Ukraine looks to borrow up to $ 4.5 bn

Feb 04, 2011 12:00 AM

Ukraine’s government and corporates will likely look to tap foreign bond investors for billions of dollars, capitalizing on the country’s successful IMF loan program and growing demand for emerging market debt. The government, which needs to repay $ 3 bn in foreign during 2011, could borrow between $ 2 bn and $ 4.5 bn , analysts say. Private sector borrowers, whose credit standing has not improved at the same rate as the state, could account for up to $ 4.5 bn.

Economic growth, a long period of exchange rate stability and significant progress in reducing the budget deficit are stimulating foreign investors’ interest.”

“Interest in emerging market debt is huge and Ukraine, of course, can count on good demand for both sovereign and corporate paper,” said Vitaly Vavrishchyuk, an analyst at brokerage BG Capital.
Ukraine’s benchmark 2020 Eurobond has traded at a yield of about 7 % in recent weeks and sovereign bond spreads, according the JPMorgan EMBI Plus index, have been hovering at around 400 basis points over Treasuries, compared to around 600  basis points last July prior to the standby loan agreement with the IMF.
“Economic growth, a long period of exchange rate stability and significant progress in reducing the budget deficit are stimulating foreign investors’ interest,” Vavrishchyuk said.

The government has already announced it will increase the volume of a $500 million bond due in December 2011 by $ 100 mm . Analysts expect more issuance this quarter as it needs to redeem a $ 600 mm bond on March 4.
“We can expect the first sovereign issues in the first quarter of 2011 that should set the benchmark for future corporate placements,” said Oleksandr Lozovoi, an analyst at Phoenix Capital.

The big deal now is the private sector. If the market continues with spread compression ... there’s a natural migration of (capital) flows into lower ratings.”
State-run Ukreximbank is meeting investors this week to discuss the idea of issuing a hryvnia-linked bond and Ukraine’s top steel producer Metinvest has launched a road show for a $ 500 mm bond. Other potential issuers include other banks, especially those controlled by large Western institutions, agricultural producers and Metinvest’s competitor Ferrexpo.
“UkrSibBank may try to refinance 2 Euro-bond issues due in 2011 and some other large banks may seek (fresh) long-term funding,” said Maria Repko of Troika Dialog. UkrSibBank, a subsidiary of BNP Paribas, is due to repay $ 750 mm in Euro-bonds this year. The government of Ukrainian capital Kyiv is also expected to tap the market with an issue worth $ 200-300 mm.

Citi analyst Luis Costa said the market no longer viewed Ukrainian sovereign debt issues as out of the ordinary.
“The big deal now is the private sector,” he said. “If the market continues with spread compression ... there’s a natural migration of (capital) flows into lower ratings.”

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