Page 50 - UKRRptAug19

taxed.
Ukrzaliznytsia (Ukrainian Railway) followed the government into the international debt capital market with a $500mn Eurobond issue to high demand on June 2.
This was the second time the state-owned rail monopoly tried to get a Eurobond away that it intends to use to modernise its services. Ukrzaliznytsia issued a five-year note with a yield of 8.25% Interfax Ukraine reported, citing market participants.
The placement was organized by JP Morgan and local investment bank Dragon Capital. The road show in the UK and continental Europe started on June 26 and Ministry of Finance officials reported they were met with enthusiasm.
The government issued a €1bn seven-year Eurobond on June 14 that yielded 6.75% -- below the 7% the bond was expected to cost before the issue – that was the first euro-denominated Eurobond issue in seven years. All Ukraine’s sovereign bonds have rallied recently with the spreads on the benchmark US treasury bills tightening by some 100 basis points this year say analysts.
“Follows hugely successful sovereign issue in euros a few weeks back. Since issuance that bond has rallied over 6.5 points, and the whole Ukraine sovereign curve has tightened well over 100bps,” Tim Ash, Senior Sovereign Strategist at BlueBay Asset Management said in a note. “Mid-may Ukraine 10Y in dollars was trading at 9.5%, and its now down at 7.7%, a massive reduction in Ukraine's cost of borrowing overseas - some of this is the broader risk-on market rally, but only around 50bps of this, the rest is I think appreciation finally of the Ukraine story (better ratios now than peers), optimism over the Zelenskiy presidency, et al.” JSC Ukrainian Railway is offering notes to international investors, becoming the first corporate Ukrainian issuer to follow the government’s transaction two weeks ago.
International bond traders are hot for Ukrainian fixed income at the moment. In the five weeks since the Ukrainian domestic fixed income market was hooked up to the global financial system after it joined Clearstream non-residents have invested over $2bn into hryvnia-denominated bonds and already own more than 7% of the outstanding bills, up from next to nothing a year ago.
The enthusiasm for Ukrainian debt will make the government’s life a lot easier as it faces a debt mountain of redemptions this year.
Ukraine’s ability to repay its obligation still depends on receiving the remaining two tranches of International Monetary Fund (IMF) money this year, which is not expected to resume until the autumn after the July general election to elect a new parliament is passed. However, the new administration of Ukrainian president Volodymyr Zelenskiy has said that it wants to open negotiations with the country’s main donor to return to the longer-term Extended Fund Facility (EFF) that runs over several years from the Stand by agreement (SBA) it currently has.
Relations with the IMF soured under former President Petro Poroshenko thanks to foot dragging on reforms, especially the anti-corruption actions the fund insisted on, and Ukraine was downgraded from an EFF to a SBA as a
50 UKRAINE Country Report August 2019 www.intellinews.com