Value-added tax bonds of the first, smallest, tranche have the lowest liquidity and will be traded with the highest interest rates, analyts say. Preliminary quotations for the VAT-bonds that are to appear on the secondary market in late this week or early next week will carry a 19-23% discount on their face value, although depending on the volume of the new issues that would be floated to the market, the prices could vary from tranche to tranche, according to analysts polled by Interfax-Ukraine.

"The price of VAT-bonds on the secondary market would mainly depend on the volume of bonds that would enter the market. If all bonds enter the market simultaneously, their interest rates could grow and the discount would be trimmed. If the VAT-bonds gradually enter the secondary market, the discount could remain at the present levels of 19-21% in medium term outlook," said the head of the financial market analysis department at ING Bank Ukraine (Kyiv, Oleksandr Pecheritsyn.

He added that the division of VAT-bonds issues into several tranches would cut the liquidity of small issues. He said that they could have a higher interest rates thanks to additional premiums for liquidity.

"The level of liquidity would be indentified by the presence of each tranche on the market - that is by the volume of bonds that were not bought by state-run banks. Thus, if among the owners of a tranche of bonds worth UAH 8 billion there were major large companies with debts worth over UAH 100 million, we could expect higher liquidity for tranches worth UAH 2 billion and UAH 6 billion," the expert said.

An analyst from Erste Bank, Marian Zablotsky, said that the preliminary supply was formed in the 16-18% range (20-23% discount).

According to his expectations, the first proposals from clients would appear on the market early next week. The expert said that depending on the activities of companies it would take from three to ten working days to receive VAT-bonds directly to companies' accounts at depositories.

Zablotsky said that VAT-bonds of the first, smallest, tranche would have the lowest liquidity. They would be traded with the highest interest rates.

As for other tranches, their volume is enough to provide for high liquidity, he said.

Zablotsky said that some tranches would not enter the market, as they could be bought by state-run banks. However, this is possible if the National Bank of Ukraine supports the banks by refinancing, but at present it is not clear that the central bank will take part in the placement of VAT-bonds, the analyst said.

The board chairperson of Investment capital Ukraine Group, Valeriya Hontarev, said that the market supply of VAT-bonds would be around UAH 10 billion. She said that this would be one of the largest supplies of Ukrainian stock market tools in the country.

She said that first deals with VAT-bonds could be signed late this week. The expected interest rate is 15-17% per annum, which is equal to a 20-22% discount.

An analyst from Astrum Investment Management, Serhiy Fursa, supported the above-mentioned idea.

"We recommend buying bonds of the second, third and fourth tranches with 15-17% interest rates per annum, which could become the most liquid tools on the domestic market," he said.

Fursa said that VAT-bonds are more attractive compared to ordinary government domestic loan bonds and sovereign eurobonds.

An analyst from Troika Dialog Ukraine, Maria Repko, said that due to the fact that VAT-bonds appeared on the market over a short period of time, the discount to the government domestic loan bond curve could be 150-250 basis notches.