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  • 1. Ukrainian Fixed Income Strategy Weekly Artem Kost, December 15, 2009 Liquidity Interbank rates and liquidity on correspondent banks accounts Last week Ukrainian interbank market followed its traditional developments scenario: after short but significant rates fluctuations the market enters the 25 60% phase of stability, which is longer as a rule. The commercial banks’ balances 50% 20 on accounts with the NBU stays within UAH 14.5 bn – UAH 15.3 bn, thus 40% demonstrating a very low volatility. The only noticeable change occurred last 15 week was a 0.2 p.p. decline in overnight rate to 2.21% p.a. In the reviewed 30% period 1-week and 2-week money resource stayed at levels reached before. 10 20% In its turn, the weighted average interest rate calculated by the NBU despite 5 10% lowering overnight added 0.8 p.p. to 6.2%, thus confirming once again that period of credit rates surge may well be still ahead. 0 0% 22.12.2008 16.03.2009 25.05.2009 03.08.2009 12.10.2009 Outlook: a temporary stabilization in the credit market can be a forerunner of Balances on correspondent accounts, UAH bn, (lefts scale) a sharp surge of rates in the near term. We must say that in autumn-2009 Av erage short-term rate (right scale) there were several dramatic spikes in rates in the credit market. However, it led to no perceptible overall rise in credit rates curve. Nonetheless, the Major indicators situation with liquidity in the banking system as well as the policy of the NBU 14.12 07.12 Change still give grounds to expect further increase in money resource cost. Overnight 2.21% 2.41% -0.20 p.p. 1-week 4.75% 4.75% 0.00 p.p. Depo rates 2-week 6.25% 6.25% 0.00 p.p. UAH depo/USD depo yield curve UAH/USD 7.98280 7.98400 -0.02% UAH/EUR 11.78022 12.03029 -2.08% 23% UAH/RUR 0.26424 0.27344 -3.36% 21% UFC fixed-income benchmarks 19% 14.12 07.12 Change Corporate 72.4% 72.4% 0.0 p.p. 17% Financial 92.3% 92.3% 0.0 p.p. UAH Municipal 14.0% 13.9% +0.1 p.p. 15% USD UFC UAH depo 20.8% 20.8% 0.0 p.p. UFC USD depo 10.8% 10.7% +0.1 p.p. 13% OVDPs holders 11% 100% 9% 80% 3-m 6-m 12-m 60% Commercial banks do not evidently count on their deposit programs as on the serious mechanism to attract liquidity in hryvna and US dollars. Because 40% of it – the depo indices we calculate based on the group of largest banks stay 20% practically unchanged. Last week UFC-depo-USD indicator added 0.1 p.p., thus returning to its former values. UFC-depo-UAH did not change last week, 0% so the probability of our forecast about significant surge in hryvna deposits 15.12.08 15.03.09 15.06.09 15.09.09 rate by the end of 2009 is getting down. NBU Ukrainian banks Other ukrainian residents Nonresidents
  • 2. Ukrainian bonds YTM benchmarks UAH depo/USD depo rates dynamics 120% corporate f inancial 21% municipal 100% 19% 80% 17% 60% 15% 40% UFC-depo-USD 13% 20% UFC-depo-UAH 11% 0% 23.12.08 08.03.09 22.05.09 05.08.09 19.10.09 9% 15.12.08 03.02.09 25.03.09 14.05.09 03.07.09 22.08.09 11.10.09 30.11.09 State securities Bonds calendar: 17.12.2009-23.12.2009 Coupon payment Yields in the secondary market of sovereign Eurbonds did not change much 17.12.09 OZAPRE Zaporizhia, 1-E over the last week. It is mainly explained by decreased activity in this market, 17.12.09 OLTSKA Lutsk, 1-А which unlikely will become stronger till the end of 2009. A segment of 17.12.09 OALFH Alfa-Bank, 1-H 17.12.09 ODGBC2 Dongorbank, 3-C sovereign bonds of emerging markets after events around bonds of Dubai 18.12.09 ODONCD Donetsk, 1-D World sovereign investment fund and Greek state bonds has lost part of 18.12.09 OLUGC Lugansk, 1-С potential demand due to revaluation of such instruments exposure in 19.12.09 - Ukraine, 2010, JPY principle. In this context revival of trading with Ukrainian sovereign 21.12.09 - ZAZ, 2009 (CLN) Eurobonds is the point of attractiveness of investments in emerging markets 21.12.09 - UkrSibbank, 2011 (LPN) 21.12.09 ONRBD Sberbank Rossiii, 1-D in general. 