Ukraine placed a $750mn five-year tranche of sovereign Eurobonds, and a ten-year tranche of $1.25bn at a snap offering on October 25 that follows immediately on the back of a new IMF deal.
The yield of the five-year tranche maturing in February 2024 was 9% per annum, the ten-year tranche some 9.75%. The initial reference point was about 9.25% and about 10% respectively. The volume of the order book amounted to $4.9bn, Interfax news agency reported quoting unnamed market sources.
The move immediately followed an agreement between Kyiv and its main donor, the International Monetary Fund (IMF) over a new 14-month stand-by programme of $3.9bn. The programme will replace the arrangement under the Extended Fund Facility (EFF) agreed March 2015. Ukraine has received $8.4bn from the IMF so far under the multinational lender's EFF.
So swift move has triggered worries that the Ukrainian government is preparing to cancel Kyiv's decision to increase gas tariffs for the population by 23.5% from November 1, which is necessary for the new $3.9bn support programme.
"Surprise, surprise. Let's hope if they get the cash from the Eurobond, they still remember the list of things to do with the SBA, to actually get IFI cash by year end," Timothy Ash, a senior sovereign strategist at BlueBay Asset Management, wrote in a note on October 22.
According to Prime Minister Volodymyr Groysman, this is what the government "managed to achieve with incredible efforts as a result of these negotiations [with the IMF]". "We started negotiations from the issue of raising prices by 60% from the current level, but as a result of our negotiations and compromise, we found a different approach, and prices for gas from November 1 will grow by only 23.5% but not 60%," he said.
On October 18, Ukraine's parliament, the Verkhovna Rada, greenlighted a bill on the 2019 national budget in the first reading. The approval of the IMF-compliant state budget for 2016 is also crucially important for Kyiv's cooperation with the Fund.
The new agreement is subject to IMF management approval and approval by the IMF Executive Board. "Board consideration is expected later in the year following parliamentary approval of a government budget for 2019 consistent with IMF staff recommendations and an increase in household gas and heating tariffs to reflect market developments while continuing to protect low-income households," the IMF underlined.