Ukraine Fixed Income Weekly (February 1, 2016)

Eurobonds overview

All Ukraine’s Eurobonds’ prices increased last week, with the exception of the short-term Ukraine-19, which remained unchanged at 94.5 cents. Ukraine-20 gained 1.7 cents and was traded at 94.7 cents. Ukraine-21, Ukraine-22, and Ukraine-23 gained 0.7 cents on average, with Ukraine-21 trading at 93.0 cents, and Ukraine-22 and Ukraine-23 at 92.3 cents on average. Ukraine-24, Ukraine-25, Ukraine-26, and Ukraine-27 gained 0.7 cents on average, with Ukraine-25 trading at 92.0 cents, against an average 91 cents for Ukraine-24, Ukraine-26, and Ukraine-27. Some perception of a gradual political stabilization in the country on background of news about Russia’s search for a viable exit strategy in the eastern Ukrainian conflict must have lent a minimal support to the Ukrainian sovereign bonds last week.

The prices of our top picks remained mostly unchanged last week, save Privatbank-18, which recorded a minor lost of 0.5 points. The development on the corporate bond market seems to have been restrained by remaining uncertainties on the country’s foreign currency market, as the local currency marked another deep plunge.

Local bond markets

The Finance Ministry placed UAH 89 mn bonds on the domestic market last week. Secondary market activities for gov. bonds were distributed as following: short-term bonds accounted for 5% of contracts, medium-term bonds made 95% of contracts, and there were no contracts with long-term bonds. NBU acquired gov bonds in the volume of UAH 19 mn (minimal increase), UAH 97 mn (+0.9% w/w) for local non-bank corporates, UAH 516 mn for non-residents (+2.3% w/w); local banks sold gov bonds worth UAH 6.9 bn (-7.3% w/w). The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 1.9 bn compared with UAH 3.2 mn for the previous week.

Money markets

Over the last week, the average USD/UAH exchange rate increased by 1.5% w/w and stood at UAH 25.1, closing at the level of UAH 25.6 on Friday. The average daily FX turnover on the interbank market decreased by 10.0% w/w to USD 221.3 mn, while FX trading volume amounted to USD  182.8 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts decreased by 9.6% w/w or by UAH 4.2 bn to UAH 39.8 bn.

Over the last week, all the Kievprime indexes lost save the Kievprime overnight (o/n) which gained 0.1% and was quoted at 18.8%.  The shorter-term Kievprime 1W, Kievprime 1M, and Kievprime 2M lost 0.1% on average and were quoted at 20.0%, 22.1%, and 23.3% respectively. The longer-term Kievprime 3M, Kievprime 6M, and Kievprime 1Y lost 0.5% on average and were quoted at 23.3%.

NBU extended no refinancing to banks during the week, whereas banks acquired NBU deposit certificates worth UAH 90.3 bn compared with UAH 82.2 bn for the previous week.

Macro & politics update

  • The National Bank of Ukraine (NBU) revised downwards its forecast for Ukraine's GDP growth in 2016 to 1.1%, leaving inflation at 12%, smoothed the country’s GDP drop estimate in 2015 from 11.5% to 10.6%, anticipating a growth of 3% in 2017 on background of an annual inflation of 8%.
  • The Ukrainian Parliament adopted the amendments on the Law on the protection of economic competition, in the part relating to the control over economic concentrations. The amendments raise the ceiling on the volume of assets and sales of the companies involved in mergers and acquisitions that requires clearance of the antimonopoly committee, and at the same time simplifies the procedures for receiving the permission for such operations.
  • The five main goals of the Finance Ministry for the current year,  according to the finance minister, are: fighting corruption in the Ministry, and in the tax and customs areas; adopting and implementing the complex tax reform; efficient tax management, strengthening of the budget discipline, and reduction of the deficit of public finances; the creation of a Department for strategic fiscal risks, dealing with the state companies subordinated to the Ministry of Finance; and widening of the investment resources available to the country.   

Corporate news

  • Oschadbank passes NBU stress test on capital adequacy, anticipates tough operating year
  • The government adopted a UAH 15 bn capital injection in Oschadbank and Ukreximbank
  • Metinvest secures creditors’ approval on the waiver of default events, standstill agreement up to May 27, 2016
  • Interpipe forecasts a further contraction of scrap metal production in 2016