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 Key Steps in OVDP Development |
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| December 27, 2011 |
On December 27, 2011, in its letter N 19-014/10881, the National Bank of Ukraine disclosed a list of banks – primary dealers in the securities market with which the Ministry of Finance of Ukraine entered into agreements on cooperation in the securities market as of December 27, 2011, based on the selection results, and which have an exclusive right to participate in the placement of domestic government bonds, specifically:
| Position |
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| Name of bank |
PJSC Raiffeisen Bank Aval |
PJSC ING Bank Ukraine |
PJSC Oshchadnyi bank |
PJSC Erste Bank |
PJSC Ukrgazbank |
JSC UkrSibbank |
OJSC UniCreditBank |
PJSC OTP Bank |
PJSC JSB Kyiv |
PJSC Citibank |
PJSC SB Sberbank Rosiyi |
PJSC Ukreximbank |
PJSC VTB Bank |
PJSC Khreshchatyk CB |
JSC Delta Bank |
PJSC NADRA CB |
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| December 12, 2011 |
On December 12, 2011 the Cabinet of Ministers of Ukraine passed Resolution #1280 On Amending the Cabinet of Ministers Resolution #80 of January 31, 2001. This Resolution approved the Principle Terms of Issuance and Placement of Short-Term Government Bonds Denominated in Foreign Currency and Principle Terms of Issuance and Placement of Short-Term and Medium-Term Government Bonds Denominated in Foreign Currency. Based on these terms now the Ministry of Finance has an opportunity to issue short-term and medium-term government bonds denominated in US dollars.
Settlement based on the results of placement of short-term and medium-term government bonds denominated in foreign currency, payment of coupon on them and their redemption shall be effected in the currency of issuance. Settlement of trades with short-term and medium-term government bonds denominated in foreign currency in the secondary market shall be effected solely in the national currency.
In this way the government expanded the tool kit for domestic borrowings. However, taking into account the currency risk inherent in US dollar denominated bonds, this instrument should be used only when absolutely necessary in the event of complete absence of demand for regular OVDPs and inaccessibility of foreign markets. This is just the kind of situation that occurred at the end of 2011 with debt funding of the state budget.
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| October 20, 2011 |
On October 20, 2011 the Cabinet of Ministers of Ukraine approved Resolution #1066 Some Issues of Bank Bailout and Use of Bailout Funds. This Resolution endorsed the procedure for bailout provision to banks and use of the bailout funds. According to this procedure the bailout may be provided to a bank, to which assets of a bank under provisional administration were disposed, including a sanation bank, in the amount that may not exceed the difference between the cost of liabilities to retail depositors in the bank under the provisional administration, within the amount of deposit coverage by the Deposit Guarantee Fund, including transferred deposits, and the amount of assets transferred to another bank. The bailout shall be provided by way of remittance of the state budget funds or the issue and transfer of Ukrainian government bonds for the amount of such bailout. In case the bailout is provided by means of the Ukrainian government bonds transfer, the share of government bonds placed on non-market terms and conditions will be increased on the domestic market.
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| September 28, 2011 |
On September 28, 2011, the Cabinet of Ministers of Ukraine approved Resolution #1011 On Amending Cabinet of Ministers’ Resolution No.80 of January 31, 2001. The major amendments relate to the main terms of issue of medium- and long-term indexed government bonds and procedure for their placement. According to these terms the Ministry of Finance is now able to issue the medium- and long-term indexed government bonds. These bonds are redeemed based on the value indexed to the changes in the average weighted hryvnia-US dollar exchange rate at the interbank market in the calendar month preceding the month of the bond primary placement and redemption. This exchange rate is published by the National Bank of Ukraine on its official web-site. The MoF may at any time grant a put option to bondholders, which they could exercise on a coupon date. This is the first experience of Ukraine with issuing domestic bonds with floating rates which are placed at auctions. The use of floating rate may have a positive effect on the extension of domestic government bonds maturity and make OVDP more attractive for investors, specifically pension funds, who are interested in the medium- and long-term instruments.
