IMF softens requirements to Ukraine

Sokrat, Ukraine

April 24, 2009

According to an announcement from the IMF's Managing Director, Dominique Strauss-Kahn, the Fund is planning to soften requirements for the budget and financial policies of Ukraine and other countries that the IMF is cooperatng with on anti-crisis activities. The details were not revealed, however.

Dr. Strauss-Kahn has specified that the decision is motivated by the worsening of the economic climate beyond what was anticipated, including that found in the countries that entered into cooperation agreements with the IMF recently. He also mentioned that the world is not even close to the end of the economic crisis.

Nevertheless, the news coming from the economies are mixed, which is a good sign. Dr. Strauss-Kahn also underlined that "the collapse of international trade" is the main difference between current and previous crises.

The IMF agreed to provide Ukraine with a USD 16.4 bln emergency stand-by loan in November 2008, but the second tranche of the loan was postponed in February due to a disagreement on budget and financial policy between Ukraine and the IMF. The IMF mission visiting Kyiv in April announced that the preliminary agreements opening the road for the following tranches have been reached.

Our view:

We view the softening of the budget and financial policies requirements for Ukraine as a positive signal for the Ukrainian economy. Specifically, we anticipate that the IMF's decision will greatly increase the chances of Ukraine obtaining the next tranches of the IMF stand-by loan.

While the market has already reacted to the IMF's decision to continue working with Ukraine with 5Y sovereign CDS dropping from 4,500 bbp to 2,500 bbp last week, we anticipate a further drop of the swaps. As Sokrat previously announced, we do not see any economic underpinnings for a sovereign default in 2009. We further believe that the IMF's decision provides Ukraine with easier access to the international capital markets and serve! s as a p ositive signal for international creditors.

We anticipate a further increase of optimism with respect to Ukraine's ability to serve its foreign debt affecting the continued decrease of CDS and growth of Ukraine's Eurobonds prices. We recommend that potential buyers considering entry into Ukrainian Eurobonds act fast, as the yields are likely to shrink soon.



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Tymoshenko, Yanukovych may form coalition

bne

April 27, 2009

With presidential elections looming this autumn, commentators have raised the possibility of a coalition between the ruling Bloc Yulia Tymoshenko and the opposition leader Party of Regions lead by ex-prime minister Viktor Yanukovych, reports Interfax.

With orange hero Ukrainian president Viktor Yushchenko out of the game the competition is down to Tymoshenko and Yanukovych. According to the latest polls Yanukovych will win the presidency with a comfortable margin in all the possible scenarios. Formerly the front runner, Tymoshenko has lost ground as her reputation has been tarred by the fact that she is running the government just as the economy tanked due to the international financial crisis.

Interfax quoted political analysts, who are speculating that a coalition could be formed as soon as the start of May.

"The Yulia Tymoshenko bloc and the Party of Regions are now engaged in intense negotiations on the establishment of a broad coalition. As far as I know, serious progress has been made there," Ihor Zhdanov, president of the Open Politics analytical center, told Interfax on Friday.

Both parties are in talks over a possible change to the constitition, which has also been a hotly debated topic in the last year. Yanukovych would need Tymoshenko's support to raise a constitutional-changing majority if the issue comes to a vote. Tymoshenko rules by the slimmest possible margin in the Rada and would be tempted to remake the constitution to give the prime minister more power, but to concede the post of president to Yanukovych in the process.

Zhdanov estimates the chances of a coalition being formed is 50:50. The main argument against this is that Tymoshenko, of all the Orange revolutionary politicians, is the only one to have had no dealings with her opponents since 2006. Tying up with Regions would put the final nail in the Orange Revolutionary coffin. However, with Yushchenko fall from grace, the hopes raised in 2006 ha! ve large ly been dashed anyway.




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World Bank says ready to increase financing to Ukraine

Galt &Taggart, Kyiv

April 27, 2009

In a meeting with Ukrainian Vice-Premier Hryhoriy Nemyria, World Bank Managing Director Ngozy Okonjo-Iweala signaled the organization is prepared to expand its funding programs to Ukraine, according to UkrNews, though concrete measures and details were not disclosed. Ukraine previously announced it is seeking a US$ 1bn facility to cover its estimated 4% of GDP budget financing gap, and a further US$ 150-300mn in banking sector aid.



