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bne May 2019 Eastern Europe I 41
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
external borrowings, both commercial and concessional, and $0.6bn of privati- zation 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 bor- rowing has already been taken in. “During this year, the Ministry is focused
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, fol- lowed by the National Bank of Ukraine (NBU) with 44.5%. Foreign investors account for a tiny 3.3% of the total, but that is already up from nothing two years ago. Last year the share of foreign investors' holdings went up 600% to the current total of $512mn in the first quar- ter and UAH19.5bn as of April 1, 2019.
And with the advent of Clearstream it will grow more. In the first two years after Russia opened its bond market to the outside world foreign investors sunk over $20bn into Russian fixed income instruments. If Ukraine follows a similar trajectory then foreigners could invest up to $4bn into Ukraine’s domestic market in the next two years, which will allow it to comfortably meet all its obligations over the next five years.
“The debt numbers only just add up and that assumes there are no more shocks or surprises”
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 institutions (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 Intel- liNews that in 2019 its borrowing plan is $11.6bn, which includes $6.9bn of domestic debt issuances, $4.2bn of
on maximizing funding from official lenders. The decision on the placement of government Eurobonds will be based on the market conditions and the resid- ual 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 borrow-
ing in the total) and just the donor and Eurobond issues in foreign exchange will just about cover the $16.1bn needed to
Domestic government bond issuance (in UAH) 2017
2018
60,429 1,716
17.92% 15.87%
YTD 2019
32,865 -
19.06% -
UAH-denominated bonds (UAH m)
Funds remitted to state budget
32,755
65,128
33,695
up to 1 year 3-5 year
up to 1 year 3-5 year
11,294 1,932
15.23% 15.11%
1-3 year
19,529
2,983
830
over 5-years
-
-
-
Weighted average yield at auction, %
15.02%
17.79%
19.03%
1-3 year
14.89%
16.18%
17.78%
over 5-years
-
-
-
Consumer inflation
13.7%
9.8%
9.2%
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