Ukraine Fixed Income Weekly (February 15, 2016)

Eurobonds overview

All Ukraine’s Eurobonds’ prices continued losing in prices last week with the deepest price downswing coming to the longer term notes. Ukraine-19 and Ukraine-20 lost 0.9 cents on average, and were traded at 91.8 cents and 90.8 cents respectively. Ukraine-21 and Ukraine-22 lost 0.4 cents on average and were traded at 89.8 cents and 89.0 cents correspondingly. Ukraine-23, Ukraine-24, Ukrained-25, and Ukraine-26  lost 1.2 cents on average to be traded at 88.0 cents, 86.8 cents, 87.6 cents, and 85.8 cents correspondingly. And Ukraine-27 lost 1.6 cents to be traded at 85.5 cents. The market continued negatively reacting to the ongoing political crisis in the country, and the stiff reaction of the IMF and the G-7 countries to the development.

The prices of all our top picks lost 2 points last week, save the  Avangard-18, which remained unchanged. We think, that the prices of the corporate bonds have been among others dragged by the increasing country risk perception about Ukraine, especially in conjunction with the controversies around the Government and the parliamentary coalition. The uncertainty with the country’s financial and economic policy, against the backdrop of the turbulences on the country’s foreign currency market, may have added pressure on the corporate bonds’ issues.

Local bond markets

The Finance Ministry placed UAH 557 mn bonds on the domestic market last week. Secondary market activities for gov. bonds were distributed as following: short-term bonds accounted for 2% of contracts, medium-term bonds made 98% of contracts, and there were no contracts with long-term bonds. NBU acquired gov bonds in the volume of UAH 5.7 mn (minimal increase), UAH 156.9 mn (+0.7% w/w) for non-residents, and UAH 1.4 bn for local banks. In the meantime, local non-bank corporates sold gov. bonds worth UAH 364.6 mn (-3.1% w/w). The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 2.5 bn compared with UAH 2.7 bn for the previous week.

Money markets

Over the last week, the average USD/UAH exchange rate increased by 0.9% w/w and stood at UAH26.0, closing at the level of UAH26.1 on Friday. The average daily FX turnover on the interbank market decreased by 2.1% w/w to USD243.5 mn, while FX trading volume amounted to USD236.4 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts increased by 3.4% w/w or by UAH1.3 bn to UAH38.5 bn.

All kievprime indexes gained, save the Kievprime 1M which remained unchanged at 22.2%. Kievprime overnight (o/n), Kievprime 1W, and Kievprime 2M gained 0.1% on average and were quoted at 18.9%, 20.1%, and 23.4% respectively. Kievprime 3M, Kievprime 6M, and Kievprime 1Y increased by 0.3% to be quoted at an average 24%.

NBU extended UAH 865 mn refinancing to banks during the week, whereas banks acquired NBU deposit certificates worth UAH 69.8 bn compared with UAH 89.3 bn for the previous week.

Macro & politics update

  • IMF chief Christine Lagarde warned Ukraine that its stalled fight against corruption and inability to push through required restructuring measures were jeopardizing the future of the Fund’s rescue plan.The Ukrainian President Petro Poroshenko assured that “Ukraine will continue the reforms, despite the crisis in the relations between the government and the parliamentary coalition”.
  • The German Ministry of Finance insists that Kyiv has found a compromise in the dispute with Russia about the USD 3 bn debt. However, Russia is not yet ready to begin talks on the issue.
  • In order to cover the deficit of the state budget for 2016, the Finance Ministry plans to attract about UAH 98.4 bn (or USD 4 bn) on the domestic market, representing 45.2% of all government borrowings, and UAH 119.5 bn (USD 5 bn) or 54.8% of all borrowings on foreign markets.
  • Consumer prices increased by 0.9% m/m in January 2016. A price increase of 2.2% m/m is registered in foods and non-alcoholic beverages, 0.7% m/m in utilities, and 0.5% m/m in durable goods. A price deflation of 0.4% m/m was recorded for transport goods and services, driven by 1.3% m/m decline in prices of fuel and lubricants.

Corporate news

  • MHP solicits changes to the covenant on its Eurobonds due in 2020
  • Metinvest reported a 17% y/y contraction in crude steel production, 8% y/y drop in iron ore concentrate production in 2015