Ukraine issues USD 500 mln, 1Y Eurobonds

Ukraine’s government issued USD 500 mln in Eurobonds with a 1Y maturity (on December 21, 2011) with a coupon rate 6.7% s.a., placed at par. According to website of the Ukrainian goverment, the originally intended amount was USD 600 mln, as approved on December 15. Mykyta Mykhaylychenko: Apparently, the government did not have time to find sufficient demand on such a short notice before the holidays. The 6.7% YTM is well above Ukraine’s current sovereign yield curve, where the 1Y rate is at 5%-5.3%. The placement came as a surprise (although we do expect the government to issue more Eurobonds in 2011) and, probably, reflects some doubts regarding the receipt of a USD 1.5 bln loan tranche from the International Monetary Fund by yearend (due to delays in approval of the 2011 state budget by parliament and/or the slow progress on pension reform) and/or uncertainty about Ukrtelecom’s privatization at the announced minimum price UAH 10.5 bln (yesterday news agencies reported that only one bidder submitted documents to participate in the December 28 auction). In any case, the issue looks like a temporal liquidity gap decision and we expect the government to attract longer-term financing (incl. from the IMF) and proceed with privatization in the months ahead.