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April 19, 2019 www.intellinews.com I Page 3
Yield hungry foreign investors have already been getting into the Ukrainian debt market, buying up the locally issued dollar-denominated sovereign Eurobonds that has allowed Kyiv to meet last year’s obligations as well as the UAH debt.
The finance ministry issued UAH8.2bn, UAH7.7bn, $13.5mn and €2.6mn worth of bonds of various maturities at its weekly auction in the second week of April. And the amount raised on the domestic market has already doubled from UAH32,755mn ($1.2bn) in 2017 to UAH65,128mn in 2018, with as much raised in the first quarter of this year, UAH33,695mn, as was raised in all
of 2017. Following this trend, Ukraine’s finance ministry can raise at least $2bn a year from the domestic market and probably more.
But meeting this year’s obligations is going to be tough. The debt numbers only just add up and that assumes there are no more shocks or surprises – a risky bet in Ukraine.
Currently most of Ukraine’s debt is held by its banks and the central bank and over half is denominated in foreign exchange: $22.5bn is outstanding Eurobonds (33% of the total). Another $15.1bn is debt to international financial institu- tions (IFIs), which is 23% of the total, domestic UAH debt is $22.4bn (33%), domestic FX debt is $5bn (8%), and another $2.1bn (3%) is external debt.
With $16.1bn to pay this year (and $613mn
and €70mn is already due in April) Ukraine
is expecting a total of $3.8bn from the new International Monetary Fund (IMF) deal signed in December, perhaps another $2bn from other international donors including the World Bank and the European Union (EU). And assume $2bn of issues on the domestic market. Add all that up and it comes to $7.8bn – well short of the $16.1bn needed so a lot will depend on the Ministry of Finance borrowing programme.
The Ministry of Finance tells bne IntelliNews that in 2019 its borrowing plan is $11.6bn, which includes $6.9bn of domestic debt issuances,
$4.2bn of external borrowings, both commercial and concessional, and $0.6bn of privatization proceeds.
From $4.2bn of external borrowings Ukraine
has already received €529mn loan arranged
and provided by Deutsche Bank under the
Policy Based Guarantee from the World bank and a $350m tap from the outstanding $1.25bn 9.75% notes maturing in 2028. There is another €500mn of EU MFA program money anticipated in the first half of this year and there are ongoing negotiations on providing concessional financing from the other official lenders. On domestic market $4bn out of $6.9bn planned borrowing has already been taken in.
“During this year, the Ministry is focused on maximizing funding from official lenders.
The decision on the placement of government Eurobonds will be based on the market conditions and the residual amount of required financing,” Alla Danylchuk, head of investor relations at
the ministry said.
Taken all together then Ukraine could raise over $19bn this year (if you include the $6.9bn of UAH domestic borrowing in the total) and just the donor and Eurobond issues in foreign exchange will just about cover the $16.1bn needed to refinance Ukraine's obligations this year.
Closing the gap
The Clearstream deal could make life even
easier and the Ministry of Finance is getting ready to entice more investors into the local market with a revamped website, slick presentations and a “how to access UAH domestic government bonds market?” guide on the ministry website.
In the current borrowing plan 67% is in foreign currency but the state wants to expand the amount it borrows in local currency to reduce the FX risks and diversify the investor base.
Today 48.5% of the total domestic bond portfolio
is held by domestic banks, followed by the National