Ukraine Borrows As Hryvnia Faces Pressure

KIEV, Ukraine -- Ukraine, whose national currency has been facing mounting downward pressure due to a widening trade deficit, issued $1.25 billion in 10-year eurobonds, people familiar with transaction said Tuesday.

Ukrainian hryvnia

The semiannual coupon bonds were to yield 7.8%, 618.7 basis points over 10-year US Treasuries.

It was earlier reported that the yield guidance for the placement came to 8%. 

Organizers were JP Morgan, Morgan Stanley, Sberbank CIB and VTB Capital.

The move comes as the government has been unsuccessfully seeking to restart borrowing from the International Monetary Fund, which suspended its $15.2 billion loan two years ago after the authorities had refused to implement key reforms. 

Ukraine is rated at ‘B+’ by Standard & Poor's, or four levels below investment grade.

Both Fitch Ratings and Moody’s Investors Service rate Ukraine one level lower, or five steps short of investment grade.

The National Bank of Ukraine has been tapping its foreign exchange reserves over the past several months to support the hryvnia, but downward pressure was so big that some analysts have predicted that depreciation is imminent.

In a desperate attempt to stop the hryvnia's decline, the NBU resorted to recently gained special powers to force exporters to sell a half of their hard currency earnings for hryvnias on the interbank market.

The measure is expected to be in effect for at least six months.

Vitaliy Khomutynnik, the head of the finance and banking committee in Parliament, submitted a bill to Parliament that seeks to slap a tax of 15% on any transaction selling hard currency by an individual in Ukraine.

The bill raised a storm of criticism among experts and opposition lawmakers, forcing Khomutynnik on Tuesday to postpone the controversial bill indefinitely.

The hryvnia strengthened to 8.18 to the U.S. dollar in trading between commercial banks on Tuesday, compared with 8.20/dollar on Monday and 8.30/dollar one week ago, when it had dropped to the lowest level in three years.

The NBU officially reported its foreign exchange reserves dropped 8% on month to $26 billion at the end of October, but analysts said the liquid reserves may have actually dropped to $24 billion, raising concerns to how long will the central bank be able to continue to support the local currency.

Ukraine’s economy shrank 1.3% in the third quarter from the same period a year ago as demand for the country's main exports - steel and mineral fertilizers - declined. 

Ukraine tapped international debt markets in July, when it sold $2.6 billion of eurobonds due 2017 at a yield of 9.25%.

The country also sold $1 billion of Eurobonds in August maturing in 2014 at a yield of 7.95%.

Source: Ukrainian Journal