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| July 15, 2011 |
On July 15 2011 CabMin issued Resolution #809 approving the borrowing procedure for SOEs. The document obliges state-owned companies to obtain MoF approval for all domestic and external loans of over 1 year, while short-term loans need to be approved by the relevant state body administering state property. Such provision may help to harmonize borrowing by SOEs, especially the external one. At the same time, the resolution contains a ban on early repayment of loans initiated by a lender if it entails “unjustified financial losses” (except for loans in the form of bond issuance), as well as on obligatory early fulfillment of debt obligations in case of downgrade of Ukraine or relevant SOE. Such restriction may significantly increase the cost of borrowing for state-owned companies and limit their financing options.
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| July 7, 2011 |
On 7 July 2011, the Verkhovna Rada of Ukraine passed the law of Ukraine #3614-VI “On amendments to the budget code of Ukraine and some other legislative acts of Ukraine”.
The amendments are about the regulation of issues related to public and local debt. In particular, they envisage:
- Establishment of legal grounds for issuing and paying down public and local debt in the Budget Code;
- Setting the balanced budget as the objective of public debt management;
- Requirements to making public the schedule of auctions to place OVDPs;
- Requirements to making public the information about public (local) and GOU guaranteed debt;
- Delineation of transactions to redeem and service public (local) debt;
- Decreasing the minimal number of local communities’ population eligible to make foreign borrowings from 500,000 to 300,000;
- A possibility for the MOF (or a local financial body) to hire business entities to provide agent, advisory, rating, and other services needed to manage public (local) debt;
- An increase of the max cap of local debt up to 200% of the average annual indicative predicted volume of revenues of the development budget in two budget periods following the planned period;
- Exclusion of guarantee obligations to international financial organizations when estimating the top limit of the local budget volume;
- Requirement for the MOF to introduce a Registry of public debt and State guaranteed debt, a Registry of State guarantees, and a Registry of local debt and local guarantees;
- The need to have the volume and terms of local guarantees to be approved by the MOF by the method to be established by the Cabinet of Ministers of Ukraine;
- Working out estimated indicators of public debt and State guaranteed debt, taking into account the public debt management strategy as approved by the Cabinet of Ministers of Ukraine;
- Definition of Ukraine’s debt to the IMF under loans received by the National Bank of Ukraine as State guaranteed debt;
- A ban on proposals to the State debt of Ukraine law for a subsequent year as regards increased expenditures and/or decreased revenues to the State budget, which result in public debt and State guarantees exceeding their top cap as specified by the Cabinet of Ministers of Ukraine in the draft law on the State budget for the subsequent year.
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| July 8, 2011 |
On July 8, 2011 the Ministry of Finance on its website posted the information on the selection of primary dealers, based on the results thereof PJSC VTB bank was decided the winner. This bank became the 16th primary dealer. Thus, the number of the primary dealers has reached its maximum number established by the Cabinet of Ministers of Ukraine. Simultaneously, the Ministry made a rating of the primary dealers subsequent to the results of the purchase of OVDP by way of an auction sale for a period from 08.28.2010 to 07.06.2011. According to the rating the positions of the primary dealers have been determined as follows:
| Position |
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| Name of bank |
JSC Erste Bank |
PJSC UkrSibbank |
JSC Raifeissen Bank Aval |
JSC Oshchadnyi bank |
JSC OTP Bank |
PJSC SB Sberbank Rosiyi |
PJSC ING Bank Ukrayina |
JSC Ukreximbank |
PJSC UniCredit Bank |
PJSC CIB Credi Agricol |
PJSC Citi Bank |
PJSC JSB Kyiv |
JSC Kyivska Rus |
JSC Ukrgazbank |
JSC Rodovid Bank |
Taking into account the right of the Ministry of Finance to cancel agreements with the primary dealers if the volumes of the OVDP repurchase by a primary dealer based on the results of the year turn out the least among the primary dealers according to the Ministry’s assessment, announcement of the rating of primary dealers by the Ministry will make their activity on the primary OVDP market more active.
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| June 9, 2011 |
On 9 June 2011, the Cabinet of Ministers of Ukraine issued Edict 460 “On the approval of the procedure and terms to provide State guarantees in 2011 for corporate debt issued to implement investment, innovation, infrastructure, and other development projects of strategic significance whose implementation is to assist the growth of national economy”.
