July 27, 2015

This week in focus: Ukraine made important debt payment

Ukraine has paid the USD 120mn coupon on its Eurobond due Nov 2017. While this underlines some progress in debt restructuring talks reached over the past weeks, Ukrainian government decided not to take (political) risks attached to a non-payment and the IMF has also seemed to have softened its stance with regard to restructuring. Chances of a soft restructuring with a minor (or no) haircut have increased since Kievs negotiating capacity has now become substantially weaker, in our view.

Currency market: Next IMF tranche expected to be unlocked this Friday

Interbank USD/UAH went up to 22.23-22.27 by end Friday. The rise of the greenback may however be only transitory as demand was spurred inter alia by large volumes of bids from one corporate player. Black market USD moves down as Ukraine paid it Eurobond coupon on Friday. Next Eurobond coupon is scheduled for Aug 24. Hence, should there be no agreement with creditors by that date, it would be reasonable to expect pressure on the (black market) UAH to rise again. IMF Board will likely consider unlocking the next (USD 1.7bn) disbursement to Ukraine on Jul 31. Several days ago Bloomberg said the Fund had already approved the disbursement and later on president Poroshenko said the same. Besides, last week the European Commission announced a EUR 600mn disbursement to Kiev (first part of the EUR 1.8 bn macro assistance lending facility). Given that such EU funding has always been tied to (and conditioned upon) Ukraine's staying on track of the IMF-led reforms, the move suggested that an arrival of the next IMF tranche may be quite a near-term prospect.

Money market: 1M and 3M depo rates up as NBU changes its tender rules

Banking liquidity hovers around UAH 70bn, of which UAH 40-45bn is parked in the NBU CDs. Interest rates stay flat, in line with the NBU depo rates. ON is 17-19%, indicative 1 week is around 18-20%, while indicative 1M is 20-23%. Meanwhile, NBU decided to cancel the cap rates within the framework of its weekly 1M and 3M CD tenders (previously, the cap stood at 22% for the both tenors). As a result, the shape of the NBU interest rate curve has taken a more normal shape weighted average 1M and 3M depo rates were brought up to 21.99% and 23.00% vs. 21.97% and 21.60%, respectively, reached on the previous tenders. Despite no interest rate cap imposed, demand is still substantially below the central banks offer limits. It however remains unclear whether banks prefer to go short, or the NBU simply rejects bids at excessively high interest rates (thus pushing the banks to invest their free cash into OVDP from its portfolio).

Local debt market: MinFin raises USD 200mn in USD notes, secondary market still lacks USD offers

MinFin sold a 1Y USD notes at 8.79% (up from 8.75% on Jun 23). The placement was a pure refinancing of the USD 200mn issue which matured last Wednesday and was held by one of the state-owned banks. Offer YTMs on OVDP offered by NBU from its portfolio have been kept unchanged. Demand remains modest and sales are limited to 1Y-6M notes. However, as 3M depo rate has climbed to 23%, the 6M OVDP rate (currently at 22.5%) will obviously have to be moved up, respectively. On the secondary market, offer on FX OVDP is totally absent. Of the 3 USD issues left on the market, bids are around 10% for the notes due in Mar 2016, 10.5% for those due in May 2016 and 11% for the notes maturing in Aug 2016. In the UAH segment, 1Y offer yield is nearly 20% (bid at 24%).

Global markets: Ukraine Eurobonds up on Friday coupon, China stocks tumble again

Ukraines Eurobonds moved up 0.3-0.6% in price since early Friday, spurred by the Friday coupon payment. Chinese stock market tumbled again, having gone down by more than 8% today. The drop followed lackluster revenue data of Chinese industrial firms and a disappointing private factory sector survey on Friday. Investors are also concerned that Chinese authorities may hold off from further loosening of monetary policy. Oil prices fell to near 4-month lows, weighed by the negative newsflow from and more evidence of a global oil supply glut. As a result, RUB went down to 59.7 per USD (record low since mid Mar 2015). Talks between Greece and its international creditors over a new bailout package had been delayed by a couple of days because of organizational issues, a Greek finance ministry official said on Saturday. 

For more information: UkrSibbank_270715.pdf