Ukraine Fixed Income Weekly (April 6, 2015)

Eurobonds overview

Last week prices of the Ukrainian sovereign Eurobonds maturing in 2015 declined slightly to 44.5 cents on the dollar, while UKRAINE-16 and UKRAINE-17 issues traded at  40.4. Prices of longer issues (UKRAINE-22 and UKRAINE-23) appreciated slightly, while indications on UKRAIN-20 and UKRAIN-21 remained flat.  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, prices of Avangard-15 Eurobonds declined by 2.5 points following the bad 4Q2014 financials and ratings revision. Similarly, indications on Ukrlandfarming-18 slid by 2 points, while prices of Privat-18 issue remained flat.


Macro & politics

The National Bank of Ukraine forecasts a GDP decline of 7.5% this year, and a moderate growth of 3.0% in 2016. Additionally, the NBU projects inflation at 30% in 2015, and 13% in 2016.

Ukraine received a EUR 500 mn loan from Germany to finance the restoration of infrastructure in Eastern Ukraine.

The Ukrainian authorities continued a crackdown on corruption. Last week’s developments included the dismissal of the Head of the State Financial Inspection and the Head of the Traffic Police, while Ukraine’s President Petro Poroshenko suggested that Ukrainian officials charged with corruption should be stripped of a right to bail.


Local bond markets

Last week the Ministry of Finance held one primary market auction to sell the “military” local bonds with a yield of 7%, however they are not representative of the general market yields that are around 28-30% for the VAT bonds. Meanwhile, the trading volumes on the secondary markets remain low: during the last week, the total turnover of local government bonds on the “Perspectiva” stock exchange amounted to UAH 2.9 bn.


Money markets

Over the last week, the USD/UAH exchange rate on the interbank market was fluctuating in the range of 23.4-23.5 and closed at 23.51 on Friday. Average daily FX turnover on the interbank market went down slightly by 0.5% to USD 230 mn, while FX trading volumes amounted to USD 263 mn on Friday. 

Average outstanding amounts held on banks’ correspondent accounts last week decreased by UAH 4.4 bn or 15% to UAH 24.9 bn. Kievprime overnight (o/n) increased by 50 bps to 23.38%, Kievprime 1W grew by 70 bps to 26.25%, Kievprime 1M increased by 15 bps to 28.3%, Kievprime 3M as well as Kievprime 6M together with Kievprime 1Y remained flat at 26.0%. The National Bank of Ukraine provided refinancing to the banks in the amount of UAH 3.6 bn.


Corporate news

  • Fitch downgrades Ukreximbank to ‘C’
  • Avangard’s EBITDA down by 49% y/y to USD 130 mn in 2014 
  • DTEK amends its Exchange Offer terms
  • S&P downgrades UkrLandFarming to ‘CC’ from ‘CCC’



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