Ukraine's Finance Ministry plans to raise a further $2.4 billion from debt markets this year. Just weeks after a $1.25 billion eurobond placement, the move suggests authorities are keen to tap rising global demand but also reduces the prospects for a new deal with the International Monetary Fund.
The first new
issues could come as soon as May, the Finance Ministry’s head of international
debt and finance department Galyna Pakhachuk to a conference in Kyiv on April
18. The next placement will not be too big, Pakhachuk noted, but by year’s end
a total of $2.4-2.5 billion could be issued.
The budget limit
foresees less than $1.8 billion in eurobond placements until end-2013, but the
increase could be balanced out by lower dollar-denominated borrowing on the
local market, analysts say.
Ukraine faces
record foreign currency-denominated debt service costs this year at $10.5
billion. So far the government has borrowed $4.7 billion in foreign coin –
$2.25 in eurobonds and $2.4 in domestic dollar denominated debt.
According to
investment bank Dragon Capital, this should cover payments until end-June,
including those to the IMF. In the second half of the year, however,
authorities will need a further $5.4 billion for the second half of the year.
“We think the
government is capable of raising enough new debt to refinance its portion of
the second half of 2013 foreign currency debt service ($3.8bn), while the NBU
could repay $1.3bn due to the IMF from its reserves,” Dragon Capital wrote in
note to investors.
Successive bond
issues have seen prices drop significantly, falling from a 9.25 percent yield
in July 2012 to 7.5 percent for the
latest, April issue. Whether, this trend continues will mostly depend on global
factors, said Taras Kotovych, a fixed income analyst at Kyiv-based investment
bank ICU.
The premium paid
by Ukraine, known as the spread, will likely remain at 5 to 6 percent above the
benchmark US Treasury yield, the expert said.
“If the global
situation on the market will be stable, new issues could be priced at 7-7.5
percent,” Kotovych predicted.
Meanwhile, with
better eurobond prospects and an immediate devaluation crisis averted, chances
that authorities will make politically costly sacrifices to meet IMF demands
are falling steadily.
Letting the
hryvnia float, cutting the budget deficit and raising gas prices on household –
the lender’s main conditions – will become increasingly less likely as the 2015
presidential election deadline approaches, experts note.
IMF loans would
cost significantly less, likely up to three percent, ICU head of research
Alexander Valchyshen told the Kyiv Post. But their duration is also much
shorter – up to 5 years rather than the typical 10 years on eurobonds, he
added, meaning Kyiv would have to balance these two factors should plans to
restructure the debt prevail.
Kyiv Post editor Jakub Parusinski can be
reached at [email protected]
