Ukraine calls USD 725 mln in Eurobonds issued in August

Ukraine’s MinFin has repaid a discount bond of USD 725
mln par value issued in August at a call price of 98.551% of par, the
funclub.net Ukrainian news site reported on Nov. 3. The USD 725 mln in discount
notes were privately placed on Aug. 27 at 95.551% of par.
The notes were callable at 98.551% by Nov. 28 and at par thereafter. Their
final maturity was Feb. 28, 2019.

Recall, Ukraine attracted USD 2 bln from the placement
of 5-year and 10-year Eurobonds in late October, at rates of 9.0% and 9.75%,
respectively.

Alexander Paraschiy: There was
little logic in such a call for Ukraine’s Finance Ministry, in our view. By not
calling the bond at 98.551% on Nov. 2 (or Nov. 1), MinFin would have had to
repay it at par on Feb. 28, thus having effectively paid about 4.5% in
annualized interest between these two dates. This is definitely much less than
MinFin will have to pay for other USD debt that it will have to attract (e.g.
local Eurobonds are being regularly placed by MinFin at the 7.0%-7.5% rate).

There is no doubt Ukraine will further place local
bonds in the near weeks at rates much higher than 4.5%, as it will have to
refinance other local Eurobonds that will mature soon (USD 265 mln in November-December,
USD 920 mln in January-February). Therefore, it looks like MinFin’s exercising
its call option was a condition for its creditor (the holder of discount notes)
to invest in new Eurobonds that were placed in October. Meanwhile, holders of the
discount notes have earned about 17.1% on their investment since Aug. 27.