Alexander Paraschiy, the Head of Research at Concorde Capital, comments MinFin’s placement of seven-year EUR-denominated Eurobonds at 6.75% interest
Ukraine’s Finance Ministry completed on June 13 the sale of a seven-year, EUR-denominated sovereign Eurobond (UKRAIN) at a 6.75% interest rate. Is that a good rate?
We could say that it’s inexpensive – as since the crisis in 2014, this is the least expensive international market placement made by Ukraine.
At the same time there are arguments to consider this placement as expensive:
Debt is far less expensive in euros than in dollars.
- MinFin recently placed one-year EUR-denominated notes at 4.60% interest, just as similar debt was at 7.25% interest.
- If to compare the rates of the most reliable securities in dollars (U.S. Treasury bonds) and euros (German state bonds) with maturity in 2026, then we have a difference in5pp. The determining of the price of USD- and EUR-denominated international loans is oriented towards these very securities.
- Therefore, theoretically, our seven-year placement in euros should be 5pp less expensive than in U.S. dollars. If our USD-denominated bond with a 2026 maturity traded at an interest rate of 7.95%, then the EUR-denominated bond should be placed at 5.45% interest. But we have 6.75%.
Unfortunately, this difference in USD- and EUR-denominated borrowings is available to borrowers with higher ratings. The lower the credit rating, the lower the difference.
Here some differences between USD and EUR rates on six-and seven-year bonds:
- 5% difference for Poland, whose credit rating is А / А-, or 10-11 positions better than Ukraine
- 2% for Gazprom, whose credit rating is ВВВ / ВВВ-, or 7-8 positions better than Ukraine
- 8% for Turkey, whose credit rating is ВВ / ВВ-, or four positions better than Ukraine
- 3% for Egypt, whose credit rating is B+ / В, or two positions better than Ukraine
Therefore, difference 1.2% for Ukraine, and that looks to be in trend.
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