Page 15 - bne Magazine August 2022

bne August 2022 Companies & Markets I 15
Economists are warning that Ukraine can’t afford to wait until September and is facing a growing balance of payments crisis if more money to cover government spending is not made available soon.
The first concrete signs of trouble appeared on July 12 after state-owned national gas giant Naftogaz asked the holders of its $1.4bn worth of bonds to voluntarily delay coupon payments, as the company “needs to preserve cash” to buy some 5.6bn cubic metres of gas for the winter at a cost
of $7.6bn, the company said in a press release. The delay technically constitutes a default on the bond.
“It feels like Ukraine is going to sink into default here as
an afterthought. Because no one thought through the consequences to the full. Naftogas, the state gas company seems to want to pay a $350-odd million maturity due over the next few days and this seems set to start in motion a chain of events that likely then will see the sovereign default on $2.2bn in liabilities due in September. Our read is Naftogas management want to pay / as they think a default will
make their task of finding finance to purchase critical gas imports thru the winter that much more difficult. Someone
in government seems to be pushing for non payment.
A Ukraine default would be a win for Putin. He would argue that the default reflects the fact that in the end the West is not committed enough to Ukraine to write enough cheques to keep Ukraine current. If Ukraine defaults he may well be right,” Timothy Ash, the senior sovereign strategist at BlueBay Asset Management in London, said in a note to clients.
As bne IntelliNews has reported, Ukraine is running out of money and is unable to fund its budget expenditure. Since the start of the war Ukraine has received a total of between $8bn and $11bn from international donors, according to various estimates, but has been running a deficit of between $4bn and $5bn a month.
The Ukraine Ministry of Finance said at the start of this week that foreign funds covered only half of Ukraine's budget needs
of $22bn in March-June. Between March and June, Ukraine received only $10.2bn in foreign loans and grants, according to the Ministry. The money sent has been used to partially cover the deficit. Since the war, Ukraine’s partners have pledged to provide loans and grants worth $32bn, but the government has estimated it needs $39bn, and more recently during the Ukraine Reconstruction Conference it increased that amount to $69bn.
The bulk of the budget finance is currently coming from
the NBU, which has been printing money and transferring cash directly to the government since the war started. The government has also been dipping into the NBU’s hard currency reserves, which have fallen by some $5bn since the start of the war to circa $22.76bn this month – their lowest level in two years. As a result of the falling reserves the hryvnia has come under pressure and tight capital controls have been used to stop the currency devaluing and a dual exchange rate, not seen for a decade, is beginning to reappear on the streets of Ukraine’s cities.
Cut off from almost all other sources of funding, the Ministry of Finance has turned to the local bond market and issuing war bonds has become the second largest source of government revenue.
The falling appetite for the bonds in the last weeks led
the Ministry to raise the rates of dollar military bonds to 4-4.5% this week in the hope of attracting fresh capital, but the hike was not enough and the last local currency auction raised the disappointing amount UAH143.5mn. However, the dollar-denominated bonds were more attractive and brought in $330.5mn this week, almost all at the short end of the curve. UBN reports that the rates for dollar military bonds were:
• 3-month bonds at 3.5% attracted $140.6mn • 6-month bonds at 4% attracted $183.8mn • 1-year bonds and 4.5% attracted $6mn.
Ukraine’s Akhmetov transfers media licences to the state, saying “I am not an oligarch”
bne IntelliNews
Ukraine’s richest man, Rinat Akhmetov, has transferred the ownership of his media assets to the state in a bid to shed his oligarch status.
“I made an involuntary decision that my investment company SCM will exit its media business,” the owner of the System Capital Management (SCM) conglomerate said in a statement.
“This week Media Group Ukraine will surrender for the benefit of the state all Ukrainian licences of our television channels for terrestrial and satellite broadcasting, as well as print media licences. We shall also cease operations of MGU’s online media,” Akhmetov said.
“This decision is driven by entering into force of the Law
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