Analysts Dub Gov’t Bond Deals As Non-Transparent

KIEV, Ukraine -- For the fifth year in a row, the government has carried out foreign bond issues to cover shortfalls in budget revenues, but some analysts and politicians question the transparency of the latest issues under Prime Minister Viktor Yanukovych.

Yanukovych’s government has increased foreign bond issues dramatically to fill budget holes in the light of pale privatization receipts.

On Dec. 15, the Cabinet approved a four-year issue for 35.1 billion Japanese yen ($297 million) with an interest rate of 3.2 percent. This was the third foreign bond issue by the government this year – all three being conducted since Yanukovych was appointed premier for the second time last summer.

December and September witnessed two tranches of a 12-year bond for 768 million Swiss Francs ($638 million) with an annual interest rate of 3.5 percent.

While in November, the government issued a 10-year $1 billion bond yielding a 6.58 percent annual interest rate.

Oleksandr Zholud, an economist for the International Centre for Policy Studies, said the government’s issuing of bonds is not unusual, but the way they were issued is.

“Issuing external bonds is not anything extraordinary. The problem is how they do it,” Zholud told the Post.

Zholud said two of the government’s bond emissions, those in Japanese yen and Swiss Francs, were conducted non-transparently. The government announced the issues just three days before they took place, he added.

“It is possible that these bonds were placed even before the issues were announced,” Zholud said.

According to Zholud, Ukraine’s National Bank does not even have enough Swiss Francs in its accounts to make payments on the bonds, so it will have to buy them at an obscure exchange rate.

“Switzerland is known for its banking secrecy. So it is possible that these bonds are being sold to Ukrainians who would prefer to remain anonymous,” he said.

Moreover, considering expected fluctuations in the yen, the interest rate on the last bond issue was too high, Zholud added.

“The rate could have been lower than 3 percent, even without a discount,” he said.

Yanukovych served as prime minister under former President Leonid Kuchma from late 2002 to 2004, before being appointed a second time by the parliament under current President Viktor Yushchenko. In 2003 and 2004, government borrowing through foreign bond issues increased dramatically from around $350 million to well over $1 billion during the following two years. This year, Ukraine raised about $2 billion.

Former Ukrainian Finance Minister Viktor Pynzenyk, a member of the Orange coalition, believes that the current government doesn’t need to borrow at all, as there is enough money in the treasury from taxes and other revenues.

“The government is consciously putting the country in debt,” Pynzenyk said.

Under Pynzenyk, the government issued only $550 million in foreign bonds. However, 2005 was also the year that Ukraine privatized the Kryvorizhstal steel mill for a record $4.8 billion.

This year’s privatization receipts have not met expectations, earning less than $20 million out of some $400 million planned, according to the State Property Fund.

Yuriy Oleksiyenko, an equity analyst at Millennium Capital, a Kyiv-based financial services provider, blamed the government’s poor privatization record for the increased foreign borrowing.

“It’s a way to finance current state programs by transferring responsibility to the next government,” he said, as most bond issues come due after 2011.

Oleksiyenko believes that the Orange government in which Pynzenyk worked was working to reduce Ukraine’s external debt and compensate the budget through privatization.

Yanukovych’s government has been accused of holding up planned state privatizations.
“We can see it in such examples as the canceled privatization of a 76 percent stake in Luhanskteplovoz and further hold-up in the sale of [state fixed-line monopoly] Ukrtelecom,” Oleksiyenko added.

Source: Kyiv Post


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