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"The market positively perceived our placement" – an exclusive commentary on the Ukraine-2028 additional placement of sovereign Eurobonds by Government Commissioner for Public Debt Management, Yuri Butsa

April 10, 2019 | Cbonds

In mid-March 2019, the Ministry of Finance of Ukraine reported on the successful additional placement of 10-year bonds by Ukraine with redemption on November 1, 2028. Cbonds asked Yury Butsa, Government Commissioner for Public Debt Management, to comment on, and he kindly answered the questions.
The Ukraine-2028 additional placement of Eurobonds was a complete surprise to market participants. Why was it decided to enter the market with the offer of these securities right now?
The implementation of the borrowing plan by attracting financing on the external capital market is an ordinary work of the Ministry of Finance of Ukraine. We made a small volume placement taking advantage of the favorable market conditions consistent with our strategy for the gradual implementation of the borrowing plan in the foreseen volumes in the external capital market this year. This agreement contributed to an increase in government currency liquidity in the volume that is necessary for flexibility in the timing of the next potential transactions in the external capital market. 

How successful was the market conditions and how did it affect the placement results? 
Judging by the level of quotations, which we observe after the placement, the market has positively perceived our placement. The volume of additional issue is quite small – $ 350 million. 

Was it sufficient, or would its increase have a negative effect on urgency and profitability? 
The current rates of return of Ukrainian government Eurobonds in the secondary market remain higher than those of most peers, although we differ qualitatively from them in terms of macroeconomic and fiscal indicators. Over the past four years, Ukraine has become a classic example of the right economic policies. However, the market is still not appreciating it in the right manner due to political uncertainty. It was impractical to attract a large amount based on the possible increase in the cost of such borrowing. 

How many investors bought the securities? What is the geographical and institutional structure of the investors?
The entire placement volume was acquired by J.P. Morgan investment bank. 

The additional placement was of a private transaction nature. Why was the traditional series of roadshows not held, and why did the agreement involve only one investment bank, J.P. Morgan, which acted as the primary buyer of the securities? 
Considering the feedback we receive from our investors about internal political risks, and the expectations of market participants to extend the current economic policy after the election, as a prerequisite for any public issue, we have chosen this form of placement so as not to cause an adverse effect on the yield curve in the secondary market of our Eurobonds, as well as to be able to quickly make the transaction taking into account the risks of deteriorating market conditions. 

When can we expect a public offering of Ukraine's sovereign Eurobonds? 
During this year, we are focused on maximizing funding from official lenders, for what we also need the help of the parliament. We will make a decision on the placement of government Eurobonds based on the market conditions and the residual amount of required financing. 

Your assessment of the prospects for other Ukrainian issuers to enter the Eurobond market (banks, major corporations) in the near future. What does it depend on? 
Successful entry of corporate issuers to foreign bond markets depends largely on the same factors as the placement of sovereign Eurobonds. Now the main deterrent is political risk reflected in the existing quotes in the secondary market.

Issue: Ukraine, 9.75% 1nov2028, USD

StatusCountry of riskMaturity (option)AmountIssue ratings (M/S&P/F)
outstandingUkraine11/01/20281,600,000,000 USD-/B-/B-

Company: Ukraine

Full company nameUkraine
Country of riskUkraine

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