Ukraine MinFin plans to resume state bond placement in January

Ukraine’s Finance Ministry plans to resume its policy of domestic bonds placement, the Ministry website announced on Jan. 11. According to its revealed schedule, three placements will occur in January, including the issue of state bonds denominated in foreign currency with maturity in 1.5 years.

Recall in 2015, the Finance Ministry was not very active in issuing state bonds amid successful state budget collections and sufficient funding from the IMF and other donors. The last placement was in July, for USD 205 mln. The Finance Ministry attempted several more issues but did not find any demand amid higher rates for central bank deposit certificates.

Alexander Paraschiy: The 2016 state budget targets UAH 98 bln in internal borrowings by the government, while last year it only raised about UAH 23 bln. The 2016 plan looks ambitious, but not unrealistic, we believe, given that Ukraine’s banking system lacks high-profile debt instruments. For instance, since the beginning of 2016, Ukrainian banks increased their exposure to NBU deposit certificates by more than UAH 40 bln.

As an additional factor that could create competition for the placement of government bonds, the NBU may go on selling its portfolio of government bonds, and government bonds that were accumulated by banks that are being liquidated. The successful placement of new bonds will depend on their offered yields (currently, the market for UAH paper is 19%-22%). We also expect there could be brisk demand for USD-denominated state bonds, as well as a substantial supply of them. This year, the Ukrainian government will have to repay USD 1.6 bln in local Eurobonds, which it may choose to roll over.