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UKRAINE IS BECOMING a key new destination for emerging-market bond investors. For many, it involves believing that the economic fundamentals outweigh the political risks.
The question is whether the picture will become clearer after Leonid Kuchma stands down from the presidency in October after 10 years in office.
Investors are impressed with the country's strong macroeconomic performance, relatively low debt ratios and comfortable external liquidity position. Most analysts expect GDP growth of over 7% in 2004, as was posted in 2003.
This solid platform allowed Ukraine to re-enter the international capital markets last June for the first time since its 2000 restructuring of defaulted debt. It followed this with a successful benchmark seven-year deal in February. A series of other issuers – banks, corporates and municipalities – have been able to access foreign capital in the sovereign's wake.
For emerging-market asset managers, faced with growing funds under management and a thin supply line, Ukrainian bonds have filled the gap nicely. They have had scarcity value and can offer diversification from other emerging-market credits.