Ukraine raises extra USD 300 mln in local bonds

The Ukrainian government raised USD 300 mln with a hastily organized sale of domestic foreign currency state bonds on November 19. The single lot sold was for three-year notes at a 7.75% yield. A week before, a two-year Eurobond was sold domestically at 8.75%.

Alexander Paraschiy: The authorities are squeezing out foreign currency residuals from state banks in light of strengthened pressure on the ForEx market over the last few weeks. The security’s long maturity, below-market yields and single buyer clearly indicate “friendly demand” for the debt, which is already the second large foreign currency bond placement in November, totaling so far USD 628 mln collected internally.

That sum is more than enough to refund USD 364 mln in domestic bonds due this month. However, it is not clear whether this placement is targeted to underpin sliding reserves or to cover USD 1.3 bln in debt payable to Gazprom for imported natural gas. Such success in raising USD on the internal markets causes us to reduce our expectation of the November gross reserves decline to USD 1.0 bln (from USD 1.5 bln). Yet that still means that NBU foreign currency reserves will sink below the USD 20 bln level, further increasing devaluation risks for the country.