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Can opportunity outweigh suspicion?

Ukraine

Kuchma: his heavy hand over state
officials and government ministers
prompted a rating downgrade

With Russia, Hungary, Poland and other transition economies offering ever-decreasing yields, investors are snapping up any emerging-market new issue that offers decent spreads. That means they should favour the new issue planned by Ukraine, for $600 million, which the country plans to bring to the bond markets this quarter.

After all, Ukraine had a very good year financially in 2002. Its $2.5 billion of Eurobonds returned 20% - one of the best sovereign performances in the world. Its finances continued the strong rebound of the past few years - with GDP growth at around 4%. This may be a dip from the 9% growth of 2001 but is still a substantial improvement on 1994's terrible negative 23%. Inflation has plummeted, thanks to some canny work on the part of the central bank, and both the trade balance and the current account balance are healthily in the black. International reserves grew by 33% last year, to $4 billion.

Yet when Ukraine did a $250 million tap issue in December 2002, lead managed by CSFB, Parex Bank and DrKW, it wasn't a huge success, pricing at a discount to outstanding bonds.

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