Ukraine state bonds to become accessible via Clearstream as of May 27

Clearstream will connect the Ukrainian market to its electronic
network and make its government securities available for purchase in its system
as of May 27, Ukraine’s Finance Ministry and the National Bank of Ukraine
reported on May 22. This “will enable the settlement of all government bonds
denominated in the hryvnia through the international system of Clearstream,
improving efficiency at international standards while reducing costs for
investors,” their joint press release stated. MinFin and the NBU said they
expect that this will encourage demand for Ukrainian government bonds, boosting
their attractiveness in the international market. “We are happy that finally
the last major bottleneck for global local-currency bond investors has been
removed,” commented Yuriy Butsa, Ukraine’s state commissioner for public debt
management.

Alexander Paraschiy: This move
indeed will make UAH-denominated bonds more accessible to international
investors and traders on the secondary market, but it only involves government
bonds and only if non-residents buy local currency before entering the bonds.
At the least, this will significantly reduce the time and transaction costs
related to the purchase of government bonds for non-residents, thereby having
the potential to raise the bonds’ liquidity. Since the beginning of 2019, non-residents
have increased their exposure to Ukraine’s local currency bonds by UAH 35.0 bln
(USD 1.3 bln), also raising non-residents’ share in total bonds outstanding
(outside the central bank) to 12.8% as of May 22, from 2.3% as of early
January. With Clearstream, this share could increase further.

Theoretically, easier access of non-residents to
local government bonds may reduce their rates, but most likely the effect won’t
be significant, given that local banks remain the key players on the market
(with an 81% share) and that banks tend to use the NBU rate (which is 17.5%
now) as the benchmark. In any case, the connection to Clearstream is an
important breakthrough in integrating Ukraine’s financial system to the global
one.