Digging a debt hole
To spur the demand for their debts, Ukrainian issuers of Eurobonds offer some of the highest interest rates in the world, according to KW. Ukrainian companies placed more than US $3 bn in Eurobonds in Q1 2013, which set a new record in recent years, reads a KW article by Tetiana Ochymovska.
In 2012, companies did not place any Eurobonds and in 2011 borrowed around US $2.5 bn thanks to a favorable climate on foreign markets and the readiness of Ukrainian companies to overpay for the financial resource.
“The low interest rates and strong appetite for risk push investors to move to the markets of developing countries. Ukraine offers the highest profit margins and this clearly stimulates demand,” says Serhiy Fursa, a specialist in debt securities at Dragon Capital.
Representatives of the banking and agrarian sectors are the most active in attracting funding. The state-run UkrExImBank became the pioneer in this sphere having placed in January US $500 mn in 5-year debt securities at a profit margin of 8.5%. In February, PrivatBank followed suit, but with a smaller amount – US $175 mn for five years at 10.875% p.a. Then in March Oschadny Bank emerged onto the borrowing market attracting US $500 mn for five years at 8.875%.
Experts believe the activeness of banks is, on the one hand, due to the high demand for long-term loans that businesses apply for. On the other hand, the government must repay debts and attracted funds can fully be invested in currency T-bills.
The article looks into the mid- and long-term implication of the situation.