Ukraine confirms Gazprom has warned on fines

bne

April 14, 2009

Ukrainian presidential advisor on energy security Bohdan Sokolovsky has confirmed that Naftogaz of Ukraine is facing fines from Gazprom for consuming less gas than contractually stipulated.

" I would like to point out that there are legal grounds for such a letter, because the January 19, 2009 gas contracts envision such fines," Sokolovsky told Interfax on Tuesday, April 14.

Russian Prime Minister Vladimir Putin had originally said Gazprom would waive the fines due to Ukraine's 'pre-bankruptcy' state. "One doesn't finish off ones' partners," he said.

However, after Russia was excluded from a 1.5bn euro EU-Ukraine deal to modernize Ukraine's gas transportation system (GTS), the Russian position has changed.

Sokolovsky, speaking yesterday, assured that Russian companies would definitely be invited to bid in tenders for selecting companies that would organize, carry out, and finance various phases of the GTS modernization project.
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Yushchenko will run for presidency and parliament, but not in October

bne

April 15, 2009

In an interview published in today's Kommersant Ukraine, President Viktor Yushchenko dismissises the idea of presidential elections taking place on October 25.

"Forget about that date, it has no justification whatsoever," Yushchenko said in the interview.

Yushchenko indicated that the constitutional court would decide when presidential elections should take place. He said that he would call for them to be held simultaneously with pre-term parliamentary elections.

Asked if he was planning to stand, he told Kommersant-Ukraine that he would run for both the post of president and a seat in parliament.
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Ukraine's cabinet adopts measures to meet the IMF's requirements, though Rada declines

Rencap

April 15, 2009


Yesterday (14 Apr), Ukraine's parliament again declined to place the cabinet's draft laws to meet the IMF's recent requirements on its agenda (see Political calm in Ukraine - Near or far?, dated 1 Apr). The government's suggestions included: 1) an increase in the single tax (a type of flat tax) on private entrepreneurs; 2) a reduction in pensions to deputies and some other governors; and 3) UAH6.1bn of additional subsidies for Naftogas, to cover the difference between the import price of gas and gas tariffs for households and utilities.

To resolve these issues, the government had to adopt a list of resolutions to ensure the approval of legislation needed to restore the IMF's standby loan. The complete package of measures has not yet been disclosed. However, Prime Minister Yulia Tymoshenko mentioned that the cabinet had decided to increase gas and utility tariffs for some categories of households and to renew a 2% markup to gas tariffs for industrial consumers, thereby improving the financial state of Naftogas without additional subsidies from the budget.

Moreover, changes to the regulation of the pension fund aimed to reduce budget spending and a programme of recapitalisation of Ukrainian banks by the state were also mentioned by the governors.

Tymoshenko highlighted that the government is not going to send the drafts laws to the parliament again (as now there is no need) even though adopting anti-crisis measures via laws is more efficient than it is via government resolutions. The chief of the IMF mission in Ukraine, Ceyla Pazarbasioglu, said that despite these measures being "difficult", they could have a positive impact on Ukraine's ability to fight the crisis. Pazarbasioglu added that Ukraine's recent request to receive the second and third IMF loan tranches together, is under discussion and that it is too early to comment this issue.

Galt & Taggart writes: Several less significant bills still need to be passed, but th! e laws b ring Ukraine closer to meeting the IMF's requirements for further loan cooperation. However, the government adopting laws behind parliament's back raised concerns that the PM overstepped her authority in passing legislation, which may stir up discontent within opposition parliamentary factions.


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Rally comes to an end

Alfa

April 15, 2009

It seems that the more than month-long rally is coming to an end after US retail sales and PPI data indicate that economic recovery is still a long way off.

PPI deflation in March and decline retail sales signaled that more bailouts are needed to support the financial system, producers and consumers, and to prevent sharp deflation in prices. The fundamental problems of the global economy have not been addressed and governments around the world are continuing to stimulate markets with short-term measures. In this environment, stocks on the PFTS stopped growing, e.g. Ukrnafta, Enakievo Steel Plant, and Centerenergo; however, the PFTS index was still up (+3.12%). Tomorrow markets will most likely see more declines among the most liquid stocks, with a correction of the PFTS Index looking inevitable.

