UKRAINE SCORES BIG ON INTERNATIONAL CAPITAL MARKETS.

The Ukrainian government has launched a summer offensive on the world’s capital markets. On August 13 it successfully placed $450 million worth of 12-month eurobonds on the Luxembourg securities market. The issue, which was managed by Bankers’ Trust, pays 3.25 percent above the LIBOR rate. Nomura Securities immediately followed Ukraine’s eurobond float with an additional 12-month credit worth $396 million, carrying a 12 percent interest rate. (Ukrainian agencies, August 21, 22)

Moreover, Finance Minister Igor Mityukov told a press conference in Kyiv on August 21 that Ukraine is currently discussing the details of an official international credit rating with the IBCA, Standard & Poor’s, and Moody’s rating agencies. This rating is intended to promote the placement of additional eurobond issues, which are to be managed by the Morgan Grenfell and JP Morgan investment banks. Deputy Prime Minister Serhi Tyhypko announced at this press conference that the government is also working on proposals for two syndicated loans, as well as on helping the city of Kyiv and Ukrainian commercial banks to obtain additional international financing.

Kyiv’s ability to milk the international capital markets for some $845 billion on short notice underscores the importance of the long-awaited 1997 budget deal between the government and the parliament that was finally hammered out on July 1. Ukraine’s attractiveness as an international borrower is somewhat surprising, however, since Kyiv during 1992-1996 effectively defaulted on its state debt to Russia and Turkmenistan. Unlike Russia and Kazakhstan (which have also successfully floated eurobonds), Ukraine is not a treasure chest of natural resources; and unlike her neighbors, the Ukrainian economy continues to contract.

In any case, these developments should put to rest fears that the absence of a timely deal on the 1997 budget had put Ukraine on the road to financial ruin. They also show that Eastern European and CIS countries continue to be the darlings of the international capital markets. This is most ironic, since many of the funds raised by the Russian, Kazakhstani, and now Ukrainian eurobond sales go to pay off wage and pension arrears in these countries. As such, these loans will do little to increase these countries’ export competitiveness, or their longer-term ability to service their growing foreign debts.

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