Ukraine Fixed Income Weekly (November 2, 2015)

Eurobonds overview

Ukraine’s Eurobond prices continued generally gaining last week. The prices of Ukraine-15 and Ukraine-20 remained unchanged at 82.8 cents and 81.2 cents respectively. Ukraine-16, Ukraine-17, and Ukraine-22 gained 0.5 cents on average and were traded at 78.9 cents, 79.5 cents, and 79.8 cents. Ukraine-21 gained 0.1 cent and traded at 79 cents, whereas Ukraine-23 increased by 1.4 cents and was traded at 80.5 cents. In our view, the prices of Ukraine’s Eurobond continued anticipating the forthcoming finalization of the exchange of the notes, announced by the Finance Ministry for November 12, 2015. We think that high interest in the GDP-linked warrants conditioned the stronger price gain for the longer-term Eurobonds, coming to maturity during the period, when the warrants take effect. In the meantime, the lack of changes on the prices of the short-term debts may reflect the uncertainty around the December 2015 Eurobonds (Russian notes).


Among our top picks, Avangard-15, Privatbank-15, and Privatbank-18 remained unchanged, whereas Urklandfarming-18 gained 6 pts. Avangard-15 was on hold in connection with the finalization of the Eurobond restructuring this week, while Ukrlandfarming benefitted from the positive London Court resolution on the Avangard’s debt exchange scheme. In the meantime, we estimate that the corporate Eurobond prices reflected a wait-and-see stance taken by the market in expectation of the results of the local elections in Ukraine, considering that nearly all large Ukrainian businesses have regional stakes. 


Local bond markets

The Finance Ministry made no placement on the domestic market last week. Secondary market activities for gov. bonds were distributed as following: long-term bonds accounted for 76% of contracts, short-term bonds made 22% of contracts, and medium-term bonds represented 2%. NBU acquired UAH 1.9 bn gov. (+0.5% w/w) domestic bonds, local banks UAH 782.7 mn (+1.0% w/w), local non-bank corporates UAH 53.4 mn (+0.3% w/w), and non-residents players purchased UAH 539.5 mn (+2.4 % w/w). The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 1.7 bn compared with UAH  557 mn for the previous week.


Money markets

Over the last week, the average USD/UAH exchange rate increased by 1.9% w/w and stood at UAH 22.9, closing at the level of UAH 23.0 on Friday. The average daily FX turnover on the interbank market decreased by 11.4% w/w to USD 281.2 mn, while FX trading volumes amounted to USD  331.5 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts decreased by 9.8% w/w or by UAH 2.5 bn to UAH 22.9 bn. 

All Kievprime Indexes decreased last week, save the short-term Kievprime overnight (o/n) and the Kievprime 1W, which gained 0.4% and 0.1%  respectively, and were quoted at 18.9% and 19.8% correspondingly. The Kievprime 1M and Kievprime 1Y lost 0.1% on average and were quoted at 22.1% and 24.2% correspondingly. The Kievprime 2M, Kievprime 3M, and Kievprime 6M lost 0.5%, and were quoted at 23.3% on average.  

 NBU extended no refinancing to banks during the week, whereas banks acquired NBU deposit certificates worth 69.1 bn, compared with UAH 74.3 bn for the previous week.


Macro & politics update

  • The settlement of Ukraine's debt restructuring, including delivery of new Ukrainian sovereign securities to holders entitled thereto, is expected to occur on November 12, 2015. The only series of Ukrainian bonds which was kept out of the restructuring  negotiations, and whose holders will accordingly be ineligible to receive new sovereign securities on the settlement date, is the December 2015 USD 3 bn bond” (The “Russian bond”).
  • NBU kept its base lending rate at 22%. The decision should support the pattern of decreasing inflation expectations. 
  • The net losses of operating Ukrainian banks amounted to UAH 52.2 bn (USD 2.4 bn) in 9M2015. Banks’ income fell by 2.8% y/y and amounted to UAH 153.5 bn (USD 7.1 bn), whereas expenditures increased by 22.1% y/y and equaled UAH 205.7 bn (USD 9.5 bn). 
  • Washington is planning to provide an additional USD 1 bn in credit guarantees to Ukraine in the near future.
  • Ukraine climbed from 96th to 83rd place in the World Bank’s flagship report “Doing Business 2016”.
  • The Anti-Corruption Prosecutor should be appointed through a “completely transparent contest” by the end of November.


Corporate news

  • The High Court of Justice in England and Wales validated Avangard’s restructuring scheme
  • S&P raised MHP’s Foreign Currency Long-Term Corporate Credit Ratings to B-
  • Oschadbank reported net losses of UAH 5.4 bn in 9M2015
  • Ukreximbank reported UAH 4.48 bn of losses in 3Q2015
  • Fitch keeps Interpipe’s Long-Term IDR at RD