Ukraine Markets Daily (January 13, 2015)

Market comment

The UX Index was up by 1.6% in UAH terms on Monday, and up by 0.6% in the US dollar terms, while the PFTS index was up by 1.6% in UAH terms. Eight out of ten companies in the UX index were up in the UAH terms with the largest increase in prices observed for DonbassEnergo (8.1%), Kryukiv carriage (4.7%) and Ukrnafta (4.1%).

On the interbank exchange market, the USD/UAH spot rate was up by 1.0% with the closing price of 16.30 (mid price) on Monday, according to, while the average exchange rate reported by the NBU was 15.76.

Ukraine 5-year CDS were up by 6.8% on Monday.


Market news

• Ukraine’s international reserves fell by 24% to USD 7.5 bn in December


Ukraine’s international reserves fell by 24% to USD 7.5 bn in December

According to the statement of the National Bank of Ukraine, as of January 1, 2015, the country’s international reserves stood at USD 7,533 mn compared to USD 9,966 mn a month ago. As was stated by the NBU, the decrease in reserves was primarily caused by the need to support payments of "Naftogaz Ukraine" for imported natural gas (USD 1.65 bn were reserved with the NBU to pay for natural gas imported in November-December 2013). In addition, the level of international reserves was affected by the interventions of the NBU to sell foreign currency in the amount of USD 831 mn, most of which was also directed to support payments of  "Naftogaz Ukraine".

Furthermore, the NBU reported that USD 738 mn were spent in December 2014 to repay and service public and publicly guaranteed debt in foreign currency, including with the IMF.

The volume of foreign exchange receipts by the Ukrainian government amounted to USD 767 mn, out of which USD 617 mn were transferred by the European Commission, USD 20 mn – by the IBRD, and another USD 130 mn were received from the placement of local USD-denominated bonds. 

Our view:

The news is NEGATIVE for the Ukrainian economy. The decrease in Ukraine’s international reserves puts a pressure on the local currency and sovereign Eurobonds, as the risk of default is more pronounced. Moreover, recently the Russian Minister of Economy A. Siluanov made a statement that Ukraine have breached the conditions of the USD 3 bn loan provided by the Russian Federation in late 2013 in the form of Eurobonds (namely, that the country’s public debt-to-GDP ratio should not exceed 60%), and thus the loan can be demanded to be repaid earlier. Considering the aforementioned factors, we strongly believe that Ukraine will need significant support from the international lenders in order to prevent default. We have high hopes for the results of the IMF mission that arrived in Kyiv last week and is expected to conclude its work by January 29.

In January, Ukraine will have to pay USD 120 mn in coupon payments on 2015 Eurobonds, as well as USD 223 mn to the IMF, and another USD 50 mn to the World Bank, or USD 393 mn in total. Additionally, some amount of foreign currency will be spent to purchase natural gas (reserves in underground storages stood at 10.6 bcm as of January 10). As for the inflows, we can expect USD 590 mn coming in from issued loans (Germany has provided Ukraine with EUR 500 mn of credit loan guarantees to finance the restoration of infrastructure in Eastern Ukraine).



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