21.12.09 COPUMB PUMB, 1-A Ukrainian Eurobonds yield curve 21.12.09 OPRXBB Pravex-Bank, 1-B 21.12.09 - Swedbank, 1-C 21.12.09 OPRXBB Pravex-Bank, 1-B 16.0% 22.12.09 - Alfa-Bank, 2009 (LPN) Ukrainian Eurobonds, YTM 22.12.09 OUGZBE Ukrgazbank, 1-E 15.5% March 2011 22.12.09 OALFD Alfa-Bank, 1-D 15.0% 22.12.09 OSBMB Spetstroimontazh, 1-B 22.12.09 OUGZBD Ukrgazbank, 1-D 14.5% 23.12.09 OLVIVB Lviv, 1-В 14.0% 23.12.09 OZAPRG Zaporizhia, 1-G June 2012 13.5% 23.12.09 22004 Ukraine, 05.05.2010 October 2015 23.12.09 57301 Ukraine, 14.06.2017 13.0% June 2013 23.12.09 - Ukraine,16.12.2015 12.5% 23.12.09 - Ukraine, 15.06.2016 Nov ember 2016 23.12.09 - Ukraine, 12.06.2019 12.0% Nov ember 23.12.09 - Ukraine, 113.06.2018 2017 11.5% 23.12.09 - Zaporizhia, 1-H 2011 2012 2013 2014 2015 2016 2017 2018 23.12.09 14377 Ukraine, 23.06.2010 23.12.09 COPLIC Optima-Leasing, 1-С The Finance Ministry of Ukraine last week attracted UAH 14.3 mn from Redemption/ put option placement of OVDPs at the primary auction, while preserving the yields at 17.12.09 OLTSKA Lutsk, 1-А 17.12.09 ODGBC2 Dongorbank, 3-C the former level. Thus, the bonds maturing in May 2010 were sold at 21.12.09 - ЗАЗ, 2009 (CLN) weighted average yield of 19.0% p.a., those maturing in August 2010 – at 21.12.09 ONRBD Sberbank Rossii, 1-D 19.5%, while primary yields of securities outstanding through November 21.12.09 ODONCB Donetsk, 1-В 2011, and those maturing in September 2012 – at 20%. 22.12.09 - Alfa-Bank, 2009 (LPN) 22.12.09 OUGZBE Ukrgazbank, 1-E Outlook: market participants are expecting several percentage points rise in 22.12.09 OALFD Alfa-Bank, 1-D yields at the primary auction that can take place during the next nearest 23.12.09 OELZA Euro Leasing, 1-A offerings. The reason for these anticipations are unsuccessful tries of the government to tap financing from other sources as well as the need to make a number of payouts before the end of 2009, including coupon payments under six series of OVDPs during next week. 2
  • 3. Ukrainian bonds market (07.12.2009-11.12.2009) Corporate bonds PFTS Company Coup Volume, Effective on UAH mn YTM 50207 Ukraine, 14.09.2016 9.50% 425.43 10.21% Ukrainian secondary market of corporate bonds during the last several 54456 Ukraine, 27.04.2011 20.00% 91.01 23.52% months can be discussed just in context of restructuring of bonds series 52724 Ukraine, 10.02.2010 - 73.57 19.66% issued by these or those companies, since it gives no motives to talk about 61451 Ukraine, 31.10.2012 20.00% 56.54 22.15% any liquidity and, accordingly, about any yield levels tendencies. It became 20909 Ukraine, 30.12.2009 11.94% 10.79 70.45% 53912 Ukraine, 11.04.2012 15.70% 7.23 25.24% known during the week in question that Ukrgazbank reached an agreement OMDGRD MD Group, 1-D 14.00% 1.02 - with holders of its A and C series bonds who earlier had not agreed to Borschagivka conditions offered by the bank. So the issuer succeeded in persuading its Parmaceutical Factory, OBHFZ 1-А 13.00% 0.52 - UAH 300 mn worth bonds holders to reschedule payouts under these 54365 Ukraine, 27.04.2011 20.00% 0.22 31.64% obligations, which removes from Ukrgazbank some part of financial pressure OROMA Roma, 1-A 15.00% 0.10 - in the short-term period. OMABA3 Boryspil Airport, 3-А 10.00% 0.10 48.13% ВТБ Банк Ukraine, Ukrainian corporate Eurobonds market last week also was rich in news about OVTBB 1-B 16.50% 0.02 - OELZB Euro Leasing, 1-B 23.00% 0.02 - restructurings. So PUMB arranged with most of its Eurobonds holders for OSCHDB Oschadbank, 1-B 10.50% 0.01 12.42% rescheduling of its papers redemption from February 2010 to December 2014. Instead the bank offered raising its interest rate from 9.75% to 11.00%, partial repayment of the principal in 2010, as well as replacing 6-month coupon payments with quarterly ones. Finance and Credit bank was less loyal to its investors and during talks dedicated to restructuring of its $100 mn worth obligations suggested to postpone redemption for 4 years and increased its coupon just by 0.125 p.p. while keeping its coupon payments once in 6 months. 3
