Bond Market Insight-Weekly review: Ukrexim, Ferrexpo, Naftogaz, Agroton and Galnaftogaz in the spotlight

Ukraine\'s policymakers are still making brave gestures in the face of ongoing jitters in the global financial markets, which already indicate prevailing expectations for quite poor economic performance globally in both the current and last quarter of this year. Below we provide our weekly view on the UAH, local bond market conditions, and corporate news flow regarding Eurobond issuers.

Local currency. Over the weekend, NBU Chairman Arbuzov said in an extensive interview with the Zerkalo Nedeli weekly that authorities are going to defend the currency from devaluation, citing expectations for a well-balanced BoP in the 2H11. He acknowledged that the current FX policy on the tightly managed peg to the USD has resulted in further external competitiveness and gains to local exporters as the USD weakened since early 2011 against major currencies. This was also given as a rationale as to why the NBU would not tolerate devaluation of the UAH versus the USD, implicitly indicating that further external competitiveness gains favouring local exporters was not a reasonable course of action for policymakers.

Domestic bond market. Banking sector liquidity failed to fall to its lowest level of this year last week only because of inflows from the NBU and the MoF. The KyivPrime ON rate jumped up to its highest measures since the end-of-year 2009, so on the bond market, rates were also high, but slightly declined compared with a week ago.

Eurobond market. The past week was quite tense in terms of news flow regarding the Ukraine corporate names that have their Eurobonds in outstanding.

Thus, Naftogaz has apparently become a subject of trade-off talks between Ukraine and Russian authorities, which are struggling to find an common solution to the natural gas pricing, which is burdensome not only for Naftogaz, but for the economy\'s external balance as well (pp. 4).

Ferrexpo and Galnaftogaz reported obtaining financing from European banks and international financial institutions (pp. 4-5), and Agroton published its interim financial results for 1H11, indicating sales growing 3.2x in year-on-year terms, to US$63.4m, EBITDA adding 3% YoY, to US$38.8m; and net income increasing 22% YoY, to US$34.4m (pp. 6).

Ukreximbank is scheduled to redeem its US$500m bond this week, on 7 September. We took a closer look at its balance sheet and liquid assets, assessing its ability to make such a payback without refinancing, i.e., issuing new bond (pp. 5).