Ukraine privately places 6M international discount notes at 95.6% of par

Ukraine’s Finance Ministry made
a private placement of USD 725 mln in international discount notes on Aug. 23,
it confirmed the next day. The placement price for a bond maturing Feb. 28,
2019 was 95.551% of par, implying a bond-equivalent yield of 8.87% and yield to
maturity of 9.18%. The transaction allows Ukraine to meet its foreign currency
liquidity needs, MinFin commented. “Ukrainian authorities are looking forward
to the upcoming visit of the IMF mission in Kyiv in September 6-19 to discuss
recent economic developments and policies, as well as next steps,” the ministry
stated, possibly referring to the goal of receiving the next IMF loan tranche.

Alexander Paraschiy: The
placement yield by far exceeds the market yield of Ukraine’s Sept.’19
international Eurobond (6.25% on Aug. 23). It also exceeds the yield of
domestic Eurobonds maturing in Feb.’19 (5.95% at an Aug. 21 placement).
However, even with such rates, MinFin was only able to collect on the domestic
market USD 671 mln over the last two months. Most likely, the raised funds will
be used to pay USD 555 mln in coupons on international Eurobonds repayable in
September, while MinFin is going to redeem the notes after a new placement of
Eurobonds at better rates – after the expected IMF tranche.

In this way, MinFin is indirectly stimulating the
Cabinet to finalize a deal with the IMF (which is demanding a hike in
residential gas prices) by showing the consequences of failing to conclude a
deal. That said, we continue to expect Ukraine will agree on all its
outstanding issues with the IMF in September.