Investing in Sovereign and IFI Debt

The National Bank of Ukraine (the "NBU") will no longer require that Ukrainian banks obtain individual licences to invest abroad in securities issued by certain foreign states and IFIs. Generally, under Ukrainian currency control rules, any outbound investment from Ukraine has been prohibited unless based on an NBU individual licence. The relevant amendments became effective on 23 November 2016.

An investment will not be subject to the licensing requirement if it meets all of the following conditions:

  • the bank holds a general currency licence (not to be confused with individual licences) and is allowed to engage in foreign currency transactions in foreign capital markets;
  • the issuer is an international financial institution or a G7 member and rated at least "АА-"/"Аа3" by at least two of Fitch, Standard & Poor's or Moody's;
  • permitted instruments are debt securities denominated in the currency of a G7 member, with the date of repayment within five years from the date of their purchase by the bank;
  • the bank may only purchase or sell such securities from/to non-Ukrainian entities abroad.

The new exemption from the individual licensing regime appears to apply only to banks trading for their own account, ie their clients will still require NBU individual licences to invest abroad even if such deals are brokered by a bank.

Raising ECA-supported Loans

Another amendment relates to export credit agency (ECA) covered financings to Ukrainian borrowers. NBU regulations currently provide that the aggregate amount of payments under a loan transaction, including interest and fees, cannot exceed the maximum interest rate (MIR) set by the NBU. The MIR is presently set at 9.8-11 per cent per annum depending on maturity for fixed interest rate loans and 3-month USD LIBOR plus 750 bps for floating interest rate loans.

Under the amended rule that becomes effective on 30 November 2016, the fees payable to an ECA listed on the OECD's official website, which must be reimbursed to a foreign lender by a Ukrainian borrower under the terms of their loan agreement, will not be counted towards the MIR. This will effectively raise the MIR applicable to ECA financings and will make such financings more accessible to Ukrainian borrowers.

Other Changes in Currency Control Rules

In addition to the above amendments, the NBU also allowed Ukrainian banks to trade for their own account in FX derivatives traded on the Ukrainian exchanges, permitted assignment of deposits placed with Ukrainian banks among foreign investors, and made some other changes in the currency control rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.