FRONT STORY UKRAINE
Ukraine launches off IMF springboard
IMF commitment helps secure path back to international markets
Lofty yield smoothes way for benchmark return
UKRAINE leveraged renewed commitment
from the IMF as the linchpin for raising
US$2bn on Thursday, in the process clearing
an upcoming repayment headache and
securing longer-term debt.
The sovereign, rated B- by S&P and Fitch
with a stable outlook, printed the trade a
week after it secured a US$3.9bn stand-by
aid (SBA) agreement with the IMF that had
unlocked the door for a return to
international bond markets.
“Timing for the deal was always going to
be driven by getting the IMF process
through,” said a lead. “Ukraine didn’t end
UPûPAYINGûUPûSIGNIlCANTLYûOVERûSECONDARIESû
despite all the challenges and headlines, and
they were always aiming to get up to
US$2bn, so that was a great result.”
Leads BNP Paribas, Citigroup, Goldman Sachs
and JP Morgan started marketing a February
2024 note at 9.25% area and a November
2028 bond at 10% area. Investors told IFR
they thought the concessions on offer were
decent albeit not overly generous.
“Tough one for Ukraine because they
need to offer some premium to existing
bonds to get investors interested as most
guys are already overweight, but they can’t
make it too cheap otherwise they will
reprice their existing curve,” said Max
Wolman, senior investment manager at
Aberdeen Standard Investments, who said
that he was onboard with the Ukraine story.
Bankers on the trade put fair value at
8.875% on the shorter bond and 9.625% on
the longer bond.
It did not hit the screens until early
AFTERNOONûINû,ONDON ûASûSYNDICATEûOFlCIALSû
took stock of a market that had seen a sell-
off in equities.
“The market showed signs of stabilisation
in the morning, and EM credit has also not
been under the same pressure as the equity
market,” said the lead. “Some of that was
down to the sell-off in August, which took
out the lazy longs. Also, we had feedback
from investors that they were there and
wanted to see the trade.”
Books reached around US$4.9bn,
including US$110m of lead manager
interest. Pricing was cut by 25bp on both
TRANCHES ûWITHûAû53MûLONGûlVE
YEARû
pricing at a yield of 9% and the US$1.25bn
10-year printing at a yield of 9.75%.
“It was decent considering the story,” said
a banker away from the deal. “The yields
were elevated although in this backdrop one
has to make the choice to be a price taker
and get the cash, or sit and wait it out. It
depends how much you need the money.”
Konstantin Stetsenko, managing partner
at asset manager ICU, said the Eurobond was
crucial for Ukraine given that the proceeds
WILLûBEûUSEDûTOûRElNANCEûAû53MûPRIVATEû
placement due February 2019, as well as for
the government’s budget.
“It was very important to secure long
money to repay short-term debt. It has allowed
the government to solve short-term needs and
now they can wait for better windows to tap
the market in better conditions,” he said.
The notes traded up on the break, and the
lead said that gave a broader signal for the
health of EM.
h4HEûVOTEûOFûCONlDENCEûWASûTHEREûFORû
Ukraine, and this shows there is liquidity
out there,” he said.IMF GREEN LIGHT
The IMF had announced the SBA hours after
the government decided to raise household
gas prices by nearly a quarter, a long-
standing IMF requirement.
The country’s prime minister had warned
that Ukraine was headed for default without
the IMF deal, but even so the gas price
INCREASEûTRIGGEREDûlERCEûCRITICISMûFROMû
opposition politicians.
The SBA is subject to Ukraine passing a
2019 budget, which parliament must vote
on by the end of the year. Ukraine also holds
presidential and parliamentary elections
next year.Stetsenko said that even though the IMF
funds will be directed to the central bank
rather than the government, the
commitment from the fund will unlock
liquidity from other institutions like the EU
and the World Bank.“Although the government does not have
access to the IMF money, the stamp of
APPROVALûWILLûGIVEûADDITIONALûCONlDENCEûFORû
investors, open important facilities for the
government and give it access to
international markets.”
Other Ukrainian issuers such as Naftogaz
and Ukrzaliznytsia could follow the
sovereign into the market, although
Stetsenko said the high borrowing costs at
the moment will discourage corporate
activity in 2018.
“Naftogaz will need to give a premium to
the government of about 100bp, so it
depends whether they really need the
money immediately or can wait,” he said.
The companies’ return could also hinge
ONûINVESTORSûRETAININGûCONlDENCEûINûTHEû
Ukraine story, which some view as
challenging.
“Ukraine is not a story I really like even
with new IMF deal,” said Oliver Weeks, an
economist at Emso Asset Management.
He said the sovereign will have a large
BUDGETûDElCITûINû$ECEMBER ûALTHOUGHûTHEû
SIZEûISûUNCERTAIN ûWHICHûWILLûBEûDIFlCULTûTOû
fund locally. It could therefore absorb a
SIGNIlCANTûPORTIONûOFûFUNDSûOFûTHEûNEWûISSUE
h4HEYûHAVEûBIGûUPCOMINGûlNANCINGû
needs, minimal domestic funding capacity,
and large political uncertainty now,” he
said. “They will have to issue a lot more.”
Robert HoggEMERGING MARKETS
China 48 India 51 Indonesia 51 Singapore 51 South Korea 52 Kazakhstan 52 South Africa 53 Tunisia 53
Bahrain 54 Oman 54 UAE 55 Chile 56 Mexico 56“Ukraine didn’t end up
paying up significantly over
secondaries despite all the
challenges and headlines, and
they were always aiming to get
up to US$2bn, so that was a
great result”“Timing for the deal was always
going to be driven by getting
the IMF process through”