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Concorde Capital Research: Ukraine raises UAH 20 bln from local bond sale, hikes rates for ST bonds

December 19, 2018
Ukraine’s Finance Ministry satisfied all bids and raised UAH 11.4 bln and USD 309.1 mln (a total of UAH 20.0 bln in the equivalent ) at its weekly bond auction on Dec. 18. This is the second highest weekly auction result since the beginning of the year after the equivalent of UAH 20.3 was raised on March 27.

More than half of auction receipts – UAH 11.3 bln – came from the sale of four UAH-denominated bonds with maturity ranging from 77 to 105 days. To attract bidders, the government hiked the interest rates of these bonds to 20.5% from 19.0% at previous auctions. Remarkably, there was only one bid for each of the bonds maturing in 77, 91 and 105 days. These three bids raised altogether UAH 7.5 bln. The bonds maturing in 98 days were sold to 21 bidders for UAH 3.8 bln with a weighted average interest rate of 20.4%.

UAH-denominated bonds of 6M, 9M and 12M maturities were sold at a unified rate of 18.5%. In particular, three bidders bought 6M bonds for UAH 7.7 mln, one bidder bought 9M bonds for UAH 39.8 mln and three bidders bought 12M bonds for UAH 5.2 mln.

One-month USD-denominated bonds were sold to 13 bidders for USD 251.9 mln. The bidders’ interest rates – ranging from 5.4% to 6.5% – yielded a weighted average interest rate of 6.34%. The rest of USD auction receipts were gained from the sale of 10M bonds to 13 bidders for USD 6.7 mln at 7.25% and 14M bonds to four bidders for USD 50.5 mln at 7.50%.

Evgeniya Akhtyrko: The MinFin’s move to hike interest rates for the bonds with the shortest terms of maturity was unexpected given the central bank’s decision last week to keep the key interest rate unchanged at 18%. Apparently, this borrowing is to finance the last-minute public expenditures that traditionally surge at the year end.

This government decision is disappointing as it indicates that it's continuing to pursue the inefficient accounting practice of postponing much spending onto New Year’s Eve to accommodate last-minute spending and even holiday bonus payments. Abandoning the practice this year would have been especially difficult as the presidential election campaign season kicks off on Dec. 31.

Meanwhile, December receipts from the local Eurobond sale have already exceeded the redemption of local bonds for USD 132.5 mln this month. It might be difficult to raise new foreign currency debt next quarter, as the uncertainty related to the new political cycle is likely to make investors more risk averse.
Company — Concorde Capital
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