Nostrum Oil and Gas plans to buy Zhaikmunai bonds

Altynay IbraimovaJanuary 22, 2018

On Friday, Nostrum Oil and Gas announced an option to buy bonds issued by a subsidiary Zhaikmunai. Nostrum intends to repurchase the remaining total amount of the principal debt owned by Zhaikmunai.

The obligation to pay the repurchase price is conditional and will arise only if sufficient funds are received for new financing (in addition to cash in the Company).

The option to buy in bonds with an interest rate of 6.375% and maturity in February 2019. provides for the repurchase price of 100% of the principal amount and the amount of accrued interest from February 14, 2018  to the date of repurchase.

The option to purchase bonds with a rate of 7.125% and maturity in November 2019 provides for a repurchase price of 101.78125% of the principal amount and the amount of accrued interest from November 13, 2018 to the date of repurchase.

Our view

Last July, Nostrum repurchased part of the bonds redeemed in February and November 2019. The amount of the redemption was $216mn and $391mn, respectively. Partial refinancing was carried out by the Company at the expense of a new issue of eurobonds worth $725mn with a yield of 8% per annum for a period of 5 years (2022).

Earlier, during the presentation of the 1H2017 results, the company had already announced plans to repay the balance of the debt until 2019.

Given that the Nostrum cash position at the end of 9M2017 is $144mn with net debt of $913mn, of which about $352mn (39%) is to be redeemed in 2019, it remains unclear for us at what expense Nostrum intends to repurchase the remaining of the redemption 2019 bonds. Based on the content of the press release, the Company plans to attract a new loan, but the Company did not make additional statements about the new issue. We believe that debt refinancing is the most optimal source of cash for the Company and we keep the "Hold" recommendation on Nostrum Oil and Gas bonds.