15 December 2011
Ukraine’s Finance Ministry raised UAH 1.02 bln (USD 128 mln) by placing USD-indexed local bonds (UAH-denominated bonds with principal linked to the UAH/USD exchange rate) yesterday, which marked the first successful primary auction of government bonds since Nov. 18. With UAH 1.4 bln (USD 171 mln) in bonds scheduled for redemption yesterday, the Finance Ministry abandoned its tough stance and in a surprise move accepted all bids, even though they were relatively unattractive. The government raised UAH 671 mln in 13-month bonds at a weighted average yield of 8.04% (but also accepted bid(s) at 8.75%), UAH 100 mln in 1.5-year bonds at 9.0% and UAH 250 mln in 3-year bonds at 9.75% (up from 8.5% on Nov. 18) but failed to sell 5-year and 10-year papers. In related news, yesterday the president signed a law that will allow the Finance Ministry to issue FX-denominated local bonds. Vitaliy Vavryshchuk: With budgetary pressure mounting at the end of the fiscal year, the Finance Ministry was forced to raise its yield ceiling to maintain its cash balance. Demand for the notes was also supported by banking sector liquidity, as banks’ aggregate correspondent accounts totaled UAH 18.8 bln yesterday vs. the November average of UAH 15.1 bln. We expect new USD-indexed paper offers on similar terms in the next two weeks but think demand is unlikely to recover. We also expect a debut offer of the USD-denominated local bonds by end-2011.