Fixed Income Snapshot - NBU lifts some of the restrictions

MM&FX: USDUAH broke through 7.60 today, with asks touching 7.53 in the morning. Liquidity remains abundant at UAH 19.2 bn. NBU’s official rate is at 7.62. Indicative intervention levels are at 7.62/7.70.

NBU cancelled restrictions on purchasing FX for imports of goods and services (without delivery on the territory of Ukraine). This restriction was introduced on Dec 4th 2008 in order to stop currency speculations, when selected companies were using fictive import contracts in order to buy hard currency.

MACRO: Industrial production slumped by -4.8% m/m in April, recording -31.8% y/y decline. Metallurgy was one of the key drivers, delivering 7.1% contraction in output. Evidence from other core sectors was rather mixed, with export-oriented subsectors on average performing better. Say in mechanical engineering we saw a contraction of -7.8% in vehicle production, which was somewhat offset by equipment production +4.1%.

Our view: This monthly decline was well expected - on average over the last eighteen years, Ukrainian industry contracted -3.7% m/m in April. Proceeding from weekly reports of Ukrainian enterprises we anticipate 5% pickup in industrial production in May, driven primarily by metallurgy and thus retain our full-year IP forecast of -16.8% unchanged.

BANKING: NBU has cancelled a moratorium on the early withdrawal of bank deposits that has been in effect since October 2008. A respective decision is foreseen in bank resolution No. 282 as of May 12, 2009, which came into force on the day it was signed. Earlier the IMF consistently emphasized the necessity of the moratorium cancellation that actualized with the second SBA disbursement.

Our view: system-wise we feel comfortable with the news as the April data have shown the first UAH deposits inflows since Oct 2008 thus implying stabilization in the banking system. Banks with domestic ownership, having reliant on local deposit base will bear the brunt of the impact and might face some liquidity aggravation over several months to come.

Universal Bank Ukraine ranking 25th by asset size has obtained USD 92.6 mn subordinated loan on 10 yeas from parent Eurobank EFG. Apart from the loan the Universal is going to boost its own capital through the issue of additional shares on UAH200 mn. The bank shareholders have announced the willingness to support the subsidiary in future.

European Bank of Reconstruction and Development is going to grant Ukreximbank $250 mn subordinated loan that might become its biggest single investment in Ukraine. The 10-year loan will replenish the bank’s Tier II capital and would back the continuous financing of Ukrainian businesses. The $50 mn share is to be used for energy saving projects, whereas no less than $50 mn is to be granted to export-oriented companies.

FUIB reportedly asked bondholders to give it four months to finalize the restructuring proposal. Earlier, the bank has been reported to negotiate on restructuring of bilateral agreements. According to Interfax, the bank has tight redemption schedule over the next 12 months totaling about USD 1 bn. One half of this amount is public debt (Eurobonds and two syndicates), the rest are bilaterals.