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Parliament overrides presidential veto on electricity export liberalization bill

Dragon

April 15, 2009

Parliament yesterday overturned President Viktor Yushchenko's veto on a bill that aims to liberalize electricity exports from the country. (Interfax)

According to the bill, any members of the country's wholesale electricity market, Energorynok, can participate in special auctions to buy access to cross-border transmission capacities and export electricity purchased from Energorynok. Proceeds from such auctions are to be invested in the modernization of export transmission lines, which is definitely positive for Zakhidenergo
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S&P puts City of Kyiv on ratings watch list

Galt & Taggart

April 15, 2009

S&P yesterday placed the CCC+ LT issuer credit rating and senior unsecured debt rating for the City of Kyiv on its credit watch list with negative implications, reflecting the city's exposure to ST debt refinancing risk after it attracted two loan facilities to repay energy bills, and on concerns over the city's budget, whose general fund was reported at UAH 8mn on March 17. Last week Ukraine's capital attracted UAH 900mn from Alfa-Bank Ukraine and Khreschatyk Bank to settle debts with Kyivenergo (KIEN UZ). Prior to taking on the debt, Kyiv had no principle payments due until 2011.

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New regulation in the currency market

Rencap

April 15, 2009


The National bank of Ukraine (NBU) has adopted a new measure to regulate the currency market, according to which all dealers will be obliged all to conclude their transactions no later than the day after they were settled (T+0 or T+1), while previously they were allowed to deliver money within two days of a trade (T+3).

We believe the previous scheme was more favourable for Ukrainian banks in case of a lack of liquidity in the banking system, as it allowed them information about future fund outflows from their accounts (if their clients bought currency) the day before. At the moment, Ukrainian banking system liquidity is sufficient (with money market rates at about 3-4% overnight) therefore the NBU may decide to tighten regulation. This latest measure, like some of the NBU's previous steps (see National Bank of Ukraine adopts new hryvnia support measures, dated 6 Apr) is aimed to discourage the holding of foreign currency in accounts and to increase currency supply on the interbank market. The new regulation is effective 24 Apr 2009-1 Jan 2010.

Galt & Taggart write: Given the majority of interbank FX transactions are conducted under t+0 and t+1 terms, we believe this latest central bank ruling, which follows a series of other recent measures, will affect speculative demand only, by effectively limiting banks from having open off-balance FX positions. We expect the restrictions to cause a short-term US$ overhang of around US$ 4bn, which will keep the UAH/US$ rate from growing above 8.0/US$ on continuing pressure from FX-denominated debt redemptions, or even to strengthen slightly in the short term, to 7.85-7.90/US$. On the other hand, the NBU restrictions may further discourage foreign players from operations on the local Ukrainian market, and push them to favor foreign-listed securities of Ukrainian companies.


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Ukraine Gov suggests power tariff increase

Sokrat

April 15, 2009

The Ukrainian Government suggested that the NERC increase power tariffs by 3.5 times for residential users that consume over 0.6 MWh of power per month, up from the current UAH 244 per MWh to UAH 823 per MWh. Earlier, following the government's recommendations, the NERC cancelled its ruling on a three-fold increase in the power tariff (to UAH 763 per MWh) for residential users that consume over 0.4 MWh power per month. The NERC stated that the group of residential users consuming over 0.4 MWh per month represents 16% of the total power consumption by the residential sector.

Our view: The low power tariffs for the general population are cross-subsidized by the comparatively high power tariffs for industrial consumers, which is currently the key issue of the electricity sector in our view. The government's recommendation to cancel the power tariff hike two weeks ago was disappointing and politically motivated. However, the recent recommendation indicates that the issue of cross-subsidizing is being recognized and that the increase in the power tariff for large residential consumers is only the first step in bringing residential power tariffs to an adequate level. A steeper power tariff increase for residential users is expected after this year's presidential elections in Ukraine.
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Ferrexpo share price hiked by 17% yesterday

Alfa

April 15, 2009

Ferrexpo's share price rose by 17% yesterday following the announcement that a 10% share buyback would be included on the agenda of Ferrexpo's AGM on May 19. The company has downplayed this event, saying that the management simply wants to have the option of a buyback, and there is no certainty this will take place.
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Once again, an Ukrnafta EGM fails

Sokrat

April 15, 2009

The EGM of Ukrnafta [UNAF UZ, U/R], which was scheduled for today, did not take place because of the absence of the shareholders' registry. The agenda for the EGM included profits' distribution for 2006, 2007 and 2008, as well as recalling and electing the Supervisory Board, the Revision Board, and the Management Board of the company. Since the beginning of 2008, seven attempts to convene a general meeting have failed at Ukrnafta. The last time the shareholders convened was in 2007 but, at that time, voting on profit distribution for 2006 was postponed. Ukrnafta, a major Ukrainian oil and gas producer, as well as fuel retailer, is controlled by two strategic shareholders: the Ukrainian state (50%+1 stake) and the Privat Group (42%, controls management).

