Fixed Income Weekly (February 27, 2017)


Macro & politics update

  • A maintenance of the rail blockade against trade exchanges between mainland Ukraine and the separatist enclaves of the Donbas region, supported by some opposition lawmakers and military veterans, may compel the Central Bank to introduce anti-crisis measures, due to its negative impact on the country’s foreign exchange earnings, the NBU Head Valerya Gontareva said
  • Industrial production in Ukraine grew by 5.6% y/y (+5.2% y/y seasonally adjusted) in January 2017. Mining output marginally grew by 0.3% y/y during the month, whereas manufacturing production grew by 9.9% m/m. Energy generation and distribution reported a growth of 2.3% y/y


Eurobonds overview

Last week, the prices on the short-term sovereign Eurobonds Ukraine-2019 and Ukraine-2020 increased by 0.6% on avg. and stood at 101.3 cents and 100.4 cents respectively, according to Thomson Reuters. The prices on Ukraine-2021 and Ukraine-2022 remained unchanged at 99.0 cents and 97.9 cents correspondingly. The prices on Ukraine-2023 and Ukraine-2024 declined by 0.2% on avg. to be traded in the range of 96.5 cents. Ukraine-2025, Ukraine-2026, and Ukraine-2027 decreased by 1.0% on avg. and were traded at 95.0 cents, 94.3 cents and 93.9 cents respectively. We see the market preferences to have shifted towards the shorter end of the sovereign Eurobond maturity spectrum, indicating concerns as to the long-term prospects of the country, while endorsing the new statements of support to the country by the IMF, major international financial institutions, and the wider international community. Among our corporate Eurobond picks, the price on Ukrlandfarming-18 lost 33 bps, Avangard-18 gained 28 bps, whereas Ukrainian Railway-21 remained unchanged. We think that the movement in the prices on Railway-21 mirrors above all the uncertainties associated with the railway blockade in eastern Ukraine.

Money markets

Over the last week, the average USD/UAH exchange rate decreased by 0.8% w/w to 26.9, closing at the level of UAH 26.93 on Friday. The average daily FX turnover on the interbank market decreased by 8.6% w/w to USD 140.9 mn, while FX trading volume amounted to USD 155.3 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts decreased by 1.7% w/w or by UAH 816 mn to UAH 47.8 bn. Last week, the quotations on nearly all Kievprime indexes remained unchanged, save the shortest Kievprime overnight (o/n) which increased marginally by 0.06% and quoted at 13.0%, together with the Kievprime 1M which gained 0.09% to 16.1%. Kievprime 2W was quoted at 14.5%, Kievprime 2M and Kievprime 3M at 18% on avg., Kievprime 6M and Kievprime 1Y at 19%. NBU extended UAH 541 mn refinancing to banks during the week (UAH 258 mn for the previous week), whereas banks acquired NBU deposit certificates worth UAH 43 bn (UAH 38 bn during the previous week)

Local bond markets

The Finance Ministry placed domestic bonds worth UAH 785 mn last week. NBU made no operations with gov. domestic bonds; local banks and non-bank corporates increased their holdings by 3.9% w/w (+UAH 10.1 bn, mostly Privatbank capitalization) and 0.6% w/w (UAH 149 mn); non-resident investors reduced their holding by 2.4% (-UAH 145.8 mn). Secondary market activities for gov. bonds were distributed as following: short-term bonds accounted for 23% of contracts and 21% of market volume, medium-term bonds made 77% and 79% correspondingly. USD denominated bonds represented 24% of contracts and 14% of the overall market volume. The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 5.6 bn, compared with UAH 2.8 bn for the previous week

Corporate news

  • MHP sold its assets located in Crimea
  • Metinvest’s revenue fell by 14% m/m in December 2016
  • Fitch upgrades Kernel’s Long-Term Currency IDRs to ‘B+’; S&P assigns ‘B’ ratings to Kernel Holding and its USD 500 mn 2024 Eurobonds