Fixed Income Weekly (October 10, 2016)

  • On October 3, 2016, the IMF and the Government of Ukraine disclosed the updated memorandum documents, containing the terms of the cooperation between the parties. The IMF projects a real GDP growth of 1.5% in 2016, a slight picking of inflation up to around 13% by end of 2016, the current account at 1.5% of GDP, and gross reserves at USD 16.8 bn.
  • Ukraine's foreign reserves increased by 10.5% m/m in September, and amounted to USD 15.6 bn by October 1, 2016
  • Consumer prices increased by 1.8% m/m (7.9% y/y) in September, 2016, after falling by a monthly average of 1.2 % m/m over the three previous summer months
  • On October 6, 2016, the Ukrainian Parliament extended the moratorium on farmland sales at least up to January of 2018, referring to lack of necessary legislative provision for a full-fledged land market.

 

Eurobonds overview

All Ukraine’s sovereign Eurobond prices decreased last week. The avg. prices on Ukraine-2019 and Ukraine-2020, as well as on Ukraine-2025 fell by 0.2 cents to 98.8 cents, 97.6 cents, and 94.9 cents respectively. Ukraine-2021 and Ukraine-2026 lost 0.4 cents and were traded at 96.7 cents and 94.4 cents. Ukraine-2022, Ukraine-2023, Ukraine-2024, and Ukraine-2027 lost 0.6 cents on avg. to be traded at 96.0 cents, 95.5 cents, 95.1 cents, and 94.0 cents correspondingly. We think that the prices on the sovereign Eurobonds continued adjusting on expectations of a gradual stabilization of the country’s financial and economic situation in the framework of the implementation of the latest credit agreement with the IMF and the wider international financial community.

Over the last week, DTEK-18, Privatbank-18, and Privatbank-21 gained in prices by 50 bps, 230 bps, and 179 bps respectively, while Ukralndfarming-18 and Ukrainian Railway-18 lost 21 bps and 18 bps correspondingly. DTEK seems to have benefitted from the latest decisions of the Government as to electricity prices, electricity market and infrastructure regulation, as well as the positive news about the debt restructuring negotiations of the ecompany. Privatbank from its side most likely gained from the insistence of the country’s regulatory authorities about the strategic importance of the bank as a systemic deposit institutions. The negative development in the prices of Ukrlandfarming-18 and Railway-18 may reflect a downward revision of the outlook for the agriculture and railway transport ahead of the winter season.

Money markets

Over the last week, the average USD/UAH exchange rate decreased by 0.05% w/w to UAH 25.88, closing at the level of UAH 25.84 on Friday. The average daily FX turnover on the interbank market decreased by 6.5% w/w to USD 294 mn, while FX trading volume amounted to USD 347 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts decreased by 2.2% w/w or by UAH 911 mn to UAH 41 bn.

All Kievprime indexes declined last week, save the Kievprime 2M which remained unchanged at 18%. Kievprime overnight (o/n) lost 0.16 ppt to be quoted at an avg. 14.7%. Kievprime 1W and Kievprime 1M lost 0.03 ppt on avg. to be quoted at 15.9% and 17.3% respectively. Kievprime 3M lost 0.13 ppt and was quoted at 18.2%. And Kievprime 6M and Kievprime 1Y fell by 0.07 ppt and were quoted in the range of 18.6%. NBU extended UAH 1.8 bn refinancing to banks during the week (UAH 3.4 bn for the previous week), whereas banks acquired NBU deposit certificates worth UAH 36.6 bn (UAH 38.3 bn during the previous week).

Local bond markets

The Finance Ministry made no placement of domestic bonds last week. NBU cut its holding of gov. domestic bonds by UAH 4 mn (0.0%), non-bank corporates reduced their holding by UAH 141 mn (-1.0% w/w), and non-resident investors by UAH 19 mn (-0.10% w/w); local banks increased their holding by UAH 103 mn (+0.07% w/w). Secondary market activities for gov. bonds were distributed as follows: short-term bonds accounted for 18% of contracts and 20% of market volume, medium-term bonds made 82% and 80% correspondingly. USD denominated bonds represented 23% of contracts and 1% of the overall market volume. The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 2.8 bn, compared with UAH 4.8 bn for the previous week.

Corporate news

  • Ferrexpo reported 4% reduction of pellet output in 9M2016
  • DTEK signs standstill agreement with its lending banks up to January 28, 2017