelensky’s Kolomoisky, Bogolyubov and Martynov co-own several new Servant of the People party is named after his trading companies, including their original business satirical series aired on Kolomoisky’s channel, in which Sentoza Ltd LLC. Marianna Miloslavka, who inherited Zelensky plays a high-school teacher unexpectedly her father Leonid Miloslavsky’s assets after his death in elected president. Kolomoisky told RBC Ukraine on 10 1997, co-owns some of these companies. Kolomoisky May that Servant of the People should have a leftist or and Bogolyubov co-own two Ukrainian football clubs, center-left orientation, predicting that the party would and are shareholders in ski resort Bukovel LLC in be in a coalition with Yulia Tymoshenko’s Fatherland western Ukraine. The two partners are prominent party and former defense minister Anatoliy Hrytsenko’s patrons of Ukraine’s Jewish community and provided Civic Position party. Kolomoisky also said that he was financing for the Menorah Center, a 22-story Jewish “betting on” Andriy Bohdan, his former personal lawyer community center in Dnipro. They also own a cinema, a and advisor, to lead the presidential administration. hotel and other real estate there. Zelensky appointed Bohdan as his chief of staff on 21 May. After his inauguration, Zelensky announced plans Political Influence for a snap parliamentary election on 21 July, hoping to increase his influence in a legislature dominated by Kolomoisky continued to influence politics after establishment parties. Any gains by Zelensky’s allies, stepping down as governor of Dnipropetrovsk. Since or losses by those of Poroshenko, will be further good 2015, he has funded opposition parties Ukrainian news for Kolomoisky. Association of Patriots (UKROP) and Vidrodzhennya (Revival). The two groups, at different ends of the See Debtwire’s Credit Research for more political spectrum, have helped Kolomoisky exert Shareholder Profiles. influence in parliament despite lacking close ties to major parties. UKROP and Vidrodzhennya made gains Credit Research 31
Lebanon’s future hangs by a thread
OP-ED: SUBSCRIBERS’ COMMENTS Carlos Abadi
Lebanon is in the eye of a perfect storm; including were announced over that weekend, the banks could simultaneous political, financial, banking, and currency not open their doors the following Monday. My appeal crises which could lead to a major economic and social was met, to put it charitably, with the bank’s bosses’ disaster, as the eye progresses in its trajectory and skepticism the country risks becoming prey to the storm’s most destructive elements. In contrast, while BDL recognized the gravity of the situation, it doesn’t have the ability to make fiscal policy. I don’t mean to waste ink retelling the historical buildup, As a result, the partial bank closure it engineered acted but to just recap my own awareness of what was as just a leaky band-aid of decreasing effectiveness in coming. I first “cried wolf” in June 2015 at the Beirut avoiding the financial crisis becoming an economic- Euromoney Conference by bringing the audience’s social one. attention to the central bank’s (BDL) balance sheet, which revealed certain weaknesses. Plenty could have Urgent government action was needed. Although I am been done by the government at that time on the fiscal precluded by confidentiality undertakings to reveal policy front to address that frailty and the associated the contents of any of my conversations with the (now financial system overexposure to dollar-denominated resigned) government during that weekend it is public government obligations. that, following a marathon cabinet meeting, outgoing PM Hariri announced a bold fiscal plan projected to Not only was nothing done, but the Lebanese banking result in an 8-9% primary surplus in 2020 and 6-7% on system increased its government and BDL hard a recurring basis. currency credit exposure, converting their custodial (offshore) dollar reserves into BDL dollar certificate The enactment of the above ministerial resolution of deposits (CDs). While this credit migration would have resulted in Lebanon’s debt re-entering strengthened the banks’ profits, it negatively affected a sustainable path; a good likelihood of the inflow of BDL’s financial position by adding an additional previously committed concessionary official financing challenge to its existing balance sheet woes: substantial and grants (CEDRE, $11 bb); and breathing space to losses representing the difference between what BDL reform the banking sector and the FX regime in the earned on its own custodial deposits and the rates it