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Ukraine's NPLs up 3.68% in April

bne

April 27, 2009

The share of non-performing loans (NPLs) in Ukraine's bank total loan portfolio was up to 3.68% by April 1, the National Bank of Ukraine reported.

The share of NPLs grew 0.72% in March, an increase of 23% month-on-month to a total of UAH27.95bn. NPLs are now up by 55% since the start of the year.

At the same time banks have been increasing their capital in anticpation of bad debt-related problems later this year; total sector capital increased by 0.1% to UAH13m in March month-on-month, to UAH 88.246 billion.

In other news the total number of banks with foreign capital fell by one to 52, from a total of 185 operating banks and 199 registered banks. The share of foreign capital in the sector soared in March from 34.3% to 37.6% as the foreign-owned banks have been pumping money into their subsidiaries.


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Market Comment: Market lacks confidence to sustain recovery

Alfa, Russia

Monday, April 27, 2009

There does not seem to be enough confidence to sustain the recent growth on global bourses, as trading volumes remain relatively low. This suggests that the Ukrainian stock market will become more volatile as the PFTS Index approaches 350 points. There has still been no confirmation that the State Tax Service and Customs Service will be able to deliver on planned budget revenues. Also, Naftogaz's need to pay Gazprom for natural gas supplied in April may soon be an issue, bringing with it more uncertainty to the market.

On Friday, the PFTS Index rose an encouraging 2.7%, and demand for the most popular blue chips, including Zakhidenergo, Azovstal, Centrenergo and Enakievo Steel, remained strong. However, the recent growth trend is highly likely to go into reverse this week.

Denis Shauruk



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Emerging market health check.

CiG

April 27, 2009

We have reviewed the latest macro data in CEEMEA to try and get a sense of just how much further this rally - with the region 31% above its early March lows - might continue. Reviewing recent economic data, interest rates, earnings, valuations and fund flows, we do see signs of stabilisation and even improvement. Earnings forecasts have stopped falling, and the sharp decline in interest rates in CEEMEA and the resumption of inflows into EM funds are particularly encouraging signs. Like our global strategists, we see rising evidence that the worst is behind us, even as many uncertainties remain. However, the vigor of the rally, now in its seventh week, looks to us unlikely to persist and we see a near-term pullback as increasingly likely. The percentage of CEEMEA stocks trading above their 50-day moving average is close to 90%, indicating that markets may have moved too far, too fast. We do not expect a re-test of the early March lows, however, and would use any significant weakness to add to positions. Our CEEMEA portfolio remains overweight in Russia, Turkey, Czech Republic and Egypt; neutral in Israel and Poland; and underweight in South Africa and Hungary.

Andrew Howell & Maria Gratsova



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International audit confirms high quality of NBU reserves

Dragon Capital, Kyiv

April 27, 2009

An international audit has confirmed the high quality and liquidity of the NBU's international reserves, NBU Council chairman Petro Poroshenko said. (Interfax) According to Poroshenko, the PWC audit found no problematic issues with NBU reserves and confirmed the correctness of all transactions. He also said the audit confirmed the NBU's non-gold assets were deposited with counterparties rated "A" or higher and were 100% liquid. Although the audit has not been released yet, Poroshenko's statements should help dissipate rumors that NBU reserves had suffered due to the collapse of Lehman Brothers.

Olena Bilan



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FUIB said seeking F/X debt restructuring

Dragon Capital, Kyiv

April 27, 2009

First Ukrainian International Bank (FUIB), Ukraine's 13th-largest bank by assets as of end-2008, is rumored to be seeking to restructure its near-term F/X debt. (Dragon Capital) The bank's recently published 1Q09 financials reveal a tight schedule of debt redemptions over the next 12 months. FUIB's overall F/X debt to be repaid in 2Q09-1Q10 is estimated at $980m (53% of the bank's end-1Q09 liabilities), including a $50m syndicated loan due in June, a $154m syndicated loan in August and a $275m Eurobond in February 2010. The bank's other near-term F/X liabilities include IFI loans for $93m and loans from other banks. Its next significant F/X loan repayment, for $42.9m, is on May 8.

