In line withthe current IMF programme for Ukraine, on 21 May 2014 the Cabinet of Ministersof Ukraine pre-approved the issue of domestic government bonds ("VATBonds") in order to securitise a portion of the VAT refund arrearsaccumulated as at the end of the 2013 financial year. Ukrainian taxpayers whohave VAT refund claims that have been verified by a tax audit will be able toconvert such claims into VAT Bonds. 

PreliminaryTerms of the Issue 

According tothe Prime Minister of Ukraine, the Government intends to issue VAT Bonds torestructure the VAT refund arrears accumulated during the last couple offinancial years. The total amount of the refund arrears is estimated to bearound UAH 17 billion (approximately EUR 1 billion). 

Although theultimate volume of the VAT Bonds issue will only be finalised by mid June 2014,the following preliminary terms of the issue, which is expected to be completedby the end of August 2014, have been announced: 

·         the nominal value of one VAT Bond willbe UAH 1,000 (approximately EUR 55); 
·         the circulation term of the VAT Bondswill be limited to five years; 
·         a coupon will be paid at the discountrate of the National Bank of Ukraine (being 9.5% as at 21 May 2014); and 
·         the coupon will be paid semi-annuallyalong with a partial redemption of the VAT Bonds in an amount of 10% of theirnominal value. 

The resolutionapproving the issue of the VAT Bonds is expected to be passed in June 2014.