context of a stable environment. paid to encourage the repatriation of the banks’ own. This negative seignorage, exacerbated by ad-hoc Alas, this was not to be. Hariri’s government resigned super high-yield “financial engineering” transactions led and the economy ground to a halt. Unlike last October, me to conclude that, if nothing was done on the fiscal a soft-landing is no longer possible. While, by virtue level, BDL’s net interest losses could potentially exceed of its privileged geographic location, high level of the government’s own deficit in 2020. education, and entrepreneurial spirit, Lebanon’s long- term economic prospects are bright, the country now Such an impending disaster led me to write an article faces the certainty of short-term pain. last October forcefully warning that, unless Lebanon took decisive structural steps to start generating One big reason is that, unlike other big EM borrowers, substantial and sustained primary surpluses, it was Lebanon does not have much of a foreign investor headed towards an inevitable disorderly bankruptcy. base to share the losses with. With just slightly over I presented my article on a Friday evening during the 25% of the government debt (and an even lower 2019 IMF meetings. I was graphic but did not engage percentage of the consolidated public sector liabilities) in “negotiation by exaggeration”; I plainly stated that, held by foreigners, most of the pain will be suffered at unless significant and credible fiscal reform measures home. 32
Except for its most enlightened beacons, the Lebanese Competence is needed because the tasks at hand are population seems not to realize that the cost of the technically complex and will require decision-makers crisis keeps growing by the day as the newly elected with the intellectual wherewithal to understand the government struggles to take decisive action. To be various solutions which will be presented to them by clear, at this stage addressing the crisis means: their advisors (which, it goes without saying, should themselves be competent). Firstly, implementing the structural reforms needed for the achievement of a primary surplus sufficient for the Credibility is also required because the fallout resulting servicing of the stock of public sector debt resulting from the procrastination in addressing the crisis may from the restructuring. These structural reforms should reach catastrophic proportions (in terms of output also seek the redeployment of resources from the contraction, inflation, poverty levels, etc.) unless the financial sector to sectors capable of generating dollar new government can secure off-market adjustment revenues necessary for the financing of Lebanon’s financing. No government lacking widespread support, large import needs (e.g., insertion of Lebanon into the and especially one backed only by forces with a poor knowledge economy); international reputation, will command the credibility necessary to attract international financial support. Secondly, stopping the further accumulation of losses (via the restructuring of the liabilities of the banking For too long, BDL was the only functioning institution system and the consolidated public sector); in Lebanon. Although this is not a popular view, I believe that, within the confines of its very narrow legal Thirdly, allocating those losses in an equitable way with authority, BDL has done a masterful job at avoiding the the dual goal of sheltering the most vulnerable sectors full-blown explosion of the crisis in the absence of a of Lebanon’s population and maximizing future growth government capable to respond. But BDL’s capacity (e.g., through a speedy return to the capital markets); to act was severely constrained by its legal authority. BDL did not have the power to bind Lebanon to a Fourthly, cushioning the effects of the inevitable large debt restructuring, to resolve the banks’ dollar liability output contraction which will start in 2020 through the overhang, much less to enact a budget. obtention of catalyst off-market financing (e.g., CEDRE, multilaterals). Now Lebanon has a government and its citizens should clamour for their new government to do policy Lastly, developing a realistic medium and long-term and not politics and to take action to address the crisis vision of Lebanon’s sustainable economic and human head on, because they alone can determine whether development consistent with the country’s resources the country’s fate will be decent or disastrous. and comparative advantages.
All of the above require that the new government act in a competent and credible fashion.