Our view: Because we did not expect the meeting to take place, we view this news as NEUTRAL. In our opinion, the shareholders' conflict at Ukrnafta is unlikely to be resolved until substantial changes, such as privatization and/or breakup, take place at its parent company, Naftohaz of Ukraine
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Government to issue UAH 500 mln in sovereign bonds.

Concorde

April 15, 2009

Yesterday the acting Minister of Finance Ihor Umanskiy said that the Ministry plans to issue one-year UAH 500 mln in sovereign bonds. The bonds will have par value of UAH 500 and a monthly coupon of UAH 10.

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UkrAvto takes Kia Motors away from rival

Foyil

April 15, 2009

UkrAvto Corporation, Ukraine's largest passenger car dealer and producer, has signed a dealership agreement with Kia Motors, which until now was cooperating with rival manufacturer and dealer Bogdan Corporation. The first 70 dealership centers, which will belong to UkrAvto, should be ready to accept the first delivery of Kia brand cars in May.

Our view: We see this news positive for UkrAvto, which has been actively trying to diversify its existing portfolio with more prospective brands. Kia sales have been steadily growing over the last decade, achieving a 4% market share on the Ukrainian passenger car market in 2008. We believe this cooperation is favored by both parties, since the South Korean Kia Motors should get significantly more access to the Ukrainian market via UkrAvto's 450 authorized sales centers, covering 45% of all dealerships in Ukraine, compared to just 6% of dealerships owned by Bogdan. Despite this, we believe that the additional 13% duty on imported cars until September will hamper the active marketing of Kia by UkrAvto in 2009, making imported cars less competitive to locally produced ones pricewise. This implies that UkrAvto will for now focus on service repairs of Kia-brand cars this year, while we are confident that the next step of UkrAvto will be the launch of SKD production of select Kia models at its premises. However, we do not expect the Company will consider such opportunities earlier than in 2010-2011. We recommend HOLDing shares of UkrAvto (AVTO).

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NFER loses money, pumps up debt in 2008

Sokrat

April 15, 2009


On April 13, Nikopol Ferroalloys [NFER UZ, SELL] released its 2008 annual report. The highlights of the P&L (USD/UAH 5.27 for FY08 and 5.05 for FY07): gross sales, USD 1,553.2 mln (+56.8% YoY); net sales, USD 1,374.2 mln (+51.7%); gross profit, USD 72.5 mln (+3.0%); operating loss, USD 119.0 mln (vs. operating income of USD 25.6 mln in 2007); OIBDA, USD -109.2 mln (vs. USD 33.6 mln in 2007); EBITDA, USD -236.4 mln (vs. USD 37.3 mln); EBIT, USD -246.1 mln (vs. USD 29.3 mln); EBT, USD -273.4 mln (vs. USD 7.6 mln); net loss, USD -240.6 mln (vs. net income of USD 0.6 mln in 2007). Margins: gross, 5.3% (down 2.5 pp); operating, -8.7% (vs. 2.8% in 2007); OIBDA, -7.9% (vs. 3.7%); EBITDA, -17.2% (vs. 4.1%); net, -17.5% (vs. 0.1%).

Selected details of its December 31, 2008 balance sheet (the EoP USD/UAH 7.70 for 2008 and 5.05 for 2007; UAH, in which the official balance is given, thus depreciated 34.4% during 2008): PP&E, net, USD 309.4 mln (+230.1% vs. as of December 31, 2007); construction in progress, USD 10.9 mln (-3.5%); current assets, USD 510.8 mln (+121.6%); accounts receivable, USD 51.0 mln (-53.5%); inventories, USD 355.4 mln (+470.0%); cash & equivalents, USD 1.0 mln (-87.8%); longterm debt, USD 0.0 mln (unchanged); short-term debt, USD 214.5 mln (+40.1%); total debt, USD 214.5 mln (+40.1%); net debt, USD 213.5 mln (+47.4%); current liabilities, USD 709.2 mln (+185.1%); accounts payable, USD 227.3 mln (+348.0%); book value, USD 157.7 mln (+77.2%); total assets, USD 869.0 mln (+154.7%).

