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The Right Time for New Eurobond Issues from Ukraine

Ukraine’s recent successful placement of Eurobonds and relative financial stability are two decisive factors that have led to renewed interest in debt issues from Ukraine. State-owned issuers, such as Ukravtodor and Naftogas, have already started the process, while Ukrainian Railways continues to settle legacy issues to come to the market. Private issuers are expected to come to the market very soon, including leading Ukrainian corporates involved in exports of iron ore and metals, various agricultural and related products, and potentially leading Ukrainian retailers and banks. It is also likely that we will see new issuers that have not tested the Eurobond markets in the past.

Despite fears that a new wave of the COVID-19 pandemic in Ukraine could prompt the National Bank of Ukraine (NBU) to tighten regulations, recent developments show that foreign exchange regulations continue to be liberalised. NBU resolution No. 34 dated 23 April 2021 marked two developments of particular importance for Ukrainian issuers of Eurobonds. In particular, with effect from 27 April 2021:

discharge payments, payments of income and other payments related to the issuance of debt securities by Ukrainian issuers outside Ukraine are no longer subject to a limit of EUR 2 million per year, per issuer; and

Ukrainian issuers are allowed to accumulate foreign currency for the discharge and payment of income on debt securities such as Eurobonds.

The accumulation is subject to certain requirements, namely:

  • the issuer has to make payments regarding the debt securities through one Ukrainian servicing bank. The issuer is free to choose the bank, as well as change it if the issuer deems so, subject to a straightforward transfer procedure;
  • the accumulation is allowed in an amount necessary to make a payment on the next scheduled payment date as provided in the issue prospectus; and
  • the issuer has to use the accumulated funds to make a payment not later than on the scheduled date, or otherwise such funds will automatically be sold by the servicing bank.

Recent years have seen a couple of Eurobond issues by state-owned companies while private issues were on the quiet side. The described changes should allow Ukrainian issuers to structure their deals from Ukraine (rather than via an LPN structure through an SPV in a foreign jurisdiction), thus making the process potentially more straightforward. This in turn may result in more active interest from Ukrainian corporations in attracting financing through debt instruments rather than conventional financing.

While the market waits for the game-changing law to enter into force on 1 July 2021 (for more details, click here), more currency control relaxations may come into play as the NBU adapts to the new capital market infrastructure.

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