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Ukraine bonds rally on government rebuttals, positive investor call following Kolomoisky’s 'default' comments

Ukrainian bonds have had a roller-coaster week so far but have recovered to levels above last Friday’s (24 May) close, following supportive comments from President Volodymyr Zelensky’s team and a global investor call held by the country’s ministry of finance on 29 May, according to an analyst and a trader.

Indeed, Ukraine had a bit of a scare on 28 May, when the US and UK returned from public holidays, the trader said.

Over the weekend, Ukrainian oligarch Ihor Kolomoisky, rumoured to have backed Zelensky during his election campaign, publicly stated in the Financial Times that the country should default on its international debts.

At their weakest on Tuesday, Ukrainian sovereign Eurobonds were down around 1.5 points in the long end of the curve. This caused a rise in sovereign yields of 20bps on average as of 28 May.

Ukraine’s USD 3bn 7.375% 2032 was quoted at 86.75-mid on 28 May but is quoted at 88.50/89.25 on the morning of 30 May. The sovereign’s USD 1.6bn 9.75% 2028s were quoted around 101.5 on Tuesday but are today quoted at 102.75/103.50.

Overall, Ukraine is up by a point as of last week from the week before. This was due to a combination of technical factors and news flow, with some investors buying the dip, whilst members of Zelensky’s team came out publicly in disagreement with Kolomoisky’s comments, which was positive, the trader said.

However, the news should not have come as a surprise, according to the analyst. Everyone who follows Ukraine knows Kolomoisky’s position by now, which has not changed in years, he added.

In fact, “the FT article reconfirmed Kolomoisky’s views but raised important questions about a default and its consequences. This caused officials and experts to come out against a default, and there is now a very clear consensus against such an eventuality. As such, it is positive that the article raised this discussion,” he continued.

Another supportive factor for Ukrainian bonds was the hosting of a global investor call on 29 May by the country’s Ministry of Finance, Oksana Markarova, which included Commissioner for Public Debt Management Yuriy Butsa and International Monetary Fund Mission Chief for Ukraine Ron van Rooden.

The takeaway from the call was positive, according to both the trader and Timothy Ash of BlueBay Asset Management.

“Generally pretty upbeat/constructive call from the MOF/IMF on a joint conference call with investors today […] Seems strong commitment from the new president/his team to continue relations with the IMF/reforms,” Ash wrote in an e-mailed note yesterday.

Ukraine certainly needs its international creditors onside. “The IMF is essential for Ukraine, and the National Bank of Ukraine (NBU) has already provisioned for IMF funds through to 2021,” the analyst said.

In its inflation report for April 2019, the NBU stated that it expects public disbursements of USD 2bn in both 2020 and 2021 from the IMF. A new aid programme now seems likely, following the parliamentary elections.

The new agreement should not be similar to the current SBA [Stand-By Arrangement], which includes only ‘light’ reforms, but should rather be a new package which should require deeper structural reforms. This would allow for the IMF to provide longer-term debt, the analyst noted.

“Given only around half the previous EFF [Extended Fund Facility] funds (SDR 12.1bn) were drawn between 2015-2018, and only SDR 2.8bn was put in the new SBA agreed last year, I would assume any new extended financing programme for Ukraine after the parliamentary elections could be of a larger size than the SBA, and in the range of SDR 6bn-SDR 7bn or close to USD 10bn. That’s a significant bit of ammo for the new administration, if you also add in EU and WB [World Bank] money,” Ash wrote in a separate note Tuesday.

Ukraine could certainly do with the funds. The country will need to repay USD 840m to the IMF and USD 1.3bn to holders of its international Eurobonds this year, the analyst said.

“If the IMF tranche arrives, the country will be able to receive a further EUR 500m from the EU and additional World Bank funds and will be able to tap the Eurobond market,” he added.

The country had been considering issuing Eurobonds as early as June, as reported. In addition, the NBU envisions the placement of USD 2bn in Eurobonds this year, USD 3bn in 2020 and USD 3.5bn in 2021, according to the April inflation report.

The country was last in the markets in March this year, increasing the size of its USD 1.25bn 9.75% 2028s by USD 350m to USD 1.6bn.

Tomas Cutts Reporter, Russia & CIS Debtwire
Tomas Cutts Reporter, Russia & CIS Debtwire

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