Ukraine increases share capital of Oschadbank, Ukreximbank

The Ukrainian government ruled on Feb. 1 to increase the equity of two state banks, Oschadbank (OSCHAD) and Ukreximbank (EXIMUK), by UAH 3.47 bln and UAH 3.02 bln, respectively, Interfax-Ukraine reported citing Finance Minister Oleksandr Danyliuk. As usual, the capital increase will be made via a contribution of state bonds into the banks’ equity. According to Interfax-Ukraine, the bonds will mature in ten years and will have a coupon rate of 6%.

The need to increase the share capital of the two banks was prompted by assessments of the banks by central bank that had been completed in 2015. Based on the same study, the share capital of Oschadbank and Ukreximbank was increased by UAH 4.95 bln and UAH 9.32 bln in January 2016. Including the new recapitalization, the share capital increases of the two banks since the beginning of 2014 has amounted to UAH 21.3 bln and UAH 17.5 bln, respectively.

Alexander Paraschiy: The government’s decision is an additional illustration of its commitment to keep the state banks safe and to contribute any amount of capital they need, despite the banks’ inefficiency. While the news is neutral for the banks, it supports our view that their Eurobonds are as safe as the sovereign paper. We reiterate our view, presented in our Nov. 29 report, that the two state banks’ notes should be traded with a minimum (if any) spread to the sovereign curve, as their default risks are the same as for the government, and, historically, their recovery rate in case of a restructuring is much better. Currently, Oschadbank and Ukreximbank notes are traded with a 90 – 160 bps spread to the sovereign curve and thus remain among our top picks.