Parliament Allows Denomination of Government Domestic Loan Bonds in Foreign Currency

Pursuant to amendments to the Law of Ukraine "On Securities and Stock Market" adopted by the Ukrainian Parliament on 9 December 2011 and effective from 16 December 2011 (the "Amendments") Government Domestic Loan Bonds (the "GDLBs") can be denominated in foreign currency. Prior to these changes the GDLBs could be denominated only in Ukrainian hryvnia.

The Amendments introduced essentially new Ukrainian securities product, although it is unclear whether it may generate substantial liquidity. It appears, however, that the demand will depend on the ability of the National Bank of Ukraine to support trading in the GDLBs on the secondary market.

Customarily governments attract debt finance on the domestic market in the country's own sovereign currency, because the interest and principal can be repaid by raising tax receipts, reducing budget expenditure or printing more money. Issuance of bonds denominated in foreign currency assumes the risk that the government will not be able to obtain funds necessary to repay the debt. Nevertheless individuals and legal entities may view the foreign currency GDLBs as a good alternative to bank deposits, provided that the coupon is high. Ukrainian banks, especially those with foreign parents, may also wish to invest into these GDLBs as they have accumulated on their accounts significant amounts of foreign currency.

For further information please contact
senior partner Armen Khachaturyan or associate Oleksiy Demyanenko.

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