Gross external debt rises 1.6% qoq in 2Q12

Ukraine’s gross external debt (GED) increased 1.6% qoq (+4.5% yoy) in 2Q12 to reach a new all-time high of USD 129 bln. Growth in GED came solely on the back of new borrowings by the private non-financial sector, which rose net USD 4.2 bln (mainly in trade credits) in 2Q12 (taking total liabilities up 6.8% qoq to USD 66.5 bln). The decline in the banking sector debt moderated (-0.1% qoq to USD 24.0 bln) thanks to a benign repayment schedule over the quarter. State debt (combined obligations of the government and NBU) was down 8% in 2Q12 to USD 30.2 bln on the partial repayment of VTB and IMF loans and sovereign Eurobond redemption in June.

Alexander Paraschiy: The private sector had been successful in rolling over its external liabilities over 1H12 – new borrowings by non-financial companies more than offset repayments by banks. We expect the GED of the non-financial sector will continue increasing as local creditworthy borrowers refinance their obligations despite tough external markets. The banking sector is set to continue reducing its external debt – the FX lending ban discourages any new borrowings by banks. State debt will increase in 2H12 with a USD 2.0 bln raised via a Eurobond in July being the main contributor. Overall, we expect Ukraine’s gross external debt will total about USD 130 bln by yearend or 71% of 2012E GDP.