Ukraine places USD 170 mln in local 2Y Eurobond at 5.40% rate

Ukraine’s Finance Ministry reported on Oct. 24 that it raised USD 170 mln from the placement of local two-year, USD-denominated bonds at an average yield of 5.40%. The ministry accepted six out of seven total bids for USD 175 mln. MinFin has scheduled the next placements of the two-year local Eurobonds for Nov. 21 and Dec. 19.

Alexander Paraschiy: While the nominal rate of the just-placed Eurobonds was comparable to the rates of two-year bonds placed in July (5.34%) and August (5.40%), this was the first time this year when MinFin’s rate at placement was above the international Eurobond curve (at a positive spread of 57 bps). The spread was negative at the previous two placements (-29 bps in July and -35 bps in August). And the size of the placement was half as much this time than in August. That clearly points to decreasing domestic demand for USD-denominated bonds.

Most likely, the raised funds will be directed to repay Ukraine’s debt to the IMF under an earlier standby program due in early November (about USD 440 mln). The next two scheduled placements will likely aim at accumulating dollar liquidity to repay another tranche to the IMF in early December (about USD 160 mln) and repay local Eurobonds due in late November and December (total about USD 650 mln).

But given the small size of the latest placement, it looks like Ukraine will have to spend some of its gross reserves on repaying these loans, which could mean Ukraine’s reserves may fall by end-2017 from the level of USD 18.6 bln as of end-September. The IMF’s possible tranche of USD 1 bln could help to restore reserves, but its likelihood by the year end is decreasing each day.