Carlos Abadi is Managing Director at DecisionBoundaries, a financial advisory firm focused on litigation support, financial restructuring, creditors’ rights and financial engineering 33
Cell C Limited Telecommunications CEEMEA CREDIT RESEARCH South Africa
Summary Capital Structure (ZARm)
Instrument Interest Tenor Amount Amount Contractual Leverage Leverage outstanding (as outstanding interest (31-Dec- (31-May- at 31-Dec-18) (as at 31-May- rate 2018) 2019) 19) USD bonds 8.63% 3 Years 2,666 2,686 7.90%
USD China Development Libor+ 3 Years 1,935 1,956 5.70% Bank facility 3.45%
ZAR-denominated Jibar+ 3.45% 3 Years 1,046 1,037 10.60% ICBC facility
ZAR-denominated Jibar+ 3 Years 797 790 12.00% Nedbank facility 5.00%
ZAR-denominated Jibar+ 3 Years 190 189 12.00% DBSA facility 5.00%
USD-denominated ZTE Libor+ 5 Years 107 151 6.40% bridge vendor financing 3.50%
ZAR-denominated RMB/ 15.50% 1 Year 1,400 1,250 15.50% ABSA/Investec facility
ZAR-denominated Variable 1 Year 865 - 10.90% handset financing facility
ZAR-denominated BLT 17.00% Repaid - - 17.00% capex facility
ZAR-denominated ZTE 151 bridge vendor facility
Capitalised finance cost - -71 -21
Total debt excl. leases 8,935 - 2.03x -
Finance leases Variable 1-10 7,560 6,345 12.00% years
Total debt 16,495 - 3.74x -
Cash and cash 493 - equivalents
Net debt 16,002 14,580 3.63x 4.30x
EBITDA (year end: 4,406 31-Dec-18) EBITDA (year end: 3,391 31-May-19) 34
Cell c’s recapitalisation efforts ongoing Issuer summary Country: South Africa Cell C Limited (Cell C), the South Africa-based telecom-munications company, is currently focused on Sector: Telecommunications its recapitalisation, as well as an operational turnaround that involves streamlining its cost base. Cell C signed a Total assets: ZAR 12.4bn term sheet in February 2019 to receive an investment from the Buffet Consortium to take a minority stake in the company and to strengthen its balance sheet; Total liabilities: ZAR 12.3bn however, the transaction is yet to be finalised. The group is also awaiting the conclusion of a full roaming Rating (Moody’s/S&P): NA/D agreement with peer MTN to allow Cell C to manage its network capacity requirements in a more cost-effective manner. Cell C aims to purchase coverage rather than self-build, which could have a positive impact on cash flow going forward (see below). Major recent events 1Q19/20 quarterly update (here): 26-Sep-19 Poor set of annual results, but more optimistic 1Q19/20: revenue for the year-ending May 2019 grew Cell C receives revised Buffet Consortium 25-Sep-19 1% to ZAR 15.4bn, driven by growth in the contract, proposal (here): broadband and wholesale segments of 6%, 20% and Cell C downgraded to D from SD following 23-Sep-19 15%, respectively. However, this was offset by a decline suspension of interest payments – S&P (here) in the pre-paid segment. EBITDA during the period was 19% lower at ZAR 3.4bn due to investment in Source: Debtwire calculations, company financials infrastructure during the year, slow domestic growth, a volatile rand against major currencies and pressure on South African consumer purchasing power. There was a 2% decline in total subscribers to 15.9m despite the average revenue per user (ARPU) of contract Revenue by Subscriber Type (Year end: 31 May 2019) customers increasing 11% to ZAR 253 per customer. We note that while management’s cost-cutting initiatives outlined below are not yet reflected in the past annual period, we positively note that EBITDA climbed 18% in the three months to August 2019, as the turnaround 8% strategy focused on improving operational efficiency has shown early promising signs. Net debt excluding 7% leases for the year-ending 31 May 2019 totalled ZAR 8.24bn, which was up year-on-year (YoY), driven 5% by a drawdown of the capital expenditure and working capital facilities. 3% 47%
Cell C triggers cross-default on USD 184m 8.625% 6% senior secured 2020s: on 22 August 2019, S&P downgraded Cell C’s credit rating to D (Default) from SD (Selective Default) after it failed to make interest payments on bilateral loans, amounting to 40% of its total debt as at 31 December 2019. The lenders of 24% these loans are: Nedbank, China Development Bank Corporation, Development Bank of Southern Africa, and Industrial and Commercial Bank of China. As a consequence of failing to meet the interest payments, Prepaid Contract Broadband Cell C triggered a cross-default on its USD 184m Other Wholesale Incoming 8.625% senior secured 2020s, with management Equipment stating the suspension of interest payments on the bilateral loans is part of a wider initiative to improve Source: Debtwire calculations, company financials liquidity and restructure the group’s balance sheet. 35