Under this procedure, State guarantees may be provided for debt obligations of:
1) resident public sector businesses (excepting the State Innovation Financial Institution and the State Investment Company) for purposes of implementing investment, innovation, infrastructure, and other development projects of strategic significance whose implementation is to assist the growth of national economy, including import substitution and export oriented sectors (hereinafter referred to as ‘projects’);
2) the State Innovation Financial Institution and the State Investment Company for purposes of lending resident business subjects irrespective of their organizational and legal form or form of ownership (hereinafter referred to as ‘business subjects’) to implement projects.
Projects to be implemented on the financial viability basis in full or in part through State guaranteed borrowings are to be selected by tenders.
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| April 13, 2011 |
On April 13, 2011 the Cabinet of Ministers of Ukraine approved resolution No.402 “On Approval of the Procedure of the Sale of the Rights to Claim to Repay the Debts to the State under Credits (Loans) Attracted by the State or under Government Guarantees Past Due More than Three Years, and Under Credits Granted from the Budget”.
The procedure approved specifies a mechanism of selling the rights to claim to repay the debts to the state under credits (loans) attracted by the state or under government guarantees past due more than three years, and under credits granted from the budget. A maximum amount of a possible reduction in an initial price of the rights to claim is equal to 50% of their nominal value. Thus, the Ministry of Finance will have an opportunity to engage market levers of collection of debts under credits (loans) attracted by the state or under government guarantees after the period of limitation of action when recovery of these debts through legal proceedings failed.
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| April 13, 2011 |
On April 13, 2011 the Cabinet of Ministers of Ukraine approved resolution No.460 “On Approval of the Procedure of Determining an Amount and Type of Collateral Security when Granting Credits (Loans) Attracted by the State or against Guarantees of the State”. The procedure approved establishes a mechanism of determining an amount and type of collateral security when granting credits (loans) attracted by the state or against guarantees of the state to the business entities that have the property of state or communal ownership under their authority. Fulfillment of the borrower’s liabilities is secured with collateral. A market value of the collateral security should exceed the amount of the borrower’s primary liability and annual interest under it with due account for the volume of possible expenses connected with forced sale of the collateral security in case of the borrower’s failure to fulfill its liabilities.
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| March 17, 2011 |
On March 17 the Cabinet of Ministers of Ukraine approved Resolution #256 “On Approval of the Procedure of Fixing an Amount of Payment for Giving Credits (Loans) Raised by the State, or Government Guarantees”. The approved procedure has modified the previous provision that specified the amount of payment for giving a credit and/or government guarantee in the amount of 0.5% per annum of the outstanding amount of credits, the state budget and 2% per annum of the outstanding amount of the credits that were repaid at the expense of nonbudgetary funds. It should be noted that in most cases this payment was established by CMU resolutions that provided for giving a relevant credit or guarantee.
Under the new procedure the amount of payment is established by the Cabinet of Ministers of Ukraine on the basis of the calculations made by the Ministry of Finance in accordance with the procedure specified by it taking into account proposals of the Ministry of Economic Development and Trade and/or the government body to whose the area of management the borrower belongs, with an application of rating, market, actuary methods. The method under which an estimated amount of payment is the lowest is preferred.
The amount of payment may be changed by the Cabinet of Ministers of Ukraine in case of a change in the credit rating or outlook of the borrower, growth or reduction in the risks related to giving a credit (loan) or government guarantees.
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| March 2, 2011 |
On March 2, 2011 the Cabinet of Ministers of Ukraine approved Resolution #174 “Issues of Accounting, Budgetary Loans/Financial Assistance Provided by the Ministry of Finance in 1993-1998, Charging of a Penalty and Writing off of Bad Debts”.
The resolution regulates the relations as regards accounting of debts to the state under credits, budgetary loans/financial assistance, specifies the authority of the Ministry of Justice, the Ministry of Finance, the State Treasury Service, the State Tax Service, agent banks as regards accounting of these debts and charging of a penalty for its overdue. The problem of writing off of bad debts which previously was not regulated is important.
As a whole, this decision of the Cabinet of Ministers of Ukraine will make it possible to streamline collection of debts to the state under the credits obtained by the state or under government guarantees that should reduce budget expenses for public debt servicing.
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| March 2, 2011 |
On March 2, 2011 the Cabinet of Ministers of Ukraine approved Resolution #170 “On Approval of the Medium-Term Strategy of Public Debt Management for 2011 – 2013”. In accordance with the resolution the strategy implementation will make it possible to achieve such results by the end of 2011, 2012 and 2013 respectively:
the public debt amount to GDP ratio – at the level of not more than 32, 30 and 28 %;
the share of the public internal debt – not less than 46, 46 and 48 %;
the share of the fixed rate public debt – not less 69, 73 and 80 %;
averaged weighted term prior to public debt maturity – not less than 4, 4 and 5 years.
