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The market of internal government loan bonds: The Government of Ukraine is on the guard of achieved positions

02-11-2011

November 2, 2011 RA “Standard-Rating” (Ukraine) has made conclusions of the first 8-9 months of 2011 in the market of internal government loan bonds.

             The total volume of internal government loan bonds, which are in circulation as of 01.09.2011, has constituted UAH 150,404 bn. That is by 17,6% more than as of 01.09.2010. The Agency emphasizes that redemption and income payment of internal government loan bonds (IGLB) have been performed in time and in full, and have made UAH 31,565 bn., including the main debt – UAH 21,839 bn., income payment has constituted UAH 9,726 bn.

              According to official information, since the beginning of the year the volume of funds, raised by the Ministry of Finance of Ukraine in the result of IGLB offering, has constituted UAH 36,159 bn., the average weighted yield according to IGLB data has made 9,16% per annum, while in 2010 – 10,39%. In August of 2011 UAH 97,14 mln. has been raised at the average weighted yield of 8,12% per annum.  The Government of Nikolay Azarov succeeded to significally reduce the cost of servicing the government debt namely in the segment of internal government loan bonds.

            We assume that the growth of rates in the interbank market and in the market of population’s deposits, which could be observed at the end of October,  will complicate the offering of IGLB in UAH in the open market. At the same time, taking into account the rate growth of grivnya instruments, the issue of new instruments performed by the Government and tied to foreign currency is timely and successful step of the Government and the Central bank, which will considerably expand the range of investors in the market of government securities in future.

           The funds raised from the IGLB realization during January-August of 2011, were distributed as follows:

- UAH 18,805 bn., accumulated from the auctions for initial public offering of internal government loan bonds,  was received by the State Budget of Ukraine. The average weighted yield of these securities constituted 8,85% per annum;

- in order to increase the authorized capital of banks there was raised UAH 8,854 bn. resulted from the IGLB offering at the average weighted yield of 9,5% per annum;

- internal government loan bonds were issued in order to increase the authorized capital of NJSC “Naftogas Ukraine” on the total sum of UAH 8,5 bn. at the average weighted yield of 9,5% per annum.

Most of the raised resources remain to use for financing the current budget deficit that restrain the sovereign credit rating of Ukraine. However the agency draws attention that UAH 8,854 bn., aimed to increase the capital of state banks, can be identified as capital costs, which may eventually produce a positive effect for the government. The Agency reminds that the government regards various privatisation scenarios of earlier recapitalized banks, including through offering the part of shares of these banks at the stock exchanges.

         We state the fact of outflow of non residents from the market of IGLB. Thus, the volume of IGLB in the property of non residents has decreased by UAH 4,488 bn. during January-August of 2011 and as of 01.09.2011 has constituted UAH 6,882 bn. or 4,58% of the total of IGLB, which are in circulation. The agency estimates the level of participation of non residents in the market of internal government loan bonds as not critical.

           In the 1 half of 2011 the Government of Ukraine has placed the internal government loan bonds at USD 2,8 bn. In particular, the issue of IGLB at the sum of USD 1,5 bn. at the rate of 7,95% per annum has been carried out in February of 2011. Besides, during the current year the Ministry of Finance of Ukraine has repaid coupon interest on internal government loan bonds of 2011 at the sum of USD 59,625 m. The activity of the Government of Ukraine may be characterized as moderate in the market of external government loans. The volumes of external government loans remain insignificant in comparison to the market of IGLB that reduce the probability of default on them to the minimum.

It’s not economically reasonable for the Government of Ukraine to carry out external market loans at the rate of 7-11%, especially in case of resumption of cooperation with International Monetary Fund. At the present money of IMF is the cheapest resource for Ukraine. The possible positive decision of IMF on Ukraine will have a positive impact on the market of external loan bonds as well as on the market of IGLB.


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