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Yuriy Butsa: “Building a yield curve in euros allows us to expand the investor base and create a benchmark for corporate borrowers”

Yuriy Butsa, Government Commissioner for Public Debt Management, commnets to CBonds on  Ukraine’s EUR1.25 billion 10-year Eurobond public placements

Ukraine continues to increase the share of foreign debt in euros. What is the reason for the interest in this currency, and not in the more “traditional” US dollar? What, from the point of view of the Ministry of Finance of Ukraine, should be the "ideal" structure of public debt?
Diversifying currency mix of the public debt structure is one of the goals of our medium-term public debt management strategy, given the trend to increase the role of Euro in the Ukrainian economy as a result of integration into EU markets. In addition, building a yield curve in euros allows us to expand the investor base and create a benchmark for corporate borrowers interested in obtaining financing in euros. At the same time, our priority is to increase the hryvnia component of the debt to reduce FX exposure.

Traditionally, a road show takes place before the public offering of Eurobonds. Why did the Ministry of Finance and the organizers decide to abandon it this time?
The Ministry of Finance has made significant efforts in recent years to improve investor relations. Thanks to regular contacts with investors, their level of awareness of the history of Ukraine as an issuer already allows us to make placement without a road show, like most European countries.

Total demand for securities exceeded 7 billion euros. What is the reason for such great interest in the issue and how did it affect the results of the placement?
In our opinion, the significant interest is due to the successful timing of the placement and the macroeconomic performance of Ukraine, which stands out favorably against the background of many other emerging markets, due to a prudent fiscal and monetary policy. This demand level allowed us to reduce the cost by 0.625% during pricing, which is one of the best results among all sovereign placements this year. In addition, the transaction was placed inside the curve in the secondary market and narrowed the entire dollar curve during the day of pricing.

How many investors purchased the securities? What is the geographical and institutional structure of investors? How much will it differ from the 7-year issue posted in 2019?
The bonds were purchased by 200 investment funds from 31 different countries. 212 funds from 25 countries participated in the previous transaction. As with the placement of 7-year Eurobonds in euros in June last year, the majority of investors in 10-year Eurobonds are asset management funds (85%), hedge funds made up 7% of investors (10% in June 2019), pension, insurance funds and banks made up a minority of investors – 6% and 2%, respectively.
The geographical structure of the two Eurobond issues in euros is also similar: investors from the United Kingdom accounted for 42% of the issue this year, and 32% - last year, 34% of investors in 10-year Eurobonds are investors from the United States (27% in 7 - year Eurobonds), 19% of the current issue was purchased by investors from the European Union and Switzerland (37% of last year's issue). Investors from Asia and the Middle East were a minority and purchased 5% of the 10-year issue and 4% of the 7-year issue.

This time, there are no Ukrainian investors among the buyers. What can this be related to?
Last time, there were several investment companies among buyers from Ukraine. Unfortunately, Ukrainian banks, which could become significant buyers and gain access to a liquid instrument, as their colleagues in other countries do, do not yet have the opportunity to do this because of NBU regulation. We hope that this situation will change in the short term.