Fixed Income Daily Watch 16.02.11_Alfa Bank Ukraine

Alfa-Bank Ukraine
Fixed Income Daily Watch
Wednesday, February 16, 2011

TRADER’S COMMENT
Really quiet day in any Ukrainian bond, except new issues. Ukraine21 is trading +0.5 on the grey market, which is not surprising taking in to account that Ukraine-20 yields 7.65% (new issue reoffer should be 8%). At the same time Oshadbank has launched road-show and should be issue at the end of the week. We expect yield of 8.00-8.25%.

UKRAINIAN NEWS
Ukraine is placing new 10-years sovereign eurobond
After having completed its USD 100 mn tap in January, Ukraine is coming back to eurobond market shortly with 10-years issue with likely volume of USD 1 bn. Bookrunners for the issue are JP Morgan, Morgan Stanley and VTB Capital. The issue is likely to be used for Ukraine-11 refinancing, which comes due in less than 3 weeks. The guidance was given in 8% area, while Ukraine-20 is currently trading at 7.65%. This placement might pull some demand from Oschadbank’s debut eurobond and push its placement yield up. We also expect new Ukraine-21 to put some pressure on the long end of the curve, namely Ukraine 20.

Ukraine’s real GDP growth in 2010 was at 4.2%

Ukraine’s GDP growth in 4Q2010 constituted 3% q-o-q, that implies total 2010 GDP growth at 4.2%, that is below NBU’s expectations of 4.5% and World Bank’s forecast of 4.3%. In m-o-m terms in 4Q2010 GDP increased by 1%. The news is marginally negative, but is not likely to affect Ukrainian eurobonds.

IMF mission visit results

IMF mission agreed for gradual gas tariffs increase for population instead of one-time hike by 50% in April 2011. The mission also said that Stand-By Program review with the aim of finding sources for budget deficit compensation will take several weeks. IMF wants to see the law on pension reform in Ukraine coming into effect in March. Thus the Fund has met Ukraine halfway in the question of gas tariffs but at the same time has made pension reform progress a condition for the next tranche disbursement. Given that review will take several weeks and the next funds disbursement was planned for the middle of March, we see the probability that it might be delayed till April or even May. Especially in the case if Ukrainian government will be slow in implementing the reforms.