Expert: Ukraine’s sovereign loan one of world’s most expensive
On October 26, 2018, the Ukrainian Finance Ministry placed a $2 billion sovereign eurobond, of which a $750 million 5-year tranche was issued at a rate of 9% and a $1.25 billion tranche at 9.75%. According to a Zerkalo Nedeli article by Tetiana Bohdan, chief of the Optima Expert-Analytical Center public finance department, this was one of the most expensive eurobond issuances in the world between October and November 2018.
“As for world record-holders that have theoretically overtaken Ukraine, they are the Nigerian government and the Russian financial company BCS. Nigeria placed a bond at 9.25%, but the term of the loan was 30 years! The highest rate of 11% was received by the Russian company BCS, but the loan amount was only €3 million. Taking into account the lower maturity of our eurobonds and the decent size of the placement ($2 billion), Ukraine can legitimately be considered the world ‘leader’ with respect to the cost of foreign borrowing in October-November,” the expert notes. “The following comparisons are quite informative: the weighted average yield for repaying bonds from African issuers in October was 7.8%, and for eastern European issuers 6.4% (whereas Ukraine’s figure is in excess of 9%). The sovereign eurobonds of Egypt and Nigeria in October and November were placed at rates between 7.13% and 8.75% (except for the aforementioned 30-year loan). And issuances of eurobonds from eastern European issuers, with the exception of Turkey, had a yield between 0.88 and 4.13%. The following fact is also interesting: servicing the latest 7-year Russian sovereign loan of €1 billion will cost the aggressor-state 2.88% per year, and a 5-year Gazprom loan has a nominal yield at the level of 2.95”.
The author emphasizes that the unusually high interest on Ukraine’s sovereign bonds on the international market could be evidence both of unprofessional actions by the Finance Ministry and its banking agents, and of corruption in the process of organizing eurobonds.
“Another thing that draws attention is the fact that the nominal percentage rates on foreign currency domestic state bonds remain significantly lower than on foreign bonds. However, the amount of foreign currency domestic state bonds placed on the internal market (e.g. $539.4 in June and $687.5 in October) allows them to be characterized as an acceptable alternative to foreign loans. But the persistent wish of high-ranking government officials to get foreign loans for the budget (even at the given rates) undoubtedly indicates the emergence of private interests in the area of making government decisions,” the article states.