Fixed Income Weekly (December 19, 2016)

 

Macro & politics update

  • The National Bank of Ukraine as the lender of last resort introduces a new liquidity management instrument – Emergency liquidity assistance (ELA). Emergency liquidity assistance of the regulator under this facility is provided to banks, after they have exhausted all other available means of liquidity support, including shareholders’ bailout, as well as standard refinancing instruments.
  • S&P Global Ratings classifies Ukraine's banking sector in group '10' ('1' being the lowest risk, and '10' the highest). Ukraine’s National Bank expects the banking system to return to profits in 2017.
  • Ukraine's central bank extended for unlimited term the foreign exchange restrictions introduced in 2014 to stabilize the national currency against the looming economic and political crisis. The Central Bank extended the effect of the clauses on mandatory sales of proceeds from foreign operations together with the 120-day foreign trade settlement term by six months, up to June 15, 2017.

 

Eurobonds overview

The avg. prices on the sovereign Eurobonds increased on avg. by 0.7 cents last week, save the Ukraine-2023, which gained 1.1 cents to be traded in the range of 91.6 cents. The shortest Ukraine-2019 and Ukraine-2020 traded at an avg. 95.7 cents, Ukraine-2021 and Ukraine-2022 at 93.0 cents, Ukraine-2023 and Ukraine-2024 at 91.1 cents, while Ukraine-2025, Ukraine-2026, and Ukraine-2027 traded at 89.5 cents on avg. In our view, the sovereign Eurobond prices may have gained support from the news about advances towards the completion of the visa free agreement with the European Union, as well as the passing of the next step in the ratification of the Free Trade and Association Agreement with the European Union. Among our corporate Eurobond picks, Ukrainian Railway-18 and DTEK-18 gained 2 bps and 50 bps respectively, whereas Ukrlandfarming-18, and Avangard-18 lost 21 bps and 19 bps correspondingly. While DTEK-18 continues enjoying support for the favorable market environment secured by increased energy consumption in the winter period, on top of the reform policy of the Government, Ukrainian Railway-18 promises upsides thanks to intensifying competitive changes in the company as a result of the policy of the new management. In our view, Ukrlandfarming and Avangard issues are still under pressure of the negative geopolitical development in the Middle East, on background of low winter business period for the agricultural sector.

Money markets

Over the last week, the average USD/UAH exchange rate increased by 1.0% w/w to 26.24, closing at the level of UAH 25.33 on Friday. The average daily FX turnover on the interbank market increased by 14.9% w/w to USD 186 mn, while FX trading volume amounted to USD 241 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts increased by 26.7% w/w or by UAH 10.5 bn to UAH 49.5 bn. Last week, Kievprime Overnight (o/n) and Kievprime 1M gained 14 bps and 21 bps respectively to be quoted at 13.5% and 16.4%. Kievprime 3M, Kievprime 6M, and Kievprime 1Y declined by an avg. 1bps, and were quoted at 18.1%, 18.6%, and 18.9%, whereas Kievprime 1W and Kievprime 2M remained unchanged at 14.5% and 18.0% correspondingly. NBU extended UAH 4.8 bn refinancing to banks during the week (UAH 4.2 bn for the previous week), whereas banks acquired NBU deposit certificates worth UAH 38.1 bn (UAH 57.2 bn during the previous week).

Local bond markets

The Finance Ministry placed UAH 444 mn and USD 324 mn of domestic bonds last week. NBU made no operations with gov. domestic bonds; local banks and non-bank corporates increased their holdings by 6.2% w/w (+UAH 9.7 bn) and 6.8% (+UAH 938 mn) respectively, whereas non-resident players reduced their holdings by 29.1% w/w (-UAH 2.6 bn). Secondary market activities for gov. bonds were distributed as follows: short-term bonds accounted for 18% of contracts and 37% of market volume, medium-term bonds made 82% and 63% correspondingly. USD denominated bonds represented 49% of contracts and 2% of the overall market volume. The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 4.6 bn, compared with UAH 3.3 bn for the previous week.

Corporate news

  • Eurobond holders asked Ukrainian court to enforce the liabilities on surety from Mriya group companies
  • Ukraine’s Government takes over Privatbank