Nikopol Ferroalloys is the largest of the three Ukrainian ferroalloys producers. It is believed that 76% of the shares are controlled by the EastOne group, whereas about 25% belongs to the Privat Group. The Privat Group is managing the plant.

In 2008, the total ferroalloys output was down 828.6 thsd mt, which is down 18.7% YoY. In particular, SiMn output for 2008 was 570.4 thsd mt (-23.6% YoY), whereas FeMn output was 258.2 thsd mt (-5.1%). For ! 3M09, th e total ferroalloys output is 80.2 thsd mt (-69.4% YoY).

Our view: The substantial net loss of USD 240.6 mln in 2008 is NEGATIVE. Surely, some of the loss was a non-cash, somewhat extraordinary loss due to the hryvnia's devaluation and debt revaluation, which is common for Ukrainian companies. In the case of Nikopol Ferroalloys, the company seems to have officially refinanced its debt (all of it being short-term) in November 2008 with Privat Bank, also a member of the Privat Group.

Nevertheless, the amount is almost the same as in the end of 3Q08 - USD 214 mln - and we estimate the loss due to the hryvnia's devaluation to be about USD 80 mln. The rest of the net loss - USD 160 mln - is apparently due to other factors, including operating activity. In 2008, ferroalloy prices increased substantially: the average 2008 Ukrainian market prices were: FeSiMn, USD 2,129 per mt (+75% YoY); FeMn, USD 2,482 per mt (+102%). This explains the substantial YoY increase in net sales despite the smaller volumes. Nevertheless, the current ferroalloy prices are down substantially (FeSiMn, USD 1,156 per mt; FeMn, USD 1,595 per mt).

Therefore, especially considering the 69.4% drop in volumes in 1Q09 and the dire short-term prospects of the downstream steel industry, we expect a dramatic drop in sales for 2009, in the order of 60-80%. The huge 470% increase in inventories, to USD 355 mln, speaks volumes about the dramatic decrease in demand for the company's products. Should these inventories be revalued in 2009 due to decreased prices, this will result in losses and will be negative.

What also worries us is the apparent substantial revaluation of PP&E, from USD 93.7 mln at the end of 2007 to USD 114 mln at the end of 3Q08 to USD 309.4 mln at the end of 2008. On the one hand, this is positive, because Additional Paid-in Capital increased correspondingly during 2008 from USD 62 mln to USD 279 mln. Notably, the company had retained earnings of USD 9 mln at the end of 2007 but, because of the USD ! 240.6 ml n loss, showed accumulated losses of USD 178 mln at the end of 2008, even after increasing its statutory fund by USD 39 mln to USD 54 mln in 2008. Therefore, because of the PP&E revaluation, shareholders' equity increased by USD 69 mln to USD 158 mln.

However, on the other hand, we speculate that the substantial PP&E increase may be in preparation for some sort of assets-for-debt swap, which cannot be ruled out due to generally poor corporate governance at Privat-controlled companies, and which will be highly NEGATIVE for the minority shareholders of Nikopol Ferroalloys. We do not see near-term possibilities for Nikopol Ferroalloys working its way out of substantial accumulated losses and short-debt, and, considering Privat-Group-related corporate governance risks, we recommend SELLing the stock.
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TATM to pay UAH 51 mln in dividends for 2008

Sokrat

April 15, 2009

Shareholders of the Kharkiv-based OJSC Turboatom [TATM UZ, HOLD] - the largest turbine manufacturer in Ukraine and one of the largest energy equipment producers in the world - have decided to pay out UAH 50.884 mln (USD 6.6 mln) in dividends for 2008.

This decision was supported by shareholders owning 84.28% of the shares in the company. Additionally, shareholders decided to channel 35% of the net profit towards dividends pay outs for 2008. The dividends are calculated at UAH 12.04 per share. The dividends on the state shares in the company are estimated at UAH 38.275 mln. The payment will take place from April 14 through May 14, 2009. The meeting also resulted in the decision to channel 35% of the net profit towards paying dividends for 2009.

