Ukrainian Fixed Income Strategy Weekly

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  • 1. Ukrainian Fixed Income Strategy Weekly Artem Kost, kost@ufc-capital.com January 19, 2010 Interbank rates and liquidity on banks correspondent Liquidity accounts In the banking sector the year started from certain inflow of liquidity, which 25 60% manifested itself in growth of commercial banks' balances on accounts with 50% the National Bank of Ukraine, which since early January have not fallen 20 below UAH 17 bn, and for several days even stayed steadily above UAH 40% 15 20 bn. Increase in free funds expectedly resulted in lowering of credit 30% resources cost in the interbank market. Overnight rate lost about 1.4 p.p. to 10 fall down to 1.97%. The longer-term rates decreased even more – 1-week 20% credit now cost 4% p.a., and 2-week – 5.75% p.a. The weighted average 5 10% interest rate calculated by the NBU also went down (by 0.7 p.p.). 0 0% The monetary statistics for December 2009 released by the National Bank of 26.01.2009 06.04.2009 15.05.2009 21.08.2009 02.11.2009 Ukraine reflected continuing positive tendencies in the banking sector. The private deposits volume in the last month of the past year went up by 1.9%. Balances on correspondent accounts, UAH bn, (lefts scale) Av erage short-term rate (right scale) We must say that over the same period the increment in corporate deposits for the first time since long exceeded the increment in private deposits and amounted to 3.8%. Overall for the year the deposits dynamic was negative Major indicators 18.01 28.12 Change (–8.3% vs. 2008) primarily for account of significant funds outflow in the first Overnight 1.97% 3.38% -1.41 p.p. quarter of 2009. 1-week 4.00% 8.50% -4.50 p.p. The situation is taking similar turn for the money supply indicator, which in 2-week 5.75% 12.00% -6.25 p.p. December 2009 grew 3.6%, though over the year it fell 5.5% to UAH/USD 8.00120 7.96550 +0.45% UAH 487.5 bn. UAH/EUR 11.50093 11.46873 +0.28% Money supply in Ukraine UAH/RUR 0.27067 0.27069 -0.01% 550 М3, UAH bn. UFC fixed-income benchmarks 18.01 28.12 Change . Corporate 72.9% 72.4% +0.5 p.p. 500 Financial 92.3% 92.3% 0.0 p.p. Municipal 14.1% 14.1% +0.1 p.p. UFC UAH depo 20.8% 20.8% 0.0 p.p. 450 UFC USD depo 10.7% 10.8% -0.1 p.p. OVDPs holders 90 80 400 70 60 50 350 40 01.01.2008 01.05.2008 01.09.2008 01.01.2009 01.05.2009 01.09.2009 30 20 Outlook: the last quarter of 2009 was a positive one from the viewpoint of 10 monetary market indicators. Gradual returning of funds to the banking system 0 26.01.09 26.03.09 26.05.09 26.07.09 26.09.09 26.11.09 led to money supply increase and decline in interbank rates in early 2010. Nonetheless, we do not believe it is possible to talk about full-fledged NBU Ukrainian banks Other ukrainian residents Nonresidents
  • 2. recovery in the sector, and expect that in future the liquidity and interbank Ukrainian bonds YTM benchmarks rates will remain volatile as well. 120% corporate Depo rates f inancial m unicipal 100% UAH depo/USD depo yield curve 23% 80% 21% 60% 19% 40% 17% 20% UAH 15% USD 0% 27.01.09 12.04.09 26.06.09 09.09.09 23.11.09 13% 11% 9% Bonds calendar: 21.01.2010-27.01.2010 Coupon payment 3-m 6-m 12-m 21.01.10 OBVLB Raiffeisen Bank Aval, 1-B 21.01.10 OBVLC Raiffeisen Bank Aval,1-C The Ukrainian banks demonstrate no significant activity in improvement of 21.01.10 OINSPA Insaharprom-K, 1-A programs for deposits attraction. The statistics for December 2009 gives 22.01.10 OLVIVA Lviv, 1-А grounds to state there is no acute necessity in depo rates raising, since 23.01.10 - Ukrsibank, 2010 (LPN) according to the banks, the volumes of private deposits increase each month. 