Ukraine central bank confirms completion of local state debt restructuring

The National Bank of Ukraine reported on Oct. 9 it
completed the restructuring of UAH 219.6 bln in local currency sovereign bonds
it holds. Of the total amount, UAH 74.4 bln in bonds will have a fixed coupon
rate and UAH 145.2 bln will have a rate linked to inflation. The restructuring
“will facilitate a balanced fiscal policy consistent with the NBU’s goals of
ensuring low and stable inflation,” according to the central bank.

Recall, MinFin reported on Oct. 4 it agreed to the key conditions
of restructuring these bonds with the extension of their maturity from
2017-2030 (with over 70% of bonds maturing in 2017-2020) to 2025-2047, with a
relatively uniform annual repayment schedule. The new bonds maturing in
2025-2035 have a fixed coupon rate of 8.12%-11.30%, with the longer bonds’
coupons equal to trailing CPI plus 2.2pp.

Alexander Paraschiy: After the
central bank’s comments, we can state with certainty the deal is done. Recall,
the previous restructuring deal, nearly agreed upon in May 2017, was
unexpectedly cancelled in August.

While we see little fiscal effect on the deal
beyond 2017, we agree with the central bank that it will allow it to target
inflation more efficiently. In particular, we see that high inflation of the
last year, which exceeded the NBU’s expectation, was partially the result of
state policy, in which some regulated prices were adjusted. In the future, the
government will be interested in minimizing inflation (to save some interest
expenses), so, theoretically, it will be more cooperative with the NBU in its
goal to control prices.