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Is Ukraine's Investor Euphoria Overdone?
Yields on Ukraine's 10-year dollar-denominated debt dipped marginally below 9%, having dropped by more than a percentage point from Friday. The yield on equivalent Greek bonds was 7.4%. By contrast, Venezuelan 10-year debt is trading at 15.8% while that on Argentina's 20-year dollar denominated issues (the nearest liquid equivalent) was 13.3%.Does it really make sense for investors to be demanding that much less for taking on Ukrainian risk than they do for the two embattled South American countries and only 1.6 percentage points more than on the debt of a euro-zone member state?
Here are the positives the market seems to be focusing on with respect to Ukrainian debt compared with those of the other countries:
1) The country has a manageable debt to GDP ratio of around 40%. Even if a devaluation causes problems for domestic firms which have substantial foreign currency-denominated debt and pushes up non-performing loans at domestic banks to, say, 25%, triggering a necessary sovereign bailout of the financial sector, debt to GDP is unlikely to go much higher than 70% of GDP, figured Gabriel Stern at Exotix Partners, a boutique investment bank specializing in frontier markets. So even if there's a default, private investors aren't likely to face losses of more than 33% on dollar-denominated debt, Mr. Stern added.
By contrast, there is a smaller chance of another Greek restructuring, but given Greece's substantially worse public finances position--its debt to GDP ratio stands at 175%--any default is likely to be very much more painful to investors.
2) The new government is likely to be westward looking and there will be plenty of goodwill towards it from the U.S., the European Union and the International Monetary Fund. Some sort of rescue package is likely to be hammered together, even if the $35 billion Ukraine's finance ministry seems to be asking for looks a bit far-fetched.
3) Argentina and Venezuela also have modest debt loads--Argentina's is around 40% of GDP, Venezuela's some 50%, though rising to possibly 80% once its fast depreciating currency is factored in--but their poor relationship with the IMF suggest no rescue, while there's a substantial risk both countries will be politically unwilling or unable to make good on their obligations, argued Stuart Culverhouse head of research at Exotix.
So what's not to like?
1) The country's political backdrop is unsettled. While it appears that the reformers have very substantial popular support it's hard to know whether a government of national unity will be formed. Of greater concern is the degree to which the country's oligarchs will end up controlling institutions and, ultimately, subvert the democratic process.
2) The potential for popular disappointment with the west is substantial. Whatever their goodwill, the European Union and the U.S. are feeling fiscally constrained and are likely to be less open handed than Ukrainians would hope. They will also worry about the degree to which their largesse might be drained by graft. IMF programs are often economically brutal and prone to cause resentment.
3) Russia. Its president, Vladimir Putin, doesn't want Ukraine to tilt westward, not least because of the large ethnic Russian population in the country, the fact that Russian Black Sea naval bases are on Ukrainian territory or that a successful revolution just across its border could encourage popular discontent at home. There is great scope for Russia to make mischief.
4) When the euro-zone crisis struck, Greek, Portuguese, Cyriot and Irish yields all pushed into double digits. Yes, all of these countries had more debt than Ukraine, but they were also more firmly part of a bigger, deeper mutual support network. Investors undoubtedly see how hard Greek debt has rallied and are factoring in similar upside for Ukraine. That seems to be a stretch.
Intanto la banca centrale ha definitivamente mollato la grivnia, il $ vola a 9,72 UAH
USD to UAH Conversion Chart - Bloomberg
e forse te le ritrovi a Pattaya
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