24.01.10 - Pravex-Bank, 1-D However, the deposits volume is still insufficient for this instrument to 25.01.10 - Ukrsotsbank, 1-G become again as important as before in bank liquidity management. Allowing 25.01.10 OGNGE Galnaftogaz concern, 1-E Finance and Credit Bank, for the tendencies of late 2009 – early 2010, it is most likely that UFC-depo- 25.01.10 - 2010 USD and UFC-depo-UAH indices will not change much in the near term. 26.01.10 COUSCE Ukrsotsbank, 1-E 26.01.10 - Alfa-Bank Ukraine, 2010 LPN) UAH depo/USD depo rates dynamics 27.01.10 OLTSKB Lutsk, 1-В 27.01.10 OLTSKC Lutsk, 1-C 27.01.10 OLTSKD Lutsk, 1-D 21% 27.01.10 58606 Ukraine, 19.07.2017 27.01.10 58622 Ukraine, 18.07.2018 19% 27.01.10 58655 Ukraine, 17.07.2019 Redemption/ put option 21.01.10 OBVLB Raiffeisen Bank Aval, 1-B 17% 21.01.10 OBVLC Raiffeisen Bank Aval, 1-C Finance and Credit Bank, 25.01.10 - 2010 15% UFC-depo-USD 13% UFC-depo-UAH 11% 9% 05.01.09 24.02.09 15.04.09 04.06.09 24.07.09 12.09.09 01.11.09 21.12.09 State securities The beginning of 2010 was marked by relatively high liquidity in the market of sovereign Eurobonds of Ukraine. Many of market players expected the macroeconomic instability and the political factor on the eve of presidential elections would play its negative role, leading to decline in Ukrainian papers yields. However, in practice the situation developed in a different way: at the start of the year there occurred a decline in sovereign bonds yields almost to 2
  • 3. 10% for short-term papers, which was followed by a slight rebound. It can be explained by common market tendencies, opening of new limits for western Ukrainian bonds market investment funds for emerging markets, and particularly for Ukraine. (04.01.2010-15.01.2010) Coup Volume, Effective Some cross-flow of funds to the segment of Eastern European sovereign PFTS Company on UAH mn YTM bonds can also be explained by exit from sovereign bonds issued by some 50207 Ukraine, 14.09.2016 9.50% 282.74 10.43% other issuers, which risks increased significantly of late. 52724 Ukraine, 10.02.2010 - 133.46 17.08% 14377 Ukraine, 23.06.2010 6.60% 61.17 13.92% Ukrainian Eurobonds yield curve 61071 Ukraine, 14.04.2010 - 55.85 23.13% 55455 Ukraine, 17.02.2010 - 16.74 17.56% 10.5% Ukrainian Eurobonds, YTM 61451 Ukraine, 31.10.2012 20.00% 15.54 28.54% 54365 Ukraine, 28.04.2010 - 13.74 27.80% March 2011 53912 Ukraine, 11.04.2012 15.70% 10.01 29.20% Eurobonds of Ukraine, June 2013 OSUA15 10.0% 2015 4.95% 2.57 - October 2015 OMAUPA MAUP, 1-A 23.00% 2.20 - November 2016 62848 Ukraine, 24.03.2010 - 1.93 21.08% Konstantinovski ZMO, OKZMOA 1-А 17.00% 1.02 23.07% 9.5% November 2017 OLUAZA Bogdan Motors , 1-A 22.00% 0.94 30.84% OGLMKA Globino Meat , 1-A 26.00% 0.82 33.30% June 2012 22004 Ukraine, 05.05.2010 8.00% 0.60 22.00% Raiffeisen Bank Aval, OBVLC 1-C 13.50% 0.41 - 9.0% OSCHDB Oschadbank, 1-B 10.50% 0.38 20.32% 2011 2012 2013 2014 2015 2016 2017 2018 OMABA3 Boryspil Airport , 3-А 10.00% 0.32 59.13% OBXRF Kreschatik Bank, 1-F 18.00% 0.26 23.07% OZAPRE Zaporizhia, 1-E 12.00% 0.10 10.87% At the end of 2009, the Finance Ministry held one more placement of OVDPs, OGLCHA Galychina, 1-А 23.00% 0.10 32.86% during which it attracted about UAH 570 mn. At the same time, the yields for OROMA Roma, 1-A 15.00% 0.10 - 5-month papers stayed at 23%, and for 3-years – at 25%. This auction was ORISEA Raize, 1-A 15.00% 0.07 - the last one in 2009, and was held, in particular, for attraction of funds to 61444 Ukraine, 12.05.2010 - 0.06 25.37% redeem OVDPs maturing in December. The auction held this January was OLUGC Lugansk, 1-С 15.89% 0.04 24.75% not a sensation: the placement volume was small – about UAH 80 mn, while OGNHC Galnaftohim, 1-C - 0.03 - OZAPRF Zaporizhia, 1-F 12.00% 0.02 - the yields remained as before. OBCPA Capital Bank, 1-А 18.00% 