Kcell has registered its first bond issuance with the NBRK

Andrey KozhokaruDecember 15, 2017

Kcell plans to place KZT30bn 3-year bonds at KASE with 11.5% coupon

On December 12, Kcell registered its first bond issuance program with the NBRK. The total nominal amount of the bond program is KZT50bn. The Company is going to offer bonds in the amount of KZT30bn with 3 years to maturity and 11.5% coupon payments. According to the Company, the bonds issue will diversify financing sources, increase the average term of liabilities, and reduce financing costs.

Our opinion:

The volume of issue approximately equals to 40% of outstanding financial liabilities of the Company. As of September 30, the weighted average interest rate on Kcell’s debt equaled 13.9%. On November 22, the Company renewed the agreement with Halyk Bank on revolving credit facility. As a result, the KZT42bn credit line term was extended until 2022 and interest rates on all current and new loans were reduced from 14.5% to 12.5%. We expect continued optimization of Kcell’s loan portfolio in a favorable market environment. In our latest projections, we took into account the decline in the funding costs due to the normalization of the monetary policy of the NBRK.

Despite the fact that the decrease in financing costs is a positive factor for the Company's credit metrics, given reduction does not entail a material change to our valuation. An important assessment factor for Kcell is the total amount of debt required to maintain necessary capital expenditures, which expected to grow on the forecasted horizon. We keep our Sell recommendation unchanged.