Ukraine prepares Eurobond and privatisation programme for autumn

Ukraine prepares Eurobond and privatisation programme for autumn
Kyiv Cabinet of Ministers.
By Ben Aris in Nicosia May 11, 2017

“Ukraine will issue a Eurobond in the second half of this year, but the timing and the size of the bond have not been determined yet,” Ukrainian Finance Minister Oleksandr Danylyuk told bne IntelliNews on the sidelines of the EBRD’s annual meeting in Cyprus on May 11.

Danylyuk said that he was in the process of reviewing Ukraine’s debt obligations and drawing up a strategic borrowing plan for the coming years.

His predecessor, Natalie Jaresko, negotiated a restructuring of Ukraine’s debt during the worst of the country’s economic crisis years two years ago, but some of the delayed debt will start coming due next year and will have to be refinanced.

Danylyuk pointed to the enormous progress that Ukraine has made over the last three years, with foreign currency reserves tripling to some $15bn and all the other macroeconomic indicators returning to more normal levels.

But the economy remains under pressure. After contracting by 15.5% in 2015, the economy was expected to grow by more than 3% this year, but an economic blockade of the Donbas region – Ukraine’s industrial heartland that is under the control of pro-Russian separatists – will shave at least a percentage point off growth, according to experts. That is bad news, as Ukraine will struggle to cover its debts if it cannot refinance them.

The government’s fiscal position was eased last month when the International Monetary Fund (IMF) released $1bn to Kyiv, the fourth tranche of its standby deal.

“It's a record, four tranches. In the past Ukraine would make a lot of promises, taken one or two tranches and then say ‘sorry’. The fact we have four tranches only underscores this government’s commitment to change,” Danylyuk said.

Danylyuk also said that the privatisation programme was progressing and new laws would be submitted to the parliament in the next two weeks to improve the privatisation process.

“There is UAH17bn ($643mn) in the budget from privatisation revenue and there is no way to meet that target without selling Centroenergo,” Danylyuk told bne IntelliNews, naming a much-anticipated sale of one of Ukraine’s largest utilities.

Danylyuk stressed that he was committed to privatisation and also pointed out that following the bank reforms and nationalisation of PrivatBank in December the state now accounts for more than half of the banking assets. Currently, the state owns four banks and will probably sell off stakes over a period of years, similar to the partial privatisation of the Russian banking sector. 

“I am a liberal and committed to privatisation. The government needs to get out of the banking sector as soon as possible,” Danylyuk said. “However, we need to study the assets and how to do this most effectively. Does this mean PrivatBank will be sold first? No. The problem with the bank is it had only one customer – its owner.”

He added that PrivatBank’s co-owner Ihor Kolomoisky would be held to account for the estimated $6bn taken out of his bank and lent to related-party companies and shell companies. “The former owners have until July to restructure these loans. No one is going to forgive a $6bn debt. If they don’t meet the deadline, then that is a question for the law enforcement agencies,” Danylyuk said.

Separately, Danylyuk dodged questions about the foreign owners of $600mn worth of PrivatBank Eurobonds that were folded into the bank’s capital as part of the nationalisation, wiping out the value of their bonds in the process. The bondholders have complained bitterly and asked for some sort of compensation, but apart from some hints their request might be reviewed, so far the government has been silent – and remains silent.