Fixed Income Snapshot - Central bank started to sell FX for early loan redemptions

BANKING: EBRD decided on 5 banks which would be the first to get financing, they are Forum, Ukrsotsbank, Megabank, Ukreximbank and UkrSibbank. Ukrsotsbank is in talks on getting $100 mn subordinated loan (within the framework of EBRD cooperation with the bank’s parent structure UniCredit), which would be accounted in 2 tier capital (a part of regulative capital). Forum may also get financing in the form of subordinated loan, the sum is unknown. The deals are to be announced at the end of April and signed in May. EBRD is also thinking over financing 8 more banks.

Our view: The impact of these 5 deals would be rather neutral on the banking system because EBRD as a prudent investor has chosen stable institutions, which were not applying for state recap. This may signal EBRD sees progress in Ukraine’s negotiations with IMF (earlier the Bank’s head said this was a condition for recapitalization - see our Snapshot “Cooperation with IMF is needed for recap”).

FX&MM: NBU sold $25 mn to 53 banks on its target auction yesterday while on previous auction banks received $38 mn. For the first time, NBU allowed to use the FX bought on auction for prescheduled repayment of loans. The same rule would be applicable for tomorrow auction. There should be noted NBU stopped to sell EUR on its auctions, probably due to weak demand for it from banks.

Our view: Albeit news seems to be strongly positive for the banking sector, NBU is drawing the bow before the arrow is fixed. There is still no long term solution on how to hedge borrowers’ FX risks over longer period of time. Rushing in to sell more reserves now (before IMF approved the second tranche) NBU may be short of reserves to support regular auctions. That, in turn may impair FX market stability.

CORP: We expect SIA “Boryspil” (SIAB) to redeem its “3-B” series domestic bonds issue on time. The current amount of outstanding “3-B” bonds is UAH100 mn. Since the company presently holds equivalent UAH607 mn on its deposit account, it’s unlikely that “Boryspil” would get any problems with bonds redemption. The company boosted its net profit 117% y/y to UAH209 mn in Y08, cutting selling expenses and other operating expenses, its gross profit rose 70% y/y, revenue – 33% y/y. The issuer has also one more bonds series outstanding with total amount of UAH300 mn, maturing on Mar10. Currently, the main investment project is construction of new international terminal D. A project cost of construction is $377 mn. “Boryspil” has already got $167 mn loan from Japan Bank for International Cooperation. The JBIC granted funds to the Ministry of Finance of Ukraine with subsequent sub crediting to SIAB. The company still needs to finance $210 mn more.