Cell C extends maturity of ZAR 1.175bn funding among the larger players within the industry, we facility: Cell C extended the maturity of an existing consider it unlikely that Cell C is able to adequately ZAR 1.175bn funding facility that was set to mature in increase its top-line in the coming quarters. As such, August 2019. This was set by a consortium of local we feel management’s plan to cut costs and ‘right-size’ banks, which were committed to provide a liquidity the business in order to improve profitability is the right platform to allow the group to recapitalise. The move one. The first step has been to scale investment in its should help boost Cell C’s liquidity position, which is ‘Black’ streaming service, as the group says it did not significant given S&P’s concerns about the group’s have the resources to compete in that environment. liquidity back in April 2019 (see Debtwire coverage According to the 2018 reported financial figures, Cell C here). spent c. ZAR 524m acquiring programming and movie rights for its video-streaming platform. Management Buffet Consortium deal could strengthen balance has not yet stated whether it will shut down ‘Black’ sheet: Cell C signed a binding term sheet in February permanently, but says that it plans to move forward with 2019 with the Buffett Consortium, a vehicle led by a model focused more on content aggregation than a property investor Jonathan Beare, to take a minority direct streaming service offering. Other management stake in the group. However, the terms of this deal were initiatives involve removing non-profitable products, not disclosed and on a recent lender call with Cell C, increasing focus on retail product pricing and creditors were informed of a revised deal although implementing a cost-efficiency programme. we note that it is not yet finalised (as reported on Debtwire here). We believe the support of the Buffet Parent Blue Label selling subsidiaries to pay down Consortium should bolster Cell C’s balance sheet and debt after writing down investment in Cell C to zero: improve liquidity, affording management the time to turn Cell C shareholders Blue Label Telecoms (45%) and the business around at an operational level. While this Net 1 UEPS Technologies (15%) recently wrote down transaction is subject to several conditions being met, the value of their investment in Cell C to zero. In our one of which is a strategic agreement with competitor view, this is unlikely to have any operating impact on the MTN (see below), we are wary that a previous business. Blue Label Telecom also recently announced ZAR 5.5bn injected into the company by majority the sale of its stakes in subsidiaries Blue Label Mobile shareholder Blue Label in 2017 was burnt through by for ZAR 450m and 3G Mobile for ZAR 544m, the Cell C as a result of poor operational performance and proceeds of which it intends to use to settle debt, but high capex spend. it is unclear whether this is at Cell C or parent level. We note that this is the first time Blue Label Telecom has New strategy aims to cut costs, should enable better sold an asset in its 18 years of operation, and we are positioning among competitors: management recently still uncertain as to whether its 45% shareholding in stated that it is unable to spend as much as rivals Cell C will change following the offer from the Buffet MTN and Vodacom to expand its network, claiming Consortium. that it does not make economic sense to overbuild and duplicate infra-structure. We anticipate it taking Cell C signs extended national roaming agreement Cell C time to build a telecommunications critical mass, term sheet with MTN: Cell C signed a national roaming which we feel is key to improving group profitability. agreement in August 2019 with Africa’s largest network Incumbent players MTN, Vodacom and Telkom have operator, MTN, which we believe could potentially have significant market shares, and we believe Cell C is significant benefits for the group. Under the terms of playing catch up in an industry that has significant the agreement, Cell C should be able to manage its economies of scale, as well as high barriers to entry. network capacity requirements in a more cost-efficient We believe management’s plan to streamline its cost manner, while supporting its policy of avoiding network base is a step in the right direction, and we maintain duplication. In November 2018, the two operators that it needs to increase focus on niche aspects of the completed the implementation of an initial national market if it is to position itself better. Ultimately, we see roaming agreement, whereby MTN started providing there being market consolidation over the medium- 3G and 4G/LTE services to Cell C in areas where the to-long term, narrowing the field to three from four mobile network operator has chosen to purchase main players, and this could see Cell C’s market share coverage rather than self-build, a strategy that in our declining further below its peers. view improves efficiency for both. Cell C previously had 6,500 roaming sites and the agreement with MTN Cost-cutting turnaround plan: in light of a weak could now help it compete better, as it moves up to economic backdrop, relatively low consumer 13,000 sites, utilising 4G. While we note the agreement confidence in South Africa and intense competition has its benefits, it has been reported that there is 36