As earlier reported, Turboatom finished 2008 with net profits of UAH 145.383 mln (USD 27.43 mln). Its net revenues rose by 29.58% (or UAH 98.853 mln) YoY to UAH 433.069 mln (USD 81.71 mln). The SPF, on behalf of the Ukrainian Government, owns a 75.22% stake in Turboatom, which has a complete production cycle, including the design, manufacture, installation and maintenance of turbine equipment for all types of power plants.

Our view: This news is POSITIVE for Turboatom. The EPS of UAH 12.04 is in line with our expectations that the company will channel 35% of the net profit towards a dividends pay out for 2008. We expected that the demand for power turbines in the CIS would decrease in the next two years due to a lower level of electricity consumption and particularly, the review of the investment plans of electricity companies that belong to the state. However, we see that the company is trying to diversify its own client base and enter new prospective markets.

In the long-term perspective, we believe that the demand for TATM products will grow significantly when the economic situation will turn in a positive direction. We think that a potential strategic investor from Western Europe or! Russia could be a catalyst for company growth in the company's future privatization.
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Jkx Oil & Gas Increases Activities In Hungary

Troika

April 15, 2009


JKX Oil & Gas has announced that it plans to enter a farm-in agreement with Hungarian Horizon Energy (HHE) for a 15.6 km2 area of the Veszto E&D license, which covers a total of 219 km2 in the Pannonian Basin of eastern Hungary. Under the terms of the farm-in agreement, JKX Oil & Gas will acquire a 25% working interest by contributing its share of the costs of the first well in addition to back costs. The company anticipates spending up to $3.3 mln in 3Q09 on drilling both the current exploration well and one further contingent well. A 3D seismic survey covering the entire license has been completed and interpreted with two prospects identified. The results of the first well are expected in 2Q09.

Troika's view: HHE already operates both JKX Oil & Gas' Hernad and Nyirseg licenses in Hungary, which cover an area of 5,400 km2. The company recently announced that it had added 0.8 mln boe in reserves from the Hernad license due to commercial flows from a well spudded in November 2008. JKX Oil & Gas plans to bring this well on stream in 3Q09. The company's latest moves, including a reduction in investment volumes in Bulgaria, support our view that it wants to make Hungary its third major area of activity besides Ukraine and Southern Russia. But given that JKX Oil & Gas already owns a large license in Hungary with commercial findings, as well as five more E&D licenses in three other countries, we find it difficult to understand why the company is investing in a new E&D license with additional capex. This might imply that the other E&D licenses are not particularly promising, in which case this news would appear more negative than neutral to us. We reiterate our HOLD recommendation on the stock and 12-month target price of $3.21 per share.
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Construction works down 56.7% yoy in 3M09.

Concorde

April 15, 2009

The State Statistics Committee announced that in 3M09 construction works dropped 56.7% yoy. The decline was slightly flatter than 57.3% yoy in 2M09.

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President, Ministry of Agriculture support import duty on agro products

Galt & Taggart

April 15, 2009

President Yushchenko and the Minister of Agriculture yesterday said they support the reinstallation of an additional 13% import duty on agriculture products to protect domestic producers, Interfax reported. The calls came in response to a reported influx of low quality meat to Ukraine. The existing duty on all imports save refrigerators and passenger cars was cancelled on March 25.


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March and 1Q09 operational statistics for Ukrainian refineries

Rencap

April 15, 2009

Event: Quoting Ukraine's Fuel and Energy Ministry, on Friday (10 Apr), Prime-TASS reported Mar 2009 and 1Q09 operational statistics for Ukrainian refineries. In March, the industry's crude purchases were up 2% YoY to 745kt, with a throughput increase of 19% to 786kt. The Kherson (HNPK) and Nadvirna (NAFP) refineries remained closed over the whole period, while operations at the Galitchina (HANZ) refinery were halted for more than three weeks. On a YtD basis, the industry's crude purchases and total throughput were up 14% and 34% YoY, respectively, to 2.24mnt and 2.43mnt. Over 3M09, the industry's gasoline sales fell 5% YoY to 649kt, while diesel and fuel oil supplies increased 28% (to 714kt) and 14% (to 541kt), respectively.

