ESCP Ukraine Fixed Income Weekly March 7, 2016

Eurobonds overview

The prices of Ukraine’s Eurobonds gained 6.1 cents on average last week. Ukraine-19 and Ukraine-20 traded at 91.7 cents on average; Ukraine-21 and Ukraine-22 were at 90.0 cents on average; Ukraine-23 and Ukraine-25 traded at 87.7 cents on average; Ukraine-24, Ukraine-26, and Ukraine-27 traded at 86.1 cents on average. The market rally came on backdrop of the rumors about the consent of the current Prime-Minister to step down in favor of the current Finance Minister Natalia Jaresko, who is highly estimated among the business and investment community for her successes in reforming the financial policy of the country, and handling the negotiations on the restructuring of the country’s debt to private investors. Natalia Jaresko is also seen as an essential link between the country, foreign creditors and investors overall.

The prices of all our top picks remained unchanged last week, mostly reflecting an overall stagnation in the prices of Ukraine’s private Eurobonds’ issues, on background of a market shift towards the sovereign and quasi-sovereign notes.

Local bond markets

The Finance Ministry made no bond placement on the domestic market last week. Secondary market activities for gov. bonds were distributed as following: short-term bonds accounted for 6% of contracts, medium-term bonds made 94% of contracts, and there were no contracts with long-term bonds. Local banks sold gov bonds in the volume of UAH 2.2 bn (-1.9% w/w), non-bank corporates and non-residents sold UAH 86.4 mn (-0.7% w/w), and UAH 925.3 mn (-3.8% w/w) respectively, while NBU sold gov bonds worth UAH 31.0 mn (0.0% w/w). The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 2.9 bn compared with UAH 1.5 bn for the previous week.

Money markets

Over the last week, the average USD/UAH exchange rate decreased by 1.5% w/w and stood at UAH 26.7, closing at the level of UAH 26.5 on Friday. The average daily FX turnover on the interbank market increased by 15.1% w/w to USD 263.3 mn, while FX trading volume amounted to USD 288.2 mn on Thursday. The average outstanding amounts held on banks’ correspondent accounts decreased by 0.8% w/w or by UAH 287 mn to UAH 36.2 bn.

Over the last week, the shorter Kievprime indexes gained 0.1% on average, whith Kievprime overnight (o/n) quoted at 19.3%, Kievprime 1W at  20.3%, and Kievprime 1M at 22.4%. The longer term Kievprime indexes lost 0.2% on average. Kievprime 2M and Kievprime 3M were quoted at 23.2% on average, whereas Kievprime 6M and Kievprime 1M were quoted at 23.7% on average.

NBU extended no refinancing to banks during the week, whereas banks acquired NBU deposit certificates worth UAH 50.2 bn compared with UAH 51.9 bn for the previous week.

Macro & politics update

  • Ukraine’s GDP contracted by 2.1% y/y in January 2016, according to a report of the economic ministry. The Ministry downgraded its GDP forecast for 1H2016 from 1% expansion to 0% growth
  • Ukraine’s balance of payments was positive at USD 120 mn in January 2016. The current account deficit expanded by 31.6% y/y to USD 379 mn. The capital and financial account balance was positive at USD 501 mn
  • Ukraine’s foreign reserves increased by 0.7% m/m in February 2016, and amounted to USD 13.538 bn
  • Ukraine’s Central Bank opted to keep its benchmark interest rate unchanged at 22%. The NBU also eased some capital control restrictions
  • Ukraine and Japan signed a credit agreement on the Second Development Policy Loan (DPL II) worth USD 300 mn to assist economic reforms
  • The state budget showed a UAH 2.45 bn surplus in January 2016. , budget revenues grew by 32.6% y/y  to UAH 29.6 bn, while budget expenditures decreased by 13.9% y/y to UAH 27.16 bn

Corporate news

  • Metinvest reported a negative USD 296 mn EBITDA in December 2015, USD 180 mn cash balance
  • MHP fails to get consent of bondholders on covenant changes; proposes updated terms and increases the consent payment
  • Ukraine’s Cabinet of Ministers adopted the financial plan of the Ukrainian Railways for 2016