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New UKRINF Eurobond issue planned

November 6, 2012

Taras Kotovych, Fixed-income analyst, Investment Capital Ukraine:

UKRINF (b2/NR/NR) is going to issue a new USD650m (UAH5.2bn) Eurobond this year to finance infrastructure development projects, including airports, Interfax-Ukraine reported, per a decision by government authorities on 26 October 2012. The issue will be led not by Morgan Stanley, but by Troika-Dialog in cooperation with FTN Monitor LTD with legal services provided by Hogan Lovells. This issue is expected to be offered very soon when interest rates decline.
Investment implications: Current market conditions, with YTMs of sovereign Eurobonds at about 7.0% or lower, are very suitable for UKRINF to announce a new issue. UKRINF Eurobonds are quoted 200-230bp higher than UKRAIN 6.75% '17 (see chart on the next page) and slightly below 9.0%: UKRINF 8.375% '17 at 8.88% and UKRINF 7.4% '18 at 8.74%. However, when the new issue is announced and the book opens, YTMs could significantly increase to about 9.5-10.0% until the deal closes, possibly causing the coupon rate for the new issue to be no lower than 9.5%.