External debt rises 2% in 2Q10 due to USD 2 bln loan from VTB

Ukraine’s total external debt rose 1.7% (USD 1.7 bln) during 2Q10 and reached USD 104.5 bln (~80% of GDP), according to data released by the National Bank of Ukraine yesterday. Mykyta Mykhaylychenko: Almost all of the increase stemmed from the USD 2 bln short-term loan to the government from Russian VTB Bank. Simultaneously, corporates continued accumulating trade finance loans, which have already reached the pre-crisis level of USD 12.6 bln. Banks, in turn, kept shrinking their external liabilities, which went down 4% over 2Q10 and 33% since their peak at end-3Q08. We expect total debt to grow during 2H10 as the government secured a new USD 15 standby loan facility from the International Monetary Fund (USD 3.4 bln of which is scheduled to be received this year), while the government and corporate borrowers are actively turning to the Eurobond market (total placement in the last months of 2010 could amount to USD 3 bln). We see gross external debt at USD 115 bln or 85% of GDP by yearend.