The share of the public debt that will be refinanced next year will be equal to approximately 16% as of the end of the relevant period. Achievement of the benchmarks envisaged by the resolution no doubt will facilitate a reduction in a debt load on public finances.
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| February 16, 2011 |
On February 16, 2011 the Ministry of Justice of Ukraine registered Ordinance of the Ministry of Finance of Ukraine of January 31, 2011 #47 “On Approval of Amendments to the Procedure of Primary Dealers Selection and Operation”. The amendments indicated relate to the Procedure of primary dealers selection and operation approved by Ordinance of the Ministry of Finance of Ukraine of June 10, 2009 #757 and envisage expansion of grounds for making a selection of dealers. In addition, the criterion of selection in terms of the volumes of the bonds acquired is changed; currently it includes the bonds acquired not only on a primary, but also on a secondary market that will significantly improve access to this range for the banks which still are not primary dealers.
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| February 16, 2011 |
On February 16, 2011 the Cabinet of Ministers of Ukraine approved Resolution #110 “On Approval of the Procedure of Municipal Borrowing”. The procedure approved by the resolution specifies a mechanism of making borrowing to the budget of the Autonomous Republic of the Crimea and city budgets. The need to modify the current procedure was conditioned by coming into force of the new version of the Budget Code. The Procedure envisages a possibility of borrowing exclusively from financial institutions that limits a legal capacity of territorial communities. The norm about the possibility to sell municipal bonds at the price different from the nominal one in case of their open (public) placement on a stock exchange is excluded. This will deprive territorial communities of the possibility to use positive changes on the market, which have taken place from the time of endorsement of the bond rates, for reducing the value of borrowing. An exhaustive list of the reasons for refusing to endorse it is not used any more. Also, the mechanism of “by default” endorsement is not applied in case of compliance with certain minimal requirements. At the same time territorial communities when making municipal borrowing should bare in mind that in 2011 almost all the amount of deficits of the budgets of general administration which is limited by the liabilities to IMF is envisaged in the State Budget. Exclusions are envisaged only for investment projects which are financed by international organizations.
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| February 16, 2011 |
On February 16, 2011 the Cabinet of Ministers of Ukraine approved Resolution #104 “On Giving State Guarantees under Liabilities of Businesses whose Objects of State Ownership Belong to the Area of Management of the National Agency on Preparation and Holding of the Final Part European Football Championship in Ukraine in 2012 and Implementation of Infrastructure Projects”. The resolution gives powers to the Minister of Finance of Ukraine to sign documents on giving government guarantees under the borrowings used for financing the measures envisaged by the State Special Program of Preparation and Holding of the Final Part of the European Football Championship in Ukraine in 2012 within the limits of UAH 5.5 billion. For the first time such powers are given within the limits of a specified amount for a certain area, but not in connection with an individual project or borrowing. Payment for giving a guarantee is equal to UAH 1 when borrowing for the amount of UAH 100 million. Such a payment will be equal to UAH 55 for the amount of UAH 5.5 billion.
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| January 19, 2011 |
On 19 January 2011, the Cabinet of Ministers of Ukraine approved Resolution #65 "On Approving the procedure to make use of temporarily surplus funds idling in the single treasury account by way of purchasing OVDPs and placing Sate budget foreign exchange funds on deposit accounts". This GOU Resolution regulates the method of the Finance Ministry of Ukraine exercising its rights specified in clause 8 of article 16 of the Budget Code that came into effect on January 1, 2011. The application of this mechanism is to decrease as much as possible the period of time between the date of crediting the funds to the single treasury account and the date of their disposal by budget-funded institutions, thereby cutting down significantly the cost of public debt servicing, which is extremely important for Ukraine to keep within the maximal level of budget deficit in 2011 and thereafter.
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| December 30, 2010 |
Ministry of Finance posted the "Schedule of Domestic Government Bond (OVDP) Placements in 2011" on its web-site. According to the schedule, the Ministry plans to issue, on top or regular types of OVDPs, puttable long-term government bonds and amortized long-term government bonds, which have never been offered by the Ministry before.
