Ukraine securities on downward trend – analysis by Dragon Capital

8 March 2022, 05:51 PM

As Ukraine’s economy goes through a turbulence caused by the Russian invasion, both sovereign and corporate securities are on a downward trend. Meanwhile, the international development institutions keep providing Ukrainian government with funds needed to service all of their liabilities.

Below is an analytical report by Dragon Capital, an investment company [and publisher of NV], accurate as of March 8, 11-55 am.


Fixed income: The sovereign remained in liquidation mode, with only a few buyers around. In the afternoon, the market saw a cautious bid after some speculation that Russia somewhat softened its demands (though most investors remain skeptical).

Video of day

Equities: With the local market remaining closed, foreign-listed stocks traded weaker yesterday, the KP-Dragon index shedding another 5.6%. KER was the worst performer – down by 19% to PLN 19 share price with a $4.9m transaction turnover. It was followed by IMC (-18%) and AST (-4%). FXPO lost 3% on a $9.2m trading volume, closing at GBp 116. MHPC bucked the trend, rising 7% on an average-sized volume.

Macro and Corporate Update

Dragon view: Below is our summary of key macro and corporate events:

The World Bank (WB) approved a budget support package for Ukraine including $723m of immediate financing. It consists of a $350m WB loan, $139m of guarantees (from the Netherlands and Sweden), $134m of grant financing (UK and EU countries) from the newly created Multi-Dollar Trust Fund, and $100m of parallel financing from Japan. The WB urged more contributions to the grant fund and said that was preparing a $3.0bn package in the coming months for both Ukraine and its neighbors receiving Ukrainian refugees. According to UNCHR, 1.7 million people have left Ukraine since Russia started the war on Feb. 24, with Poland being the primary destination.

The NBU reported its end-February reserves stood at $27.5bn, down 5.3% or $1.5bn m-o-m. The drop mostly owed to F/X debt service of $1.4bn, including $0.8bn on domestic F/X bonds, $0.4bn on Eurobonds, and $0.2bn to the IMF. The Eurobond payment likely included a $0.3bn coupon paid on Mar. 1 and buyback of the Ukraine 22s in early February.

The NBU said its net F/X sale totaled $358m in February, down from $1.3bn in January. Since capital and F/X control were introduced on Feb.24, the central bank has been a net buyer of foreign currency, purchasing an est. $0.5bn on Feb. 24-28. February’s net F/X intervention was fully offset by a revaluation gain of $340m.

Overall, NBU reserves have dropped by $3.4bn or 11% since peaking at $30.9bn as of end-2021, remaining slightly above their pre-pandemic level of $27.0bn. The NBU will need to gradually relax current account restrictions to allow for necessary imports, while the government and companies remain resolved to service their external debts to maintain uninterrupted access to foreign aid. Inflows of foreign financing, especially to the budget, still remain critical for Ukraine in order to enable it to provide timely social assistance, finance military spending and repair critical infrastructure damaged by Russian strikes.

PM Denys Shmygal announced business support measures including a tax waiver for individual entrepreneurs and deferral of tax payments for all business facing liquidity problems or other difficulties.

In its operational update, Kernel reported that none of its critical facilities or infrastructure had suffered any significant damage thus far. The company said it expected to be able to pay scheduled debt interest falling due in the near term.

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