Avangarco IPL: Muddling Through. August 17 2016

Avangard continues to muddle through crisis after the deterioration in Ukraine's economic conditions, the loss of key markets in occupied eastern Ukraine, and high indebtedness undermined the company's financial health. We expect Avangard's cash-generating capacity will remain weak over the next few quarters, but the broader economic stabilization in Ukraine does pave the way for a gradual recovery starting in 2017. With ample spare production capacity, we see Avangard spending all of its free cash on investments into working capital to grow output and profits (rather than on debt repayments) to rehabilitate its solvency in the future. We therefore do not expect any repayments on principal debt and Eurobonds over the next 4-5 years, meaning all debt facilities will again have to be restructured as they become due.

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