Ukraine is preparing to issue Eurobonds

The Ministry of Finance intends to hold the first placement of Eurobonds this year in March. It is planned to raise about $1.5 billion on external capital markets. Experts explain these plans with the hope that they will be able to take advantage of the short-term improvement in the financial market, which could begin if the situation with the Greek debt is finally resolved.

Yesterday, the Ministry of Finance published a plan for managing public debt in the first quarter of 2012. The ministry expects to attract UAH 30.9 billion on the foreign and domestic markets, which is 31.45% of the borrowing volume planned for the whole year. The bulk of the amount (UAH 22.9 billion) is planned to be raised in March, while in January-February the ministry assessed its chances on the debt market more soberly. Thanks to the sale of domestic government bonds, UAH 1.05 billion was received in January (UAH 485 million and $143.98 million), and in February it is planned to attract UAH 6.87 billion (so far only UAH 423.3 million and $52.1 million have been received).

The Ministry of Finance expects to raise most of the borrowings in the first quarter—17.2 billion ($2.15 billion)—on foreign markets. In particular, Eurobonds worth $1.5 billion will be issued in March. The Ministry has already selected a syndicate of lead managers. Like a year ago, it included JPMorgan, Morgan Stanley and VTB Capital. Sberbank of Russia became a new member of the syndicate. In general, the budget plans to attract external funds for UAH 37.53 billion ($4.69 billion). This policy was received with understanding at the IMF. “In the first weeks of the new year, there was an opportunity to enter the loan market, as free $30-40 billion appeared there. Ukraine did not take advantage of this chance, but it is likely that there will be others. We need to be prepared for the fact that they will be short-term, and we will have to act quickly,” said the head of the IMF office in Ukraine, Max Allier.

It should be noted that the placement of Eurobonds is difficult to explain by the need to make payments on previous loans. According to the Ministry of Finance, the next payment on external loan bonds should take place only in June ($500 million), and the government will begin repaying IMF loans in August ($190 million). True, in June the government will have to repay $2 billion on the VTB Capital loan, but earlier Prime Minister Mykola Azarov announced that this loan would be restructured. At the same time, the placement of Eurobonds planned for March cannot mean a repackaging of the VTB Capital loan, since last week the head of Sberbank of Russia German Gref said that the bank is negotiating with the Ukrainian government regarding the “placement of debt instruments on the market.”

According to the head of the financial market analysis department of ING Bank Ukraine, Alexander Pecheritsyn, the haste of the Ukrainian authorities is associated with instability in foreign markets, which may prevent placement later. Credit default swaps for Ukrainian Eurobonds cost 833.9 points on February 7, having decreased by 41.4 points over the month; bonds on the secondary market were sold at a discount of 2-18% to their nominal value, which means a yield of at least 10% per annum. “The market is very volatile, so it is advisable to prepare for placement in advance in order to avoid such a development of events when, on the eve of payments, the situation with loans will be unfavorable, but you will still have to raise funds, even despite the high rate,” the expert notes. At the same time, Mr. Pecheritsyn admits that March may be an unfavorable period for borrowing, since it is still not clear whether Greece will default or not. Let us remind you that on March 20, the Greek authorities must make payments on bonds in the amount of 14.4 billion euros. “The chances of placement in the first quarter are very low, but the Ministry of Finance is doing the right thing: if the situation with the Greek debt is resolved, euphoria in the financial market will create a small window of opportunity, but in order to take advantage of it, it is necessary to announce now its plans to place Eurobonds,” the executive clarifies Director of the International Blazer Foundation Oleg Ustenko.

Yuri Panchenko

Debt financing plan for the general fund of the state budget in the first quarter of 2012, UAH million

JanuaryFebruaryMarchtotal

Balance	0	-938.7	16000.1	15061.4
Loans	305.8	3967.9	20117.9	24391.6
Domestic	305.8	3967.9	7967.9	12241.6
External	0	0	12150	21150
Repayments	305.8	4906.6	4117.8	9330.2
Domestic	4.8	4542.7	4030.3	8577.9
External	300.9	363.9	87.5	752.3

Source: Ministry of Finance

The Ministry of Finance expresses its placement