some controversy with MTN, which stated in June 2019 capital injection from Blue Label in 2017. As discussed that Cell C had failed to make payments on its service above, the quarter ending August 2019 has shown agreement totalling ZAR 393m. positive preliminary signs of an operational turnaround and in our view increases the chances of the deal Overall, we feel that management’s plan to improve Cell with the Buffet Consortium being concluded. We also C’s operational performance by streamlining costs and view the partnership with MTN Group a positive one cutting capital expenditure is a key initial step before its to cut costs and avoid infrastructure duplication by potential equity injection from the Buffet Consortium. purchasing coverage in a larger area than self-building. We believe that the group has previously been poorly Mihir Trivedi – Credit Analyst
managed, with Cell C burning through the ZAR 5.5bn
Cell C shareholders Blue Label Telecoms (45%) and Net 1 UEPS Technologies (15%) recently wrote down the value of their investment in Cell C to zero. 37
NMC Health Healthcare CEEMEA CREDIT RESEARCH UAE
Detailed capital structure as at 30-Jun-19 (USDm)
Instrument Issue date Interest/ Maturity Amount Interest/profit Price Yield (%) Leverage profit rate outstanding payment dates
Term loans 1,115
Bank overdrafts and 190 other short-term borrowing USD 400m senior 21-Nov-18 5.95% 21-Nov-23 396 21 May/21 Nov 101.5 5.5 unsecured sukuk
Lease obligations 707
Total debt excluding 2,408 4.1x convertible bond
USD 450m senior 30-Apr-18 1.88% 30-Apr-25 394 30 Apr/31 Oct 82 unsecured convertible bond Total debt 2,802 4.8x
Bank deposits 67
Bank balances and cash 507
Net debt excluding 1,834 3.1x convertible bond
Net debt 2,228 3.8x
LTM 1H19 adjusted 585 EBITDA
Source: Debtwire calculations, company financials, Markit for bond prices as at 28-Jan-20 38
Muddy waters report clouds positive 1H19 results reduction in receivable days to 89 in 1H19 from 99 in 1H18, and inventory days falling to 56 from 74 over the NMC Health (NMC), the UK-incorporated healthcare same period. By contrast, funds from operation (FFO) services provider, reported strong 1H19 numbers was boosted by an increased contribution from cash- following aggressive expansion in its healthcare based businesses, including IVF, cosmetics and Aspen segment, which was ramped up in 2018. Following the Healthcare. As such, we anticipate FCF generation release of a Muddy Waters research note, NMC’s share in 2H19, given the second half of the year is typically price was sent tumbling after its accounting practices stronger for FCF conversion than the first, which we were called into question. Despite the group deciding discuss further below. not to add to its 1H19 disclosures, there is currently an independent review taking place of NMC’s cash Undrawn revolving credit facility (RCF) and healthy balances, which should be released ahead of its FY19 cash balance provide strong liquidity: we believe results. In our view, this creates a level of uncertainty NMC’s reported cash balance as of 1H19 of USD 507m and risk for the group going forward. Note that S&P has and undrawn revolving liquid facility of USD 400m is changed NMC’s outlook to negative from stable, citing sufficient to cover both the group’s operational and a possible ratings downgrade in the event that the capex requirements in the short term. Moody’s (see independent review details any accounting issues or here), anticipates this amounting to c. USD 423m over potentially questionable activity. the next 18 months, and we believe NMC’s liquidity should be enough to cover this. 1H19 financial overview: revenue during 1H19 climbed 32.6% year-on-year (YoY) to USD 1.2bn, rising above USD 1.0bn for the first time. This was driven largely by the healthcare division (+35.7% YoY) through Issuer summary increased utilisation of existing assets and a full six- Country UAE month impact of a number of acquisitions completed back in 2018. The distribution segment also reported a sharp rise in revenue of 19.4% YoY, led by the signing Sector Healthcare of one-off contracts across both public and private sectors. Following the adoption of IFRS 16, 1H19 EBITDA Total assets USD 