MinFin buys back 10% of Sept. 2022 bonds, over 3% of GDP warrants in 2022

Ukraine’s Finance Ministry has bought 10% of its
Eurobonds due on Sept. 1, thus decreasing their par amount to USD 912 mln (from
USD 1,013 mln as of the beginning of 2022), Interfax-Ukraine reported on Feb. 4
referring to the ministry’s data. On top of that, the ministry continued buying
back Ukraine’s GDP warrants (UKRAIN 2040) and purchased about 20% of their
original amount outstanding as of Feb. 4, according to the same report.

Recall, as of end-2021, Ukraine had repurchased about 16.6%
of its initial issue of GDP warrants, Concorde Capital estimated. In this way,
MinFin should have repurchased year-to-date about 3.4% of GDP warrants for a
total par value of about USD 110 mln.

Ukraine’s 2022 bond price fell from 99.6% of par at
the year’s start to 90.3% of par on Jan. 24 on increased risks of Russian
aggression against the country. The bonds have recovered since then, finishing
last week at 97.1% of par. Ukraine’s GDP warrants fell from 91.1% of par at the
year’s start to 66.3% on Jan. 25 and then have recovered to 76.4%.

Alexander Paraschiy: This is a
surprising move as we did not expect that MinFin will be brave enough to
purchase state securities amid high geopolitical risks. Such a move is a strong
indicator that the Ukrainian government sees the probability of Russian
escalation as very low, unlike international investors. Such a position on the
part of MinFin should calm down fixed income markets, so we are likely to
observe further growth of Ukraine’s Eurobond prices, unless strong evidence of
Russia’s preparation to escalation appears in international media.

The key question that remains – on what basis was
MinFin able to purchase GDP warrants. The state budget for 2022 allocates UAH
1.43 bln (about USD 50.5 mln) for the purchase of GDP warrants, which was
enough to purchase no more than 2.2% of them. The state budget allows MinFin to
allocate more funds for the purchase, but only with the permission of the
Cabinet – and we see no such permission as having been published.