Ukraine Fixed Income Weekly (March 30, 2015)

Eurobonds overview

Last week prices of the Ukrainian sovereign Eurobonds maturing in 2015-2016 declined by 1-3 points, while UKRAIN-17, UKRAIN-20, UKRAIN-21 and UKRAIN-22 all appreciated slightly, with the exception of UKRAIN-23 which dropped by 2 points. It seems that prices have mostly stabilized, and reflect investors’ expectation of harsh restructuring terms, including higher-than-expected principal haircuts. Our view, however, is that it would be counterproductive for Ukraine to propose such radical terms as it could limit the access to capital markets in the future (Ukraine’s Minister of Finance Natalie Jaresko recently noted that she expects Ukraine to regain access to capital markets already in 2017).

Among our top picks, the prices of Ukrlandfarming-18 grew by 2 points, while Privat-18 and Avangard-15 declined slightly by 1 point, most likely due to the negative rating action by Moody’s and Fitch.


Macro & politics

The European Parliament approved a EUR 1.8 bn loan to Ukraine. The first two tranches (EUR 600 mn each) could be available to Ukraine in 2H2015, while the third tranche should be disbursed in 2016.

The Minister of Finance of Ukraine Natalie Jaresko signed a loan agreement with the Canadian Export Agency for CAD 200 mn, which is expected to be distributed to Ukraine by the end of March 2015.  

The Ukrainian authorities have intensified their efforts in the fight against corruption. Igor Kolomoisky, a prominent Ukrainian oligarch and the Head of the Dnipropetrovsk State Administration, submitted a resignation letter after a scandal around Ukrnafta (50% owned by the state) and Ukrtransnafta (fully owned by the state), where he had his business interests. Furthermore, two government officials were arrested on charges of corruption during one of the Cabinet of Ministers sessions.


Local bond markets

Last week the Ministry of Finance did not hold primary market auctions at all. According to the schedule of auctions for April, the MoF only plans to conduct one auction on April 2, 2015 to sell “military” bonds. It seems that the NBU, who was the main buyer of the government’s local bonds, now refuses to increase its portfolio of sovereign debt unless the MoF proposes more attractive yields.


Money markets

Over the last week, the USD/UAH exchange rate on the interbank market went up 1.4% and closed at 23.51 on Friday. Average daily FX turnover on the interbank market grew by 11% to USD 235 mn, while FX trading volumes amounted to USD 255 mn on Friday. 

Average outstanding amounts held on banks’ correspondent accounts last week decreased by UAH 2.5 bn or 7.8% to UAH 29.3 bn. Kievprime overnight (o/n) increased by 85 bps to 22.85%, Kievprime 1W grew by 125 bps to 25.5%, Kievprime 1M increased by 20 bps to 28.1%, Kievprime 3M as well as Kievprime 6M together with Kievprime 1Y fell by 25 bps to 26.0%. The NBU provided refinancing to the banks in the amount of UAH 1.6 bn.


Corporate news

  • Moody’s downgrades DTEK’s rating to ‘Ca’ from ‘Caa3’
  • Moody’s downgrades the ratings of 9 Ukrainian banks 
  • Fitch affirms Avangard, ULF at ‘CC’; withdraws ratings 
  • Moody’s downgrades the ratings of Ferrexpo, Metinvest and MHP to ‘Caa3’ from ‘Caa2’



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