transport group The Fesco committed a technical default on Eurobonds maturing in 2018 ($415 million in circulation, according to the company’s website) and a coupon on bonds maturing in 2020 ($219 million in circulation). The company was supposed to pay the coupon on May 4, but announced that it would not do so. The decision was made in accordance with the ongoing strategic analysis of Fesco's capital structure and taking into account the impact of weak current macroeconomic indicators and the ruble exchange rate on operating activities and liquidity situations, explains a Fesco representative.

To negotiate with creditors, Fesco hired financial consultant Houlihan Lokey (Europe) Limited and legal consultant Cleary GottliebSteen & Hamilton LLP, the transport company said in a statement. Fesco does not comment on negotiations with holders.

Default will occur after 30 days if Fesco does not pay. Fesco's Eurobond prospectus states that the company's credit agreements provide for cross-default. Fesco's debt as of December 31, 2015, minus cash on accounts, was RUB 63.7 billion. with revenue of 41.6 billion rubles. At the end of 2015, the ratio of net debt to EBITDA was 8.6, according to Sberbank CIB. In a 2015 IFRS report, Fesco's auditor KPMG said it had doubts about the transport company's ability to continue as a going concern.

Fesco

Transport group
Shareholders: Summa Group (32.5%), GHP Group (23.8%), TPG (17.4%), East Capital (4.9%).
Capitalization – 6.9 billion rubles.
Revenue (IFRS, 2015) – 41.6 billion rubles.
Net loss – 11.5 billion rubles.

Fesco had to pay about $30 million, according to Sberbank CIB. The refusal to pay the coupon looks “very unfriendly, especially considering the interest paid on local bonds last week,” writes Sberbank CIB analyst Sergei Goncharov in his review. He estimates that Fesco had the ability to pay the coupon: it had $36 million in cash on its balance sheet at the end of the year, and since Fesco makes principal interest payments in May and November, it likely has accumulated more than $50 million by now. Fesco has two more issues of ruble bonds: for 2 billion rubles, placed in 2013 (repayment in 2017, a call option is provided on May 31, 2016), and for 5 billion rubles. (maturity 2018, call option October 27, 2016).

Container transshipment in the ports of the Far East and rail container transportation, which form the main revenue of Fesco, in 2015 decreased compared to 2014 by 24 and 8%, respectively. The company is also let down by the currency imbalance. About 84% of the debt, according to Fitch, is denominated in foreign currency, but only 60% of revenue is in dollars or pegged to the dollar exchange rate. In May 2015, Fesco bought out part of the foreign currency debt and, at the end of 2014, converted some port tariffs into dollars. Even taking into account the recovery of the ruble in the first quarter, according to Sberbank CIB, Fesco will not be able to cover interest payments from cash flows for several quarters. “But delaying restructuring until the last moment will complicate its implementation,” Goncharov notes.