Ukraine has fully repaid a $450 million Eurobond lead-managed by Japan's Nomura International that matured on Wednesday, Finance Minister Ihor Mityukov told Reuters.
'All payments have been carried out, all repayments have been made to Nomura and I have never had any doubts that Ukraine would repay Nomura,' said Mityukov, speaking before a meeting of government officials and local authorities.
The local government debt market strengthened on the news, dealers said, citing lower treasury bill yields.
'Yesterday, before Nomura was paid off, yields were around 65-67 percent for paper maturing this year – today they have fallen to around 57-63 percent,' said one trader.
Alfa Capital trader Serhy Berezlev said it would take time for the fledgling market to react to the news, however positive.
'It was good information, let's put it that way,' Berezlev said. 'The government is keeping its word on its obligations.'
Analysts had expected Ukraine to meet the deadline, pointing to a $2.2 billion loan expected from the International Monetary Fund in August and saying the government realized how disastrous a default would be for the cash-strapped former Soviet republic.
With reserves down to $1.766 billion on June 1 from $2.044 billion on July 1 and poor investor appetite for emerging market debt, investors had still been watching nervously as the deadline for repayment of the bond approached. Mityukov gave no further details and it was unclear exactly what funds the finance ministry had drawn on to repay the note.
Ukraine's central bank said on Wednesday it had sold Hr 882.31 million of OVDP discount treasury bills for the finance ministry on Monday. The auctions had not previously been announced and officials at the central bank and the finance ministry declined to comment.
Ukraine last week sold $155 million worth of hryvnia-linked bonds via ING Barings, offering a choice of a 55 percent coupon accruing in hryvnias or a 17.5 percent coupon accruing in dollars.
Peter Botoucharov, head of East European research at BankBoston in London, said it was unlikely that Ukraine drew significantly on reserves to repay the note, adding that maintaining reserves was important for investor confidence.
Ukraine must still repay about Hr 1 billion in maturing treasury bills this month, and another Hr 2.6 billion before the year end.
Dealers and analysts said Ukraine – despite Wednesday's success and the heartening prospects of the first tranche of the IMF loan, worth about $200-250 million – could not afford to rest on its laurels.
To break out of its short term debt and cash-flow crunch, it must lengthen domestic debt maturities and bring yields down, which will take coordinated government efforts, one dealer said.
'The national bank, now it has a more predictable situation for the next two months, has the chance to dictate its terms to the market,' the dealer said, saying interest rates, now at 82 percent, should also be lowered.
Botoucharov said the government could not slacken its implementation of a reform program agreed with the IMF to be supported by the Extended Fund Facility. 'Looking ahead there are a number of challenges. The first is that the cash flow position is not easy and to improve the cash flow they have to keep to their fiscal deficit target and carry out privatization,' Botoucharov said.
Ukraine has had little success so far in carrying out its privatization program but has announced it plans to sell stakes in its four key electricity generators, Azovstal steel maker, and a number of oil refineries.
