Ukraine sells €1.25bn of new debt at record-low borrowing costs

Country capitalises on optimism over president Volodymyr Zelensky’s reform programme

Ukraine has sold €1.25bn of new debt at record-low borrowing costs, capitalising on a rush of optimism over the country’s reform programme less than five years after it imposed heavy losses on bondholders.

Wednesday’s oversubscribed sale of new 10-year euro-denominated bonds priced at a yield of 4.375 per cent as Kyiv locked in gains from last year’s big debt rally. Fund managers have piled into Ukrainian debt since the election last spring of Volodymyr Zelensky, betting that the president’s programme of economic reform will lift growth.

“It’s a rare country where serious reforms are happening and the economy is in good shape,” said Viktor Szabo, an emerging market debt portfolio manager at Aberdeen Standard Investments who bought bonds in Wednesday’s sale. Mr Szabo said the yield remained attractive in an environment where yields in many big European economies remained mired in negative territory.

Prime minister Oleksiy Honcharuk, who spoke early on Thursday on the sidelines of the World Economic Forum in Davos, described the bond sale as a vote of confidence that will help further cut debt levels by replacing more expensive funding. The country’s debt-to-GDP ratio has fallen to 52 per cent from about 80 per cent four years ago as the economy rebounded from the impact of Russia’s annexation of Crimea in 2014. “We issued the least expensive eurobonds in Ukraine’s history,” said Mr Honcharuk.

Timothy Ash, an analyst at BlueBay Asset Management, said it was “extraordinary” that Ukraine was able to sell the debt at such a low yield. “A year or so ago, [Ukraine] would not have been able to come at much less than 10 per cent,” he wrote in a note to investors.

“What worries me now a bit is complacency,” Mr Ash said, noting that the availability of cheap funding from bond markets could ease the pressure on Mr Zelensky to push through market-friendly reforms, while reducing the IMF’s leverage in Kyiv.

The bond issue followed a speech in Davos by Mr Zelensky, in which he promised to speed up reforms and crack down on widespread corruption. He announced plans to offer a five-year profit tax “vacation” for investors that put $10m or more into the country through privatisations of hundreds of state enterprises.

“The challenges facing us, Ukrainians, mobilise us and make us move faster, inspire us to do the incredible and impossible,” Mr Zelensky said during a presentation.

Keen to attract higher foreign direct levels and in turn boost the economy, Ukrainian officials at the WEF announced intentions to sign an agreement with Germany’s largest railway operator, Deutsche Bahn, to advise on an overhaul of the country’s dilapidated state railway company.

Meeting at Davos with IMF managing director Kristalina Georgieva, Mr Zelensky and Mr Honcharuk discussed measures needed before the IMF’s board approves a new $5.5bn loan programme.

BNP Paribas, JPMorgan and Raiffeisen Bank International acted as lead managers and bookrunners on the new bond deal.

Source: Financial Times

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