  • 4. Ukrainian bonds rating (internal methodology*) Corporate Agromat, 1-A OAGMTA ufcBB Amstor, 1-E OAMSE ufcCCC Boryspil Airport, 3-A OMABA3 ufcA Bogdan, 1-A OLUAZA ufcBB Galichina, 1-С OGLCHC ufcB Galnaftogaz, 1-Е OGNGE ufcBB+ Donetskstal, 1-А CODSTA ufcBB Image Holding, 1-B OIMHLB ufcB+ Karavan, 1-C OKRVNC ufcSD Kirovogradoblenergo, 1-А OKIONA ufcB Konti, 1-B OKKOB ufcB MAUP, 1-А OMAUPA ufcB Podillia, 1-A OPDILA ufcB Sevastopolenergo, 2-А OSENA2 ufcB Sumykhimprom, 1-А OSUMHA ufcCC Favorit, 1-B OTNFB ufcBB HARP Trading, 1-B OHRPTB ufcBB Khlibprom, 1-D OHLPD ufcB Yutist, 1-A OUTSTA ufcSD Financial Alfa Bank, 1-F OALFF ufcBBB- Khreschatik Bank, 1-E OBXRE ufcBBB Dongorbank, 3-C ODGBC2 ufcB Imexbank, 1-A OIMEXA ufcBB Kreditprombank, 1-F COKPBF ufcСС Pravex-Bank, 1-C OPRXBC ufcBB- PUMB, 1-A COPUMB ufcА Raiffeisen Bank Aval , 1-B OBVLB ufcA Rodovid Bank, 1-C ORODBC ufcСС Sberbank Rossii (Ukraine), ONRBD ufcBB+ 1-D Ukrgazbank, 1-A OUGZBA ufcССС Ukrsotsbank, 1-E COUSCE ufcA Forum, 1-C OPRXBC ufcBBB *- Follow the link below to get to the internal methodology of UFC Capital for corporate bonds rating: 4
  • 5. OVDPs yield curve and effective YTM of Ukrainian bonds denominated in UAH vs. Eurobonds 450% Finance and Kredit, 01/2010 350% Kreditprombank, 1-F 250% FUIB, 02/2010 Bogdan, 1-А Kreditprombank, 1-C 150% Podillia, 1-А Ukrgasbank, 1-C Agromat, 1-А FUIB, 1-А Khlibprom, 1-D 50% Image Holding, 1-B Interpipe, 08/2010 40% Alfa-Bank, 1-D 30% Airport Boryspil, 3-А Sberbank Rossii, 1-D Privatbank, 02/2012 Aval, 1-B/1-C Kiev, 11/2012 20% Ukreximbank, 09/2011 Ukrsotsbank, 02/2010 Alfa-Bank, 07.2012 Azovstal, 02/2011 Ukreximabak, 10/2012 Donetsksteel, 1-А MHP, 11/2011 Ukraine, 03/2011 Ukrsibbank, 07/2010 Ukrsibbank, 08/2011 Ukraine, 06/2012 Ukraine, 06/2013 10% Domestic corporate bonds Eurobonds ОVDP Sov ereign Eurobonds 0% 11.2009 03.2010 08.2010 12.2010 05.2011 10.2011 02.2012 07.2012 11.2012 04.2013 5
  • 6. Outlook: it is most likely that Ukrainian corporate Eurobonds market will not witness any significant activity till the end of 2009 – it is worth while to expect speculative deals just with securities issued by companies preparing their obligation restructuring. Market revival in 2010 will not just depend on factors related to reliability and attractiveness of Ukrainian bonds, but also (and not the least) on investors’ attitude towards emerging markets overall. 6
  • 7. UFC Capital 47, Volodymyrska St., office 1, Kyiv, 01034, Ukraine Tel: +380 (44) 391-3778 Fax: +380 (44) 391-3779 Mikhail Dorfman Managing Partner Vladimir Landa Head of Research Vitaly Gorovoy Senior Analyst Artem Kost Senior Analyst Dmitry Oliynyk Assistant Alexander Lyshen Translator © 2009 UFC Capital. All rights reserved Opinions stated in the document are expressed taking into account the situation as at the date of the material release. This document is solely intended for informational purposes; neither the information nor any opinion expressed herein constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options. While the information and opinions contained herein are based on the materials believed to be reliable, we make no representation as to the accuracy and completeness of such information or opinions. Taking into consideration the above-mentioned, it is not advised to rely solely on the contents of this document to the detriment of conducting an independent research. The company’s research department and its affiliates accept no liability in relation to the use of this information. Investing in Ukrainian economy and its securities involves a great deal of risk and investors should perform their own due diligence in checking the financial performance of the issuers before taking an investment decision. Any unauthorized copying, distribution as well as publishing of this document for any use is prohibited.