0.02 20.36% Outlook: we do not expect that the Finance Ministry at its other auctions in OZHENA Zhytomiroblenergo, 1-А 17.00% 0.01 - January 2010 will raise the yields significantly, because there is not acute Sevastopolenergo, OSENA2 deficit of hryvna. However, we predict that in future the yields may go up, 2-A 18.00% 0.01 - particularly, in anticipation of a whole series of OVDPs redemptions in April 2010. Corporate bonds In the Ukrainian secondary fixed-income market the activity is still concentrated in OVDPs segment. Corporate papers still represent no interest for investors dealing with debt instruments. We must say that in 2009 most of deals with bonds were made in OTC market, hence, it is not advisable to judge the liquidity of some papers by official statistics. Last week the Finance Ministry approved conditions for restructuring of obligations related to Vinnitsa municipal bonds of 1-D series, which were to be redeemed on December 2009. The redemption was postponed by 1 year and 4 months. We must say that conditions for restructuring offered by Vinnitsa are more attractive than those proposed in the corporate segment. In Eurobonds segment the key news were again related to preparation for restructuring by their issuers. Interpipe signed Lock Up and Support Agreements with holders of 74% of its Eurobonds for amount of $200 mn. The agreements stipulate refusal of Eurobonds issuers to take actions that can lead to cross-default through February 2, 2010. For that the agreement provide for remuneration of $2.5 for each $1,000 of principal debt under the bonds. 3
  • 4. Ukrainian bonds rating Outlook: in our opinion, in Eurobonds segment the most interesting idea in (internal methodology*) the near term may become obligations that can enjoy support from the state. Corporate In this particular case it may be about Ukreximbank and Kyiv bonds, which Agromat, 1 A OAGMTA ufcBB yields sometimes unreasonably lie higher than the sovereign yield curves. Amsotr, 1-E OAMSE ufcCCC Boryspil Airport, 3-A OMABA3 ufcA Bogdan, 1-A OLUAZA ufcBB Galychina, 1-C OGLCHC ufcB Galnafrogaz, 1-E OGNGE ufcBB+ Donetskstal, 1-A CODSTA ufcBB Image Holding, 1-B OIMHLB ufcB+ Karavan, 1-C OKRVNC ufcSD Kirovogradoblenergo, 1-A OKIONA ufcB Konti. 1-B OKKOB ufcB MAUP, 1-A OMAUPA ufcB Podillia, 1-A OPDILA ufcB Sevastopolenergo, 2-A OSENA2 ufcB Sumykhimprom, 1-A 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: http://www.ufc-capital.com/ru/analysis/bonds_rate.htm 4
  • 5. OVDPs yield curve and effective YTM of Ukrainian bonds denominated in UAH vs. Eurobonds 350% Kreditprombank, 1-F 250% Bogdan, 1-А Kreditprombank, 1-C 150% Podillia, 1-А Ukrgasbank, 1-C Agromat, 1-А FUIB, 1-А Khlibprom, 1-D Image Holding, 1-B 50% 40% Alfa-Bank, 1-D 30% Airport Boryspil, 3-А Sberbank Rossii, 1-D Aval, 1-B/1-C 20% Alfa-Bank, 07.2012 Privatbank, 02/2012 Kiev, 11/2012 Kiev, 07/2011 Donetsksteel, 1-А MHP, 11/2011 Azovstal, 02/2011 Ukreximabak, 10/2012 Ukreximbank, 09/2011 Ukrsibbank, 08/2011 10% Ukrsotsbank, 02/2010 Ukraine, 03/2011 Ukraine, 06/2012 Ukraine, 06/2013 Ukrsibbank, 07/2010 ОVDP Sovereign Eurobonds Domestic corporate bonds Eurobonds 0% 01.2010 05.2010 10.2010 02.2011 07.2011 12.2011 04.2012 09.2012 01.2013 06.2013 5
  • 6. UFC Capital 47, Volodymyrska St., office 1, Kyiv, 01034, Ukraine Tel: +380 (44) 391-3778 Fax: +380 (44) 391-3779 http://www.ufc-capital.com Mikhail Dorfman Managing Partner dorfman@ufc-capital.com Vladimir Landa Head of Research landa@ufc-capital.com Vitaly Gorovoy Senior Analyst gorovoy@ufc-capital.com Artem Kost Senior Analyst kost@ufc-capital.com Dmitry Oliynyk Junior Analyst oliynyk@ufc-capital.com Alexander Lyshen Translator lyshen@ufc-capital.com © 2010 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.