Page 40 - BNE_magazine_05_2019

40 I Eastern Europe bne May 2019
Ukraine has to meet $16.1bn worth of bond repayments in 2019 which it will only just be able to cover
Ukraine’s bond market revolution about to begin, just as debt repayments are about to soar
Ben Aris in Berlin
Arevolution in the Ukrainian bond market is about to take place that should provide ample financing, raised on the domestic, not internation- al, capital market to deal with a debt mountain Ukraine is facing this year.
In the next five years bond repayments will rise significantly and it was not clear whether the government could make its payments. A restructuring deal cut by for- mer finance minister Natalie Jaresko kept debt repayments down to under $10bn
a year for the last five years, as Ukraine emerged from an almost total collapse of its economy in 2015. Now those pay- ments go up considerably to $16.1bn this year, according to JP Morgan, followed by $12.8bn in 2020, $13.8bn in 2021, $14.7bn in 2022 and $15.2bn in 2023. It’s going to be tight, but assuming a receptive international capital market
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and a moderate expansion of the domes- tic capital market Ukraine should be able to cope with the increase. Indeed, Ukraine seems to be in luck, as after
the US Federal Reserve bank made it clear it was not going to continue its tightening of monetary policy a window has opened for emerging markets bond issuers into which issuers have rushed: emerging European companies and gov- ernments have already issued a total of $27.3bn of debt in the first quarter and bond traders' appetite is not yet sated.
In April Ukraine was due to be hooked up to the Clearstream international payment and settlement system that will plug its financial market directly into the global capital market system. That means bond traders can buy and sell Ukraine’s local sovereign bonds from the comfort of their dealing desks in London
and New York, without having to go through expensive local brokers.
When Russia made the same reform in 2012 it transformed the local capital market as some $20bn of foreign money flooded the market, providing an essen- tial source of fresh capital to finance the Russian budget. Even with last year’s sell off foreign investors still hold some 30% of all the outstanding ruble denominat- ed OFZ treasury bonds, and those have been selling like hot cakes in the last two months thanks to a return of “risk-on” sentiment amongst international inves- tors following the signals from the Fed.
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