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Fixed Income Weekly (February 07, 2017)

 

Macro & politics update

  • Ukraine’s current account deficit deteriorated to USD 3.4 bn in 2016. A contraction of merchandise exports (-5.2%) on background of revival of imports (+3.8%) above all conditioned the deficit, resulting in an expansion of the merchandise trade deficit by 96.6% to USD 6.8 bn. The yearly balance of payment marked a positive growth of 58.6% to reach USD 1.3 bn, thanks to strong inflow on the financial account. The net surplus on the financial account amounted to USD 4.6 bn in 2016

 

Eurobonds overview

Last week, the prices on the sovereign Eurobonds Ukraine-2019, Ukraine-2024, and Ukraine-2027 increased by an avg. 0.5 cents to 98.8 cents, 94.1 cents, and 92.9 cents respectively. Ukraine-2020 and Ukraine-2021 lost 0.5 cents on avg. to be traded at 96.4 cents and 95.5 cents correspondingly. Ukraine-2022 and Ukraine-2023 lost 0.7 cents to be traded in the range of 94.4 cents. Ukraine-2025 and Ukraine-2026 lost 1.0 cents to be traded at the level of 92.1 cents. We estimate that the sovereign Eurobond prices were mostly dumped by the escalation of the military conflict in the eastern region of the country, on background of visible signs of dissention between the government and the Central Bank on issues of monetary policy, relations with the IMF, as well as NBU policy towards the financial indebtedness of large corporates. Among our corporate Eurobond picks Ukrlandfarming-18, Avangard-18, and Ferrexpo-19 gained 3.1 pp., 3.9 pp., and 88 bps. respectively. Ukrlandfarming, Avangard, and Ferrexpo likely benefitted from the strong support they received from different agricultural and industrial unions, as well as from the Prime-minister in the standoff of the companies’ shareholders with the NBU. Ukrainian Railway-21 lost 75 bps as the conflict around the management of the company exacerbated inside the Government.

Money markets

Over the last week, the average USD/UAH exchange rate decreased by 0.7% w/w to 27.05, closing at the level of UAH 27.08 on Friday. The average daily FX turnover on the interbank market increased by 6.7% w/w to USD 161 mn, while FX trading volume amounted to USD 135 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts decreased by 10.5% w/w or by UAH 5.3 bn to UAH 45.3 bn. Last week, the quotations on nearly all Kievprime indexes remained unchanged, save the shortest Kievprime overnight (o/n) and Kievprime 1M which lost a minimal 0.1% to be quoted at 13.0% and 16.1% respectively. Kievprime 1W was quoted at 14.5%, Kievprime 2M and Kievprime 3M quoted at 18.0%; Kievprime 6M and Kievprime 1Y were quoted at 19.0%. NBU extended UAH 439 mn refinancing to banks during the week (UAH 158 mn for the previous week), whereas banks acquired NBU deposit certificates worth UAH 70 bn (UAH 68 bn during the previous week).

Local bond markets

The Finance Ministry placed domestic bonds worth UAH 34 mn last week. NBU made no operations with gov. domestic bonds. Non-Bank Corporates and local banks reduced their holdings of gov. domestic bonds by 0.3% w/w or by UAH 68 mn and UAH 737 mn respectively, whereas non-residents players cut their holdings by 0.7% w/w or by UAH 45 mn. Secondary market activities for gov. bonds were distributed as following: short-term bonds accounted for 19% of contracts and 30% of market volume, medium-term bonds made 81% and 70% correspondingly. USD denominated bonds represented 36% of contracts and 52% of the overall market volume. The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 2.4 bn, compared with UAH 3.1 bn for the previous week.

Corporate news

  • Moody’s changes DTEK’S rating outlook to positive, improves default probability expectations to Ca-PD
  • The Government injects additional UAH 6.5 bn in Oschadbank and Ukreximbank
  • Mriya Agroholding targets USD 150 EBITDA per hectare of farmland in 2017
  • Privatbank sees UAH 135 bn net losses due to reserve provisions after the nationalization