Ukraine’s wildcard president-elect Volodymyr Zelensky and his unknown agenda are keeping investors uncertain about the country’s economic future ahead of a possible Eurobond issue.
Even a month after his election victory, Zelensky’s policy direction has yet to become clear. “[Zelensky] didn’t campaign with a clear agenda or manifesto,” said an asset manager based in Ukraine. “So we don’t really know what to expect from him.”
Zelensky, a comedian before winning power, has shown a willingness to stand up to Vladimir Putin, bickering with the Russian president and promising “several moves” in response to Russia’s expansion of its offer of passports to several categories of Ukrainian citizens. His decision to send a delegation to the European Union promising judicial reform and anti-corruption measures will comfort investors.
But while the Ukrainian president elect’s pro-Western leanings are encouraging to investors, by far the most important factor in Ukraine’s future is its relationship with the IMF.
The country’s economy is still too weak to support itself without infusions of cash from supranational institutions. While wooing the EU is important, Europe has made its offers of cash contingent on Ukraine’s compliance with the IMF’s recommendations.
In December, the IMF approved a $3.9bn stand-by arrangement with the country. This allowed for the dispersal of $1.4bn immediately, with the remainder to be made available upon completion of semi-annual reviews, the first of which is believed to be scheduled for this month.
The traditional sticking point between Ukraine and the IMF has been the country’s unwillingness to hike tariffs on gas prices to bring them in line with market rates. However, with gas cheap in European hubs, the need for a price hike appears to have disappeared for the moment.
The main potential obstacle to the next tranche of IMF funding is the legal battle between oligarch Ihor Kolomoisky, who is rumoured to have backed Zelensky’s campaign, and the central bank over the nationalisation of Privatbank.
With the election over, Ukraine is expected to hit the bond market before the summer break. “They picked up some cash pre-election with a private placement,” said an emerging markets DCM banker in London. “But they’ll need to come back for more soon.”
DCM bankers said that Ukraine was targeting the euro market, with a maturity of up to 10 years. Ukraine has to cover a $1.4bn maturity in May, and another $3.3bn or so by the end of 2019.
The market was closed to the Ukrainian sovereign in the run up to the election — the second round of which took place on March 31. Zelensky clinched the election with 73% of the vote, unseating the incumbent Petro Poroshenko who, despite a reputation for being market-friendly, was hamstrung by corruption scandals.