Fixed Income Weekly (December 6, 2016)


Macro & politics update

  • Ukraine’s GDP grew by 1.2% y/y in January-October, 2016, according to estimates of the Ministry of Economic Development and Trade. The consolidated production index, calculated by the Ministry, demonstrated an accelerated growth of 3.2% y/y in ten months, up from an increase of 2.8% y/y in nine months, thanks to the agricultural sector (2.8% y/y), construction (13.7% y/y), and domestic trade (4.6% y/y)
  • Ukraine’s current account deficit fell by 73.7% m/m (-45.7% y/y) in October, 2016, and amounted to USD 234 mn. In ten months of the current year, however, the current account deficit has increased to USD 2.5 bn in January-October 2016. The financial account surplus declined by 77.1% m/m (-52.7% y/y) to USD 311 mn in October. The cumulative ten-month financial account balance was positive at USD 3.5 bn. The overall development left the balance of payment with a surplus of USD 91 mn (-81% m/m; -60% y/y) in October, while the ten-month cumulated payment surplus stood at USD 1 bn.


Eurobonds overview

The avg. prices on the short-term sovereign Eurobonds Ukraine-2019, Ukraine-2020, and Ukraine-2021 declined by 0.8 cents on avg. last week, to stand at 95.5 cents, 93.7 cents, and 92.1 cents respectively. The medium-term Ukraine-2022, Ukraine-2023, and Ukraine-2024 lost 0.5 cents on avg. to be traded at 90.3 cents. The long-term Ukraine-2025, Ukraine-2026, and Ukraine-2027 declined in prices by 1.0 cents and traded in the range of 88.3 cents. We think that the sovereign Eurobond prices continue reflecting concerns about emerging political risks in the country, following the presidential elections in the US, and reinforced by the latest corruption scandals involving the country’s leadership. Among our corporate Eurobond picks, DTEK-18 continued gaining in prices, growing by another 50 bps over the week. Meanwhile, RailUA-18 and Ukrlandfarming-18 fell by about 20 bps each. We see the minimal price lost on RailUa and Ukrlandfarming to be a reflection of market expectations of the near-term debt operations of the two companies, while DTEK issues receive confident support from the regulatory development in the country, on top of the observable improvement in the company’s operations. We withdrew the Eurobond issues of Privatbank from our top-picks, considering the increasing uncertainties with the liquidity position of the bank in the medium-term due to its local debts, as well as the heighten political discussions around the bank. In our view, these issues may drag the prices on Privatbank’s issues down in the near future.

Money markets

Over the last week, the average USD/UAH exchange rate nearly remained unchanged at UAH 25.67, closing at the level of UAH 25.90 on Friday. The average daily FX turnover on the interbank market increased by 6.0% w/w to USD 163 mn, while FX trading volume amounted to USD 184 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts increased by 4.8% w/w or by UAH 2.0 bn to UAH 43.3 bn. Last week, most Kievprime indexes declined, save the longest Kievprime 6M which remained unchanged at 18.7%, and Kievprime 1Y which gained 0.03 bps to be quoted at 18.9%. The short-term Kievprime Overnight (o/n) and Kievprime 1W fell by 0.13 bps to be quoted at 13.5% and 14.5% respectively. Kievprime 1M lost 0.3 bps and was quoted at 16.4%, whereas Kievprime 2M and Kievprime 3M dropped by 0.03 bps to be quoted in the range of 18.2%. NBU extended UAH 727 mn refinancing to banks during the week (UAH 2.8 bn for the previous week), whereas banks acquired NBU deposit certificates worth UAH 48 bn (UAH 28 bn during the previous week).

Local bond markets

The Finance Ministry placed no domestic bonds last week. NBU, non-bank corporates, and non-resident players reduced their holdings of gov. domestic bonds by 0.4% w/w (-UAH 1.5 bn), 1.6% w/w (-UAH 222.3 mn), and 12.5% w/w (-UAH 1.3 bn) respectively. Local banks increased their holding by 0.3% w/w (UAH 406 mn). Secondary market activities for gov. bonds were distributed as follows: short-term bonds accounted for 19% of contracts and 14% of market volume, medium-term bonds made 81% and 86% correspondingly. USD denominated bonds represented 24% of contracts and 1% of the overall market volume. The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 2.1 bn, compared with UAH 2.4 bn for the previous week.

Corporate news

  • Metinvest’s sales revenue increased by 2% m/m in September, 2016
  • EIB considers EUR 150 mn loan to Ukrzaliznytsia
  • Avangard reduced net loss for 9M2016 by 74% y/y