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11.07.2008 - MDM Comment: UAC spends RUB9.3bn on Irkut share buy-out

United Aircraft Corporation (not rated) yesterday reported that it has completed its mandatory buyout offer with regard to the shares of its subsidiary Irkut. UAC paid RUB9.3 bn – almost USD400 mn – to buy 42.7% of Irkut's shares. 
Some background explanation to this: when UAC was formed, it consolidated approximately 50.1% of Irkut's capital, and under to Russian corporate law, the majority owner in such case should make a buyout offer to minority shareholders.
According to a UAC representative, the buy-out transaction was executed during the last two weeks and was entirely debt-funded. Of course, the completion of the deal will result in UAC's leverage increasing even further from already high levels.
However, we do not believe that the transaction will have a material negative impact on the ultimate credit risk with regard to the company’s recently placed USD200 mn 10.0% credit-linked notes. UAC's profile is largely based on strong state support, which takes forms of regular equity injections, budgetary funding of R&D, interest rate subsidies, and large funding lines at key state-controlled banks. The fact that the share buy-out deal was financed with a 5-year loan from Sberbank (source: UAC) is yet another illustration of this thesis.
UNTAIR 10 issue is currently seen priced at 99.625 / 100.25 (10.2% / 9.86% or approximately 650bp over swaps).

21.07.2008 13:26
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