Debut Euro-denominated bond auction a success

At the first auction for local Euro-denominated bonds yesterday, the Ukrainian government sold 1.5-year papers for EUR 205 mln, with a cut-off yield set at 4.85%. Additionally, the Finance Ministry raised USD 81 mln in US dollar denominated bonds (1.5-year, cut-off yield of 9.3%), taking the total amount raised via local FX-denominated instruments to USD 1.22 bln since they were introduced in mid-December of last year.

Vitaliy Vavryshchuk: The first auction of Euro-denominated bonds turned out to be a success – EUR 205 mln equals 3.6% of the annual plan for domestic borrowings. Yet, given the relatively low cut-off yield, we do not rule out that the bulk of demand came from state-owned banks. By introducing Euro-denominated bonds, the government extended the range of debt instruments available to the local market. Additionally, the government plans to offer local FX-denominated bonds with an embedded put option. We estimate the government can raise another net USD 1.5 bln via the placement of FX-denominated bonds by end-2012 as local banks are choosing to deploy part of money raised via retail deposits into sovereign bonds.