4.98bn totalled USD 324m; however, pre-IFRS, this came in at USD 276m, up 23% YoY. Against this backdrop, Total debt USD 2.80bn pre-IFRS 16 EBITDA margins contracted 180 basis points (bps) YoY to 22.4% on the back of revenue contributions from lower-margin Aspen Healthcare and Rating (S&P/Moody’s) BB+/Ba1 an increased contribution from a number of assets that are in the early stages of ramp up, particularly in the Ticker NMC kingdom of Saudi Arabia (KSA) and that are currently behind their EBITDA break-even stage. Among the other notable key operating statistics provided, NMC Share price GBX 1,373 patient numbers in the period rose to more than four million, up 17% YoY; group revenue per patient totalled Market cap GBP 2.87bn USD 224, also up 17% YoY; and bed occupancy reached 67.7%. Annualising the impact of IFRS 16, NMC reported net leverage amounting to 3.4x as of 1H19. Major recent events Strong free cash flow (FCF) generation, likely to continue in 2H19: NMC’s 1H19 operating cash flow Last earnings release 22-Aug-19 (OCF) expanded to USD 216m, up significantly on Next earnings release - the negative number reported a year earlier, owing to a stronger working capital position. Despite being in negative territory, management attributed the improvement in its working capital position to both a 39
However, we are wary of the possibility of further generated from the UAE, we note that this number acquisition opportunities arising, as the healthcare has declined in recent years following the acquisition market continues to consolidate. of companies in KSA, the UK and the US. Of the many services NMC offers, it has a range of services provided NMC hits back at Muddy Waters report; with an increasing shift in focus to medical specialities, independent review under way: on 17 December long-term care, maternity and fertility. NMC is also 2019, Muddy Waters released a report that questioned relatively balanced by virtue of splitting its exposure NMC’s financial statements, including its asset values, to both private and government-funded insurance cash balances, reported profits and reported debt healthcare schemes, which we consider key to reducing levels. As a result of this report, NMC’s share price the level of operational risk. plunged 32%, slicing more than USD 2bn off the group’s market capitalisation before recovering. Without Saudi expansion should lead to heightened capex adding further to the disclosures it had already made, in 2H19, which may restrict FCF generation: NMC NMC reviewed the accusations made in the report, entered KSA in 2017 with the acquisition of a 140- labelling them “misleading”. NMC has since responded bed multi-speciality hospital, and had five hospitals/ further by stating that the overpayment for its hospital clinics in place by FY18. In 1H19, the group announced relates to cost overruns, and these are reflected in a partnership with GOSI/Hassan Investment Company the accounting policies adopted by the group, making under the group, NMC KSA. The company was formed Muddy Waters comparisons “erroneous”. Management using the contribution of GOSI’s 39% stake in the also says that a contract with Modular Concepts, the Tadawul-listed National Medical Care Company (CARE), de facto related party of NMC, was engaged through a while NMC contributed its five existing assets in Saudi normal quotation and tendering process. Its purchase Arabia and an additional USD 66m cash injection at of a 70% stake in Premier Care was a strategic closing (see here). In total, using the additional funds investment made after financial due diligence from a provided by NMC Health, NMC KSA now has a 49.2% ‘Big Four’ accounting firm. NMC goes on to say that it stake in CARE. In our view, this partnership could lead has never given the impression it does not use supply- to heightened capex although we expect it to weigh chain financing, and launched an independent review on FCF generation in 2H19, as NMC KSA expands its to confirm the cash levels as at 15 December 2019 on additional bed capacity and adds more sub-specialty its balance sheet - the findings should be published services. prior to the company’s FY19 results (see Debtwire coverage here). We consider this strategy to be a positive one given that as of 1H19, only one third of KSA’s 29m population Muddy Waters report and sale of USD 375m of was covered by mandatory insurance and is therefore shares by KBBO Group could impact NMC’s ability underserved despite the region representing the to access financing in the short to medium term: two largest potential healthcare market in the GCC and controlling shareholders, Saeed Mohamed al-Qebaisi offering scope for growth going forward. and Khalifa Bin Butti, sold a combined 15% stake in NMC on 8 January 2020 at