The Ukrainian government appears to have developed a fancy for borrowing money on the world market. First Vice Premier Mykola Azarov stated that he regarded the placement of seven-year eurobonds worth $600 million at 6.875% annual interest as a good one, and that another such attempt would be made before the end of the year. The 2004 budget program authorizes the cabinet to issue eurobonds totaling $630 million. The first vice premier does not seem worried by this. He is convinces that the next issue will far exceed the 30 million. Ukraine must part with some $400 million on March 15, as a payment under its public debt, meaning in all probability that the lion’s share of the money borrowed recently will be used for precisely this purpose. The next large public debt payment (some $400 million) is scheduled for September 15.
The main result of the latest issue of eurobonds was the rate lowering from 7.66 to 6.875% annual. Although the event appeared somewhat obscured by the term of bond circulation being shortened from ten to seven years, the positive trend adds confidentiality to Ukrainian companies also wishing to have their money engaged on the world capital market. Privatbank, Ukrsybbank, and Ukrsotsbank previously stated they were going to issue their bonds before long. For them, 6.785% will be a guideline of sorts. So far none of the Ukrainian companies have been able to obtain loans in the West under 10% interest. Now they stand a real chance of doing just that. Privatbank bonds placed on the secondary market earlier now cost around 10%, but the Dnipropetrovsk people have announced that the new issue’s deadline would be reset sometime toward the end of March. Another possibility is that the bank leadership decided to assess the consequences of that placement of Ukraine’s sovereign bonds and take advantage of the positive trend. to be the first to place it at, say, 9% something.
Fitch, S&P, and Moodys, recognized financial authorities as they are, assigned Ukraine’s latest eurobond issue B, B+, and B1 ratings, accordingly, along with positive and stable forecasts. Although these ratings still categorize any Western investments in Ukraine as speculative, the main thing is that there are positive changes. What made the above financial authorities optimistic was the expected and duly justified Ukrainian economic increment of 6-8% in 2004, along with enhancing NBU hard currency reserves exceeding $7 billion, and a hundred percent implementation of the central budget returns and expenses. Among the risk factors, the above financial authorities’ experts mention the coming presidential elections and the slow execution of structural reforms. They point out, however, that the said risks are hardly likely to have a negative effect on Ukraine’s wellbeing. Incidentally, Western investors showing an interest in developing markets seem to have agreed that the most popular presidential candidates in Ukraine will continue on the current economic course, and that the only questions remaining to be answered is the rate of implementation of reforms long since proclaimed.
Against this positive background, Ukraine’s leading banks and companies are likely to try to make good profits. Further eurobond issues should be expected this spring and in early summer. Closer to the presidential election, the Ukrainian government will perhaps be the only one to appear on the world capital market, seeking funds to service the public debt. Ukraine will most likely be at the peak of the presidential campaign by then, with the attendant scandals arising from so-called dark PR campaigns. Therefore, Ukrainian borrowers lacking the guts to issue bonds in the next 3-4 months will most likely have to postpone further issues until next year.
