Oschadbank places 5-year Eurobond with 8.875% coupon

State savings bank Oschadbank (OSCHAD) completed a placement of USD 500 mln notes with a coupon rate of 8.875%, Interfax reported on March 15, citing its own sources.

Alexander Paraschiy: Oschadbank’s new placement was completed at a 250bp premium to the sovereign curve, while the bank’s Eurobond maturing in 2016 trades at only a 200bp spread. Two months ago, another exclusively state-owned bank, Ukreximbank, placed its 5-year Eurobond with a 8.75% coupon at a premium of about 195bp, which was in line with the spread of its 2015 bond.

Oschadbank’s placement results, therefore, suggest a declining appetite for Ukraine’s new debt even though bond yields on the secondary market have been on a declining path since the start of the year. We see the unresolved IMF deal as one of the reasons for higher required yields for initial placements on quasi-sovereign bonds right now. Another reason can be company-specific: Oshadbank is known for its high exposure to “related parties.” For instance, lending to state institutions and companies (incl. bonds) amounted to 49% of the bank’s end-1H12 total assets, while this ratio was only 32% for Ukreximbank. And there is a risk that Oschad will use most of its Eurobond proceeds to further increase its exposure.