GBP 12 per share, which Multi-specialty vertical should benefit from growth we highlight was at a discount of c. 20% to shares’ in the short to medium term: the multi-specialty trading price on the day. It has been widely reported vertical is the largest subsegment in the healthcare that the money raised from this sale (c. USD 375m) is to division, and has benefited from an increased utilisation be used to repay debt provided by two banks, releasing of existing facilities, as well as acquisitions completed the pledge on NMC shares under the borrowings. We since 2018. The prime example of this is NMC Royal, believe that the sale of a stake by majority shareholders which improved its bed utilisation, and this has led could impact the group’s performance in the event to an uptick in margins (the exact asset breakdown there is a change in direction, and this could affect is not provided). We anticipate this trend continuing NMC’s ability to access financial markets in the short to into FY20, and expect improved utilisation and cross- medium term. referrals to other business segments to have an overall positive impact on group margins; however, we maintain Diversified services and growing geographic that the ongoing acquisition integration risks are a split are key credit positives: we consider NMC’s credit negative. operations to be well diversified in terms of services provided and the geography in which it operates, with a Capex projects to add significant capacity in next mix of both private and government-funded healthcare 18 months: capex in 1H19 was allocated to opening schemes. Despite having 79.9% of its revenue split beds and clinics in the UAE and Oman, as well as 40
opening IVF clinics across Europe. According to capex climbing to c. USD 2,845m-2,915m in FY20 following guidance provided by management, growth capex the inclusion of new projects contributing a further for 2H19 is expected to come in at USD 35m-45m USD 50m to the top-line. EBITDA in FY19 is expected and USD 100m in 2020. Maintenance capex should to come in at c. USD 670m following a stronger 2H19, remain at 3% of revenue in the next 18 months. Of the which in turn should see net leverage fall below 3.4x ongoing projects, revenue per bed generated in the (the current level as of 1H19). We see NMC’s cash UAE (Dubai and Sharjah) of c. USD 750k-USD 1m per balances being used to repay debt, which could aid the bed p.a. is markedly higher than that of Oman and KSA group in reducing the level of gross debt on its balance at USD 350k-USD 500k per bed p.a. There is expected sheet. to be a considerable number of beds added to the group’s hospitals in the next 18 months, namely in the Overall: in our view, NMC’s size puts it in a good UAE, supplementing capacity by adding up to 385 position going forward, as the market continues to beds and strengthening its verticals. This could boost consolidate and the regulatory environment in the capacity in the UAE by c. 32%, and ultimately aid cash industry continues to put pressure on healthcare flow generation. Note that NMC is on course to add a companies. Additional beds and the introduction of further c. 175 beds in Oman, taking the total number beds currently in the early stages of ramp up should of beds added to 560. We understand management see an uptick in FFO, combined with an improved has the ability to scale back capex and acquisitions to working capital position, resulting in strong FCF reduce debt if necessary. generation going forward. We believe the strategic partnership with GOSI for NMC KSA is a positive, On track to meet guidance and maintain this despite and provides scope for growth in the coming years, Muddy Waters report; management may actively as well as a reduction in geographic risk. However, decide to pay down debt: NMC’s management has further acquisitions made in the region could a strong track record of hitting guidance, which we slow management’s plans to de-lever the balance attribute to the predictable nature of the healthcare sheet. We again caution about the findings of the market in general, making it easier to forecast forward. independent accounting review ahead of FY19 results; Despite the Muddy Waters allegations and independent this could potentially lead to restatements and ratings review being conducted, management reiterated its downgrades, providing a level of uncertainty and risk guidance for FY19. This includes revenue post IFRS 16 for NMC. equating to USD 2,500m-USD 2,540m in FY19, Mihir Trivedi – Credit Analyst 41
NMC’s size puts it in a good position going forward, as the market continues to consolidate and the regulatory environment in the industry continues to put pressure on healthcare companies. 42
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