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10 July, 2013 12:47   ▪  

EBRD plans hryvnia bonds, swaps and money market deals in Ukraine

The European Bank for Reconstruction and Development, the largest financial investor in Ukraine, plans to start borrowing in hryvnias on the local market to fund further hryvnia lending, Reuters reports

Ukraine's parliament passed a bill last week that allows international financial institutions to borrow in hryvnias. The central bank has also amended some regulations to facilitate such borrowing.

This will allow the EBRD to finance borrowers who have no foreign currency revenues, without exposing them and itself to currency risk, Andre Kuusvek, the bank's director of local currency and capital markets development, said.

"There will be significant benefits for many sectors," Kuusvek said. "The vast majority of small- and medium-sized enterprises are unhedged and it will be a significant risk mitigation factor for them."

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Utility companies and municipalities are other examples of borrowers who have no foreign currency revenues and would benefit from gaining access to hryvnia loans, he said.

Kuusvek did not say when the EBRD would start borrowing or in what volume. He said the local securities market regulator had yet to establish the necessary procedures.

The bank would not just sell bonds, but would also borrow on the Ukrainian money market and enter into currency swaps with local banks, he said.

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Ukraine's government, seeking to plug a growing budget deficit, is the main borrower on the local bond market. It sold five- and seven-year bonds with yields of 14.25 and 14.30 percent, respectively, at an auction last week.

Although the EBRD has top-notch triple-A credit ratings, it does not expect to borrow at better interest rates than the Kiev government as it does not have the latter's money printing potential.

"We will be priced somewhere close to the government," Kuusvek said. "We will be cementing the government yield curve."

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