By Sudip Roy
LONDON, March 15 (IFR) - JP Morgan is expected to make a tidy profit on a tap of Ukraine'sNovember 2028 bonds after the US bank acted as sole bookrunner and buyer of the deal.
The sovereign, rated Caa1/B-/B-, raised US$350m on Tuesday through the private placement, which took the market by surprise as it came just three weeks ahead of a tightly-fought presidential election, for which comic actor and political novice Volodymyr Zelenskiy is leading in the polls.
Aside from the size, which took the amount outstanding on the bonds to US$1.6bn, and the settlement date, the only other thing disclosed was that JP Morgan "acted as sole purchaser and bookrunner".
"I think JP Morgan made a lot of money," said one banker away from the deal.
Quite how much is impossible to say without knowing at what price the bank's trading desk owned the bonds or offloaded them (assuming they have) or details about any hedging strategy. But the potential profit could be in the low millions, not including fees.
Speculation was rife in the market that JP Morgan owned the bonds at 99.25 but IFR understands that price is inaccurate.
What is clear is that the bonds were bid at 100.69 at Tuesday's open, according to Tradeweb prices, or a yield of 9.635%, having climbed from 99.31 at Monday's open. By Tuesday's close the bonds were stable at 100.75, though they had fallen to 100.25 by Wednesday's close.
The trade was testament to JP Morgan's belief that Ukraine is heading in the right direction, despite the huge challenges facing the country, and its willingness to put its balance sheet at risk. "Hats off to them. Would I have liked to have done it? Absolutely," said a second banker away from the deal.
Some investors grumbled that the deal was not done through the public markets and also questioned how beneficial it was for Ukraine.
"I think Ukraine could have done it at better levels … if they had come to the market," said one London fund manager.
Ukraine'sMinistry of Finance did not respond to requests for comment. But the government would be under pressure not to pay too big a premium.
Quite where a new public deal would price is open to debate. In October when it originally issued the November 2028s as part of a US$2bn dual-tranche offering, the sovereign paid a 12.5bp premium.
Market conditions have improved since then - Sri Lanka, rated B2/B/B, sold US$2.4bn of bonds on March 7 with 5bp concessions - though it's not clear that enough investors would have considered a public deal from Ukraine this close to the election.
And with the government under pressure to raise US$2bn in the international capital markets this year, and no certainty about what the political landscape will look like, it became too good an opportunity to get some money in the bank.
Ukraine is no stranger to private placements. In August it raised US$725m through a six-month trade through Goldman Sachs.