Page 38 - bne IntelliNews Country Report: Ukraine Dec17

payments, this is expected to drive international reserves up to $22.2bn or 4.2 months of future imports by the end of 2018.
Ukraine’s Finance Ministry sold $573m of puttable 18-month $-denominated domestic bonds at November 28 primary auction, reporting a placement yield of 3.85% p.a. Previously, regular $-denominated bonds with two-year maturity were placed at 5.4% p.a. This sizable placement of dollar-denominated debt came as a surprise, as the government had offered to sell puttable $bonds on the auction day. The sale was split into seven issues maturing in April-May 2019. The sale was split into seven issues maturing in April-May 2019. We think the auction was pre-agreed with state-owned banks, as six issues out of seven attracted only one bid, which in all cases was satisfied. Given that the put option is exercisable at any time subject to a 20 days’ notice (though at the cost of a halved accrued coupon), bankers think the issuance represents bridge financing for the government to substitute for the likely cancelation of a EUR 0.6bn last tranche of the EU’s macro-financial assistance (MFA) program, which had been budgeted for this year. The government hopes to secure a new MFA program next year, though this is yet to be negotiated with the EU.
Ukraine’s Finance Ministry reported on November 21 it raised $88.9mn from the placement of local $-denominated bonds at an average yield of 5.40% at the end of November. The bonds mature in February 2020. The ministry accepted all the 15 bids at the auction. The placement rate was the same as the two previous auctions convened in October and August, when MinFin raised $170mn and $351mn respectively. The next placement of $-denominated local bonds is scheduled for December 19. Most likely, the placement was aimed at accumulating foreign currency to repay $271mn in local Eurobonds due today. If so, the goal has not been reached. Taking into account the recent local bond placement and hard currency debt repayments in November (including an IMF payment), the government will have hard currency outflow of over $600mn this month, which will affect negatively the country’s gross reserves. With such a trend, it looks like our end-2017 Ukraine gross reserves forecast of $18.0bn is too optimistic.
Ukraine aims to issue a $2bn Eurobond in 2018, Finance Minister Oleksandr Danylyuk said , adding he expected the next IMF tranche to be disbursed early next year. The news is in line with our expectations. We think that similar to the recent $3.0bn Eurobond issuance, the planned placement will be accompanied by a liability management operation to extend the outstanding 2020 and 2021 maturities. But given the long delay to IMF financing, Ukraine will be able to issue a new Eurobond only after there are clear signs that the next IMF disbursement is on the way.
The National Bank of Ukraine (NBU) expects to receive $3.5bn in financing from the country's main donor, the International Monetary Fund (IMF), $1.5bn proceeds from Eurobond placement and $500mn in financing from the World Bank in 2018, according to the regulator's November inflationary report. Earlier, Ukraine and the IMF failed to agree a new price-setting formula for domestic gas tariffs, which is crucial for the continuation of existing funding from the $17.5bn bailout agreed with the IMF in 2015. The greenlighting of pension reform and creation of a specialised anti-corruption court are among other steps that are necessary for further IMF funding. The NBU expects that next tranche will be received in the first quarter of the next year. Along with a surplus of the overall balance of payments, this
38 UKRAINE Country Report December 2017 www.intellinews.com