Ukraine Fixed Income Weekly (December 15-19, 2014)

Eurobonds overview

During the previous week the prices of Ukrainian sovereign Eurobonds were extremely volatile. On Tuesday prices of UKRAIN-15 Eurobonds dropped by 13 points, while UKRAIN-23 prices declined by nearly 7 points. The declines were most likely due to fears of a further delay in the disbursement of the next IMF tranche to Ukraine and the hard position of the EU insisting that the Ukrainian government show some progress on reforms. However, prices recovered somewhat by the end of the week, reacting to positive news about Obama signing the “Ukraine Freedom Support Act” bill and the possibility of additional financial assistance from the EU and IMF.


Furthermore, the Ukrainian Eurobonds prices were pressured on Friday, when S&P lowered Ukraine’s long-term credit rating to “CCC-”. The rating agency noted the expected repayments of USD 11 bn next year (including government external debt and local foreign currency issuance, as well as corporate debts), while the maximum amount that can be withdrawn in 2015 according to the IMF program is USD 10.7 bn.

Corporate Eurobonds mostly followed this trend. Among our top picks, the Eurobonds of UKREXIM-16 and PRIVAT-15 led decliners, falling by 8 points and 4 points w/w respectively. Indications on UKRLAN-18 weakened slightly, while prices of RAILUA-18 were flat. OSCHAD-15 and UKREXIM-15 appreciated slightly by 1-2 points.


Local bond markets

This week the Ministry of Finance held 3 primary market auctions on local government bonds. 2-year UAH-denominated bonds were sold on Monday with a nominal interest rate of 17.6% and in the volume of UAH 1.0 bn. On Tuesday and Friday the MoF sold UAH 1.0 bn and UAH 0.5 bn, respectively, of 5-year UAH-denominated bonds at 14.25%. Interest rates set by the MoF for 2-year and 5-year bonds was at the level of the previous auctions on the primary market. At the same time 2-year and 5-year UAH-denominated government bonds traded on the secondary market YTMs of 29% and 31%, respectively. This indicates that there was no market demand during the primary market placement and the bonds were likely to be bought by one of the state-owned banks. 

On the next scheduled auction on December 23— possibly the last in 2014—the MoF is going to sell 5-year UAH-denominated bonds.


Money markets

The USD/UAH exchange rate on the interbank market rose steadily during the first half of the week, increasing by 1.3% w/w to 16.17. The volume of the interbank sales of foreign currencies rose 15% w/w and on Friday constituted the equivalent of USD 442 mn.

Outstanding amounts held on banks’ correspondent accounts last week increased by UAH 3.9 bn or 11.7% to UAH 37.8 bn. Kievprime overnight (o/n) rose by 85 bps and reached 16.60%; Kievprime 1W increased by 60 bps to 17.60%; Kievprime 1M increased by 20 bps to 19.20%; Kievprime 3M declined by 10 bps to 19.4%; Kievprime 6M by 10 bps to 19.4%; and Kievprime 1Y by 10 bps to 19.4%.

The NBU provided refinancing to the banks in the amount of UAH 11.7 bn.


Corporate news

Fitch downgraded the Viability Rating of Ukrainian PJSC “Privatbank” from “b-“ to “ccc”



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