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Concorde Capital Research: MinFin raises rates for UAH-denominated local bonds

September 12, 2018 | Cbonds

Ukraine’s Finance Ministry raised USD 10.3 mln and UAH 134.6 mln (a total of UAH 425.3 mln in the equivalent) at its weekly local bond auction held on Sept. 11. It raised USD 12.6 mln and UAH 15.0 mln (a total of UAH 372.8 mln in the equivalent) at the auction held last week.

The interest rates for UAH-denominated bonds increased following the 0.5pp hike of key policy rate to 18% by the National Bank of Ukraine on Sept. 6. The government sold 3M, 6M and 12M bonds at a unified interest rate of 18.5% (vs. 18.0% a week ago). Around 80% of UAH auction receipts – UAH 110.5 mln – were brought in by the sale of 3M bonds. Six-month bonds were sold for UAH 15.3 mln, while the sale of 12M bonds raised UAH 8.8 mln.

Some market participants anticipated a higher increase in interest rates. In particular, MinFin rejected six out of 14 bids for 3M bonds, one out of eight bids for 6M bonds and one out for 3 bids for 12M bonds. In addition, one bid for 3Y bonds at 17.25% was also left unsatisfied.

The interest rate for local Eurobonds remained unchanged. The government sold 9M local Eurobonds for USD 4.1 mln (15 satisfied bids) and 2Y local Eurobonds for USD 6.2 mln (10 satisfied bids) at the unified interest rate of 5.95% – the same as last week. One bid for 9M local Eurobonds and three bids for 2Y local Eurobonds with higher interest rates demanded were left unsatisfied.


Evgeniya Akhtyrko: The rise in interest rates for UAH-denominated bonds by 0.5pp failed to improve demand for UAH-denominated debt. So far, the government is ignoring market demands for higher interest rates. At the same time, the need for budget deficit financing is likely to stay high, as the government appetite for public spending is likely to grow through the year end during the current election campaign.

The situation with raising FCY-denominated local debt is also difficult. As we wrote, government needs in foreign currency are high this month because of scheduled payments of USD 554 mln on international sovereign Eurobond coupons and redemptions of local Eurobonds for USD 100 mln.

However, the USD receipts of the two September auctions indicate that the government is not likely to cover its needs if the market doesn’t improve. Hiking interest rates for local Eurobonds is an option, but the market capacity to buy local Eurobonds might be still low despite higher interest rates.

Company: Concorde Capital

Full company nameConcorde Capital
Country of riskUkraine
IndustryFinancial institutions

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