Publishing of the auction schedule will allow the Ministry to start in a timely manner OVDP placements in the new budget year and will facilitate the fulfillment of domestic borrowing plan for 2011.
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| November 10, 2010 |
On November 10, 2010, the Cabinet of Ministers of Ukraine passed the Resolution #1024 "On Approving the Procedure for Purchasing Domestic Government Bonds in 2010 and Depositing Temporarily Available Funds of Single Treasury Account and State Budget Currency Accounts in 2010". This resolution regulates exercising by the Ministry of Finance of Ukraine of its rights stipulated in the Article 18 of the Law of Ukraine "On the State Budget of Ukraine for 2010". The Ministry’s right to place temporarily available funds of the single treasury account and state budget currency accounts by purchasing government securities with further withdrawal of such funds by the end of the current budget period is also stipulated by Article 16, Item 8, of the Budget Code taking effect on January 1, 2011.
Utilizing this mechanism will permit to match, to the maximum extent possible, the timing of receipt of funds into the single treasury account with that of their spending by budget-funded institutions, thus saving large amounts of public debt servicing costs which is of particular importance for Ukraine in light of compliance with the state budget deficit ceiling in 2011 and beyond.
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| October 27, 2010 |
The Cabinet of Ministers approved the Procedure for Designing Medium-Term Public Debt Management Strategy and Controlling Its Implementation. The Procedure was a continuation of the efforts taken by the Ministry of Finance in spring 2010 together with other institutions including FINREP to regulate the process of the public debt management in the country. Under the procedure the strategy for a 3-year period shall be developed by the Ministry of Finance in coordination with the Ministry of Economy and approved by the Cabinet of Ministers every year within one month after the state budget law for the relevant year is passed.
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| August 31, 2010 |
On August 2, 27, 30 and 31 the Ministry of Finance issued 5-year bonds to settle the VAT refund arrears at the total amount of UAH 16.4 bln. The coupon rate for those bonds was set at 5.5% per annum. VAT-bonds are redeemed through semiannual repayments of the principal amounting to 10 per cent of bond’s face value (UAH 1,000). These issues increased the outstanding amount of domestic government bonds by 15%.
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| August 5, 2010 |
Ministry of Finance selected Ukreximbank, Citibank and Sberbank of Russia Subsidiary Bank to act as primary dealers in the domestic government bonds market.
Thus, the number of primary dealers reached 15 while the maximum number set by the GOU is 16.
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| July 20, 2010 |
Ministry of Finance of Ukraine announced the next tender on selection of primary dealers to take place on August 3, 2010.
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| July 2, 2010 |
Ministry of Finance designed and published the Public Debt Management Plan for 3Q 2010.
The plan contains information on the amount of borrowing, debt instruments, debt targets and risk management measures in the 3rd quarter of 2010.
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| June 16, 2010 |
Ministry of Finance of Ukraine issued order #461 approving the Regulation on Public Debt Related Risk Management.
According to this Regulation developed with FINREP participation, the Ministry shall design and publish the annual debt strategy and quarterly public debt management plans.
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| June 2, 2010 |
The Program for Economic Reforms for 2010-2014 lists among the impediments to the sustainable economic development of Ukraine "poor public debt management".
The paper provides for the approval of a medium-term public debt management strategy by the end of 2012.
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| March 19, 2010 |
PFTS stock exchange informed about the introduction of a new regime for trading in government bonds which permits the market participants to quote without a firm commitment.
Due to the new regime the primary dealers have obtained an opportunity to implement their commitments agreed with the Ministry of Finance of Ukraine to provide quotes of domestic government securities.
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| March 4, 2010 |
On March 4 Ministry of Finance selected PJSC Credit Agricole as a 12th primary dealer.
The tender on selection of primary dealers will be held each half of a year (not each quarter as before) until the number reaches 16.
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| February 19, 2010 |
In accordance with the NBU Board Decree #13 of 01.15. 2010 effected as of 02.19.2010, changes were made to the Regulation on the Procedure of Performing the Operations related to the Placement of the Government Securities.
In line with these changes, Only primary dealers have an exclusive access to the domestic governments securities primary placement. Therefore, as of February 19, primary dealer system in the domestic government securities market is now officially introduced in Ukraine and is beginning operations.
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