* Sovereign considering US-backed bond deal
* Bankers question impact on arrangers' Russia business
* Ukraine faces June 4 redemption
By Sudip Roy
LONDON, April 28 (IFR) - Arrangers of a potential US
government-guaranteed bond from Ukraine face a delicate decision
about whether to get involved in such a politically charged
transaction, according to bankers.
Ukraine could issue a bond after the US Treasury signed a
US$1bn loan guarantee with Kiev earlier this month as part of an
internationally co-ordinated effort to support the troubled
country. US banks are expected to lead any transaction.
But as the stand-off between Ukraine and Russia threatens to
turn into a full-blown military conflict, some bankers say the
decision to work on the deal is far from straightforward.
"Just to get the internal approvals huge," said one,
who suggested that at his firm discussions would need to include
several senior officials.
He added any bank considering taking on the transaction
would have to weigh up the potential cost to its Russia
"There is the risk of association with the new Ukrainian
government. How will it be perceived in Moscow?"
Others, though, dismiss such concerns. "Russia needs a
solvent Ukraine," said one source, adding that the financial
relationship between the two countries is complex and nuanced.
Russia, for example, provided Ukraine with US$3bn of funds
through a two-year bond in December.
Another banker also doubted that any firm involved would see
its Russia business suffer. "You never know with [the Russians]
but I can't see there will be retribution."
So far there is no public mandate. Bankers speculate,
however, that Morgan Stanley could be one bank involved. The
bank has a strong track record of arranging bond issues by the
Ukrainian sovereign. Morgan Stanley declined to comment.
With Ukraine facing a US$1bn bond redemption on June 4,
sources say it would make sense for the sovereign to issue the
bond as soon as possible. "They may as well get on with it,"
said a capital markets chief, who added that a bond was an easy
way of monetising the loan guarantee.
"The bond can be done quickly," he added. "It's a two-day
process. They just need to finalise approvals."
The structure of the bond would be similar to that of
previous US government-guaranteed deals by emerging markets
sovereigns, according to a source with knowledge of the
Last year, for example, Jordan issued a US$1.25bn seven-year
bond backed by the US Agency for International Development that
priced to yield 2.503% at a final spread of 60bp over US
Treasuries. The US has also guaranteed deals for Tunisia and
Egypt in the past.
Last Thursday, Ukraine's first deputy finance minister
Anatoliy Myarkovsky told reporters that Ukraine hoped to raise
funds through a variety of sources including IMF loan tranches,
World Bank funding, EU support, US guarantees, Eurobonds and
(Reporting by Sudip Roy; Editing by Matthew Davies)