Action: The Galitchina refinery's throughput in March stood at just 5.3kt (it did not refine oil in Mar 2008). On a YtD basis, the Galitchina refinery reduced its throughput 7% YoY to 101.2kt, while the Nadvirna refinery's throughput amounted to 41kt vs zero in 3M08. In March, the Galitchina refinery reduced supplies of gasoline (by 34% YoY), while its diesel (7.7kt) and fuel oil (5.1kt) sales were considerably higher than the near-zero volumes supplied in Mar 2008.

Rationale: We believe the long-term operational prospects of the refineries we cover are weak unless they are extensively modernised to compete effectively with higher quality imports, as well as the Lisichansk and Odessa refineries
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Only tier-1 banks under the NBU administration eligible for state recapitalization.

Concorde

April 15, 2009

Yesterday Prime Minister Yulia Tymoshenko said that only tier-1 banks currently under the NBU administration will be eligible to be recapitalized with public funds. At the moment two out of eighteen tier-1 banks fall under the criterion: Nadra Bank (NADR) and Ukrprombank. Meanwhile, on Monday the NBU Head Volodymyr Stelmakh said that the state was planning to recapitalize eight Ukrainian banks and that Nadra Bank and Ukrgazbank (UGZB) are on the list.

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Raiffeisen prolongs UAH 1.3 bln of loans to agro-producers.

Concorde

April 15, 2009

According to Interfax, Raiffeisen Bank Aval (BAVL) prolonged UAH 1.3 bln of loans and lent UAH 1.1 bln of new loans to agricultural producers. As we reported, on March 31 the bank received a UAH 1 bln loan from the National Bank of Ukraine aimed at lending to agro-producers.


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Oil and gas condensate production down 7.4% y-o-y, gas extraction up 5.0% in 1Q09

Dragon

April 15, 2009

Ukrainian oil and gas producers decreased oil and condensate extraction in March by 5.9% y-o-y to 2.55 MMbbl, bringing 1Q09 output to 7.39 MMbbl (-7.4% y-o-y). Natural gas output was up 5.1% yo- y to 1.92 bcm in March and up 5.0% to 5.59 bcm in 1Q09. (Energobusiness)

Ukrnafta [Under Review] cut oil and gas condensate output last month by 3.4% y-o-y to 1.85 MMbbl and reduced gas extraction by 3.1% to 0.26 bcm, bringing its 1Q09 oil and gas condensate extraction to 5.34 MMbbl (-5.4% y-o-y) and natural gas output to 0.78 bcm (-1.1%). Poltava Petroleum Company, the main production asset of JKX Oil and Gas [Buy; FV $5.2], decreased oil and gas condensate extraction in March by 35.4% y-o-y to 0.1 MMbbl, bringing 1Q09 output of 0.25 MMbbl (-35.8%). Its gas extraction decreased by 5.3% y-o-y in March, to 0.03 bcm and by 1.3% to 0.1 bcm in 1Q09.

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March industrial production grows 8.4% m/m, down 30.4% y/y

Galt & Taggart

April 15, 2009

Ukraine's State Statistics Committee reported March industrial production increased 8.4% m/m, but declined 30.4% y/y. 3M09 output is down 31.9% y/y. March steel production dropped 43.1% y/y, machine building sank 53% y/y, and chemical output shrank 29.8% y/y.

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MHP reports strong 2008 results

Dragon

April 15, 2009

LSE-listed MHP, Ukraine's leading poultry producer, has reported 2008 unaudited IFRS net sales of $803m (+68% y-o-y and just 3% below our forecast), EBITDA of $313m (+104% and 21% above our expectations) and net income of $5.2m (-89% but better than our net loss projection). The company posted EBITDA margin of 38.9% (+6.8pp y-o-y) and net margin of 0.6% (-9.2pp), with the profitability depressed by non-cash F/X losses. (Company)

Last year's hryvnia depreciation forced MHP to record a $187.1m F/X loss due to foreign currency debt revaluation. Its end-2008 total debt stood at $517m, most of it denominated in U.S. dollars, including a $250m Eurobond maturing in November 2011. MHP's $109m of short-term liabilities (excluding short-term portion of long-term debt) included a $35m revolving facility, maturing in 2010, from ING Bank Ukraine, and a $20m loan from OTP Bank that was refinanced in January 2009. MHP has $54m of other debts maturing in 2H09. MHP said about 15% of its revenues and all financial costs were denominated in foreign currency, mostly in U.S. dollars, with exposure to exchange rate fluctuations almost fully offset by its U.S. dollar revenues earned from exports of sunflower oil, meat and sunflower husk. In 2008, MHP generated $120m of foreign currency revenue.

