Weekly review: Ukraine\'s gov\'t readies sovereign issue, markets tricky

The markets started this week again with a reality check on risk. The news on the Greek authorities\' near fail to agree to a fresh portion of austerity measures may derail Ukraine\'s government\'s plan to successfully market its sovereign bond issue in the near few weeks.

Local currency. The local currency has been duly trading versus the USD at a thin hair to the 8.03/USD level, while the past week showed that the local FX market was free of central bank interventions, and that the surrounding market sentiment showed a \'risk-on\' attitude, helping the hryvnia to inch upward in the local market as well as in the offshore NDF market. However, still, the main key issues over the Ukraine economy\'s current fundamentals (access to fresh loans from the IMF and reduction in the price paid to Gazprom for natural gas imports) remain largely static, which has kept sentiment on the UAH extremely critical and Ukraine\'s authorities\' position to resist market pressure challenging. This main trading risk theme now appears to centre on Greece\'s inability to deliver austerity measures needed to win a fresh bailout from the EU and IMF.

Domestic bond market. Last week, banking sector liquidity fell to its lowest level this year, but did not cause a significant jump in money-market interest rates. The MoF introduced 1-year, USD-denominated bonds into the market and included this bond in the auction schedule for February. This bond yielded significant proceeds of nearly 70% of all budget proceeds received by the MoF in January.

Eurobond market. The Ukrainian Eurobonds market was stable last week, with a small decrease in YTMs and spreads, but most likely, this decline was based on the positive European background created by new Eurobonds issues under lower interest rates than before, and positive news on the Greek debt restructuring. At the same time, Ukraine is likely to continue with the preparation of the VTB-loan repackaging, and Sberbank of the Russian Federation could be part of deal and the primary bondholder of the new Eurobonds.

We also provide a comment on recent news regarding DTEK (B2/B), which reported 4Q11 and full-year 2011 operating figures (see pp.5). As well, we provide our bank analyst\'s view on banks\' 4Q11 results, according to the recently published UAS financials (see pp.6).

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