Ukraine May Revive Eurobond Sale If Investors Accept 7% Yield
Ukrainian Prime Minister Mykola Azarov. Photographer: Alexey Druzhinin/AFP/Getty Images
Ukraine may revive plans to sell Eurobonds this year if investors accept yields of less than 7 percent for seven-year maturities, Prime Minister Mykola Azarov said in an interview.
The government scrapped a proposed $2 billion Eurobond sale on July 15 after investors demanded yields of more than 9 percent. The yield on Ukraine’s 6.75 percent dollar bond due 2017 dropped to 6.915 percent today from 8.195 percent July 6, the last quote before the planned sale was shelved.
“Markets have improved since July, but conditions still aren’t what we were counting on,” Azarov, 62, said yesterday at his office in Kiev. “We deserve favorable terms for a Eurobond placement,” he said, though the country “may live this year without borrowing.”
Ukraine is considering its borrowing options after obtaining a $15.2 billion loan program from the International Monetary Fund on July 28. The country reported a second quarter of economic growth in the three months through June, after a record 15.1 percent decline last year, and concern about Europe’s sovereign debt crisis have eased since July.
In the meantime, Ukraine received a $2 billion loan from state-controlled Russian lender VTB Group in June, and Russia agreed in April to provide subsidized natural gas in exchange for an extension of the lease on its Black Sea naval base.
Ruble Bonds
Ukraine has also discussed selling ruble-denominated bonds as Russia promotes its currency as a regional alternative to the dollar and relations between the countries improve following the election of President Viktor Yanukovych in February. Before doing so, Ukraine wants Russia to agree to the use of rubles and hryvnia in trade between the two countries, Azarov said.
“Then it would make sense for us to borrow in rubles,” he said.
To qualify for the IMF loans, Ukraine agreed to boost gas prices for homes and businesses by 50 percent as it seeks to cut the general government deficit to 5.5 percent of gross domestic product this year and 3.5 percent next year.
The government will proceed with “unpopular reforms,” including reducing pension costs, because they are “in the interest of nation,” Azaraov said.
Ukraine’s economy will expand “not less than” 5 percent this year, Azarov said. GDP grew an annual 6 percent in the second quarter, after a 4.9 percent increase in the previous three months, the state statistics office said Aug. 16. This year’s budget assumes 3.7 percent growth.
“The economy is recovering now, and we plan for it to reach the 2007 pre-crisis level at the end of 2011,” Azarov said.
GDP expanded 7.9 percent in 2007, according to the statistics office. The government expects investment projects, including construction of a liquefied natural gas terminal, to help push growth to between 9 percent and 10 percent within two years, he said.
“In 2012, we will have a new pace of economic growth,” Azarov said.
To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net
To contact the editors responsible for this story: Willy Morris at wmorris@bloomberg.net; Claudia Carpenter at ccarpenter2@bloomberg.net
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