Additionally, MHP reported all its poultry production facilities operated at full capacity throughout 2008 as demand for chicken meat remained high. Its chicken meat sales increased by 26% y-o-y to 215 kt (in line with our projection), with the average chicken meat price surging 44% y-o-y to UAH 12.03 ($2.3)/kg. As a result, full-year sales in the poultry segment increased by 71% y-o-y to $660m. In the crop growing segment, MHP reported much stronger yields compared to respective Ukrainian averages and said its land bank increased to 180,000 ha from 148,500 in 2007.

Finally, MHP received $107.7m in government subsidies in 2008 (+91% y-o-y), including VAT refunds of ! $59.3m ( +177% yo- y) and direct subsidies of $46.1m (+56% y-o-y).
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SMEN to pay 100% earnings on dividends, PREN only 3%

Sokrat

April 15, 2009

The AGMs of two power distributors were conducted yesterday. Sevastopolenergo [SMEN, N/R], which operates power distribution grids in the city of Sevastopol and is 96% owned by the VS Energy group, allocated 100% of its UAH 19.2 mln (USD 3.6 mln) net income for 2008 towards a dividend payout. As a result, SMEN's shareholders will get a UAH 0.71 (USD 0.09) dividend per share, which implies a 11% dividend yield from the current midmarket.

Shareholders of Prykarpattyaoblenergo [PREN, BUY], a west-Ukrainian power grid operator, approved to allocate only 3% of its UAH 62.6 mln (USD 11.8 mln) net income for 2008 towards a dividend payout, as well as 74% to the 2009 CapEx funding, 18% to cover the company's past losses, and 5% to the reserve fund.

PREN's shareholders will get only a UAH 0.006 dividend per share, which implies a 0.2% dividend yield from the current midmarket. PREN's key shareholders are conflicting Privat, Energy Standard, and Surkis groups. The state holds 25% of the shares of this company and will sell its stake on April 24, 2009. The market didn't react to either of the news yesterday.

Our view: These two news perfectly depicts the impact of shareholdership on the company's dividend policy. SMEN, with its 3-4% free-float and major shareholder controlling the remainder, was encouraged to pay perfect dividend rates. On the contrary, PREN, which had one of the highest net margins in the sector last year but also has conflicting major shareholders, has certainly avoided paying dividends. However, PREN's forthcoming privatization will hopefully change things for the better
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Turboatom will pay UAH 50.8 mln in dividends

Alfa

April 15, 2009

At Turboatom's AGM on April 13, the company decided to allocate 35% of its net income to pay dividends. The total amount distributed to shareholders will be UAH 50.8 mln, which is equivalent to UAH 0.115 per share. The dividend yield is 4.4% and the distribution of dividends will start from May 14
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Stirol Gross Revenues Down 74% In 1q09

Troika

April 15, 2009


Stirol's gross revenues were down 74% y-o-y at $63 mln in 1Q09, the company stated in a press release. It also reported operating figures for the period, which showed Nitrogen fertilizer revenues decreasing 70% to $40 mln, while nitrogen fertilizer output fell 62% to 0.274 mln tonnes. Stirol did not sell any ammonia in 1Q09. Revenues from pharmaceuticals and polystyrene, which are the company's other main products, were down a respective 46% and 69%.

Troika's view: Our 2009 gross revenue forecast is $411 mln, which implies a drop of 48% y-o-y, and we had already believed this to be conservative. But given the poor revenue figure in 1Q09, even with an assumed partial recovery in the coming quarters, it will be hard for Stirol to meet our annual forecast. Moreover, gas prices are on the rise this year, squeezing the profitability of fertilizer production, and this will lead to losses in 1Q09.

We were surprised by the declining pharmaceuticals revenues, taking into consideration hryvnia devaluation and import duties, which have made domestically produced pharmaceuticals more competitive. The drop in polystyrene and packaging material revenues was not unexpected, though, as these products are in cyclical industries (e.g. construction and engineering) and are thus directly affected by the economic crisis. Overall, we see these weak results as negative for Stirol and we reiterate our SELL recommendation on the stock and 12-month target price of $3.05 per share.

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