The bank's F/X liquidity is also under pressure from the continued deposit run, its F/X deposit base down an estimated 27% q-o-q in 1Q09, to $354m. We think FUIB can hardly service all its F/X liabilities due in the next 12 months in full and on time. Restructuring therefore looks inevitable. We do not rule out the bank may include the $275m Eurobond in its restructuring offer. The Eurobond is currently trading at 43-47% of face value, yielding 138-158%.

Vitaliy Vavryshchuk



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Bank Forum redeems US$ 115mn loan facility

Galt &Taggart, Kyiv

April 27, 2009

Bank Forum (FORM UZ) on April 16 repaid a US$ 115mn syndicated loan it attracted in April 2008, UkrNews reported. The facility was attracted from 11 international lenders, organized by BayernLB, Fortis and Raiffeisen Zentralbank, at LIBOR+1.6%.



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Rosukrenergo owes Gazprom $514.16m

bne

April 27, 2009

The debt of Urkaine's gas trading intermediary to Russia's state-owned gas monopoly Gazprom is $516.16m the chair Russia's Audit Chamber Sergei Stepashin and chair his counterpart in Ukraine, Valentin Simonenko, said in a joint statement, reports Interfax.

RosUkrEnergo owes Gazprom a total of $1.054bn and debts of Gazprom group to RosUkrEnergo amounted to $540.53m as of February 6, the two men reported.


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Dniprospetsstal sees changes at the top as Daniel Valk walks

Foyil Securities, Ukraine

April 27, 2009

Dniprospetsstal, Ukraine's only dedicated specialty steel producer, has announced that its chairman Daniel Valk is leaving the company after leading the plant for 3.5 years. Until the next scheduled AGM, Mr. Kornievski, an advisor to Mr. Valk and former head of Petrovsky Steel Plant, will be acting chairman.

Our view: We view this news as negative, since Mr. Valk is credited for the turnaround in the plant's fortunes since he took over in November 2006. During his tenure, he managed to squeeze out notorious transfer-pricing practices and also succeeded in introducing high-standard corporate governance at the plant, making it one of the most investor-friendly steelmakers around. We maintain our BUY recommendation for Dniprospetsstal.

Ismail Safaraliyev


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Only 7 Ukrainian banks to see state capital injections

Galt &Taggart, Kyiv

April 27, 2009

Business daily Delo today reported the government will only recapitalize the seven banks announced last week, while remaining banks with capital needs will be forced to search for other funding sources. Of the 26 lenders that meet IMF and World Bank criteria for state recapitalization, the remaining 19 may merge with other institutions or be liquidated if they are unable to find additional capital, Deputy NBU Head Anatoliy Shapovalov said. The seven banks approved for state funds are expected to need an approximate UAH 20bn (US$ 2.6bn), while the state budget set aside UAH 44bn (US$ 5.7bn) for total banking sector recapitalization.



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Mriya Agro Holding [Buy; FV $16.30] to invest $50m in infrastructure

Dragon Capital, Kyiv

April 27, 2009

Mriya Agro Holding, one of the largest Ukrainian agricultural producers, plans to invest $50m in the next two years to build 250,000 tonnes (250 kt) of additional grain storage capacity. The announcement is in line with our forecast. (Company) Mriya is currently building a 100 kt grain elevator in Ternopil region, with the site building and assembly works 70% and 30% complete, respectively. The elevator is expected to be fully operational in September, with the first stage of storage capacities (60 kt) to be ready for use in June. Mriya's current grain storage capacities amount to 395 kt.

Tamara Levchenko



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Ukraine's commercial bank assets grow 2%

Galt &Taggart, Kyiv

April 27, 2009

Georgian commercial bank assets grew 1.9% y/y to GEL 8.2bn (US$ 4.9bn) in 1Q09, while total shareholder equity declined 14.7% y/y to GEL 1.5bn (US$ 0.9bn), according to central bank data. Lending increased 13.0% y/y to GEL 5.7bn (US$ 3.4bn), while deposits fell 11.6% y/y, to GEL 3.4bn (US$ 2.1bn). The banking sector reported a 1Q net loss of GEL 28.6mn (US$ 17.1mn). The leading bank by total assets remained Bank of Georgia (BGEO LI) with GEL 2.8bn (US$ 1.7bn).



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Ukraine: IMF moves towards approving adjusted standby loan programme

Rencap, Russia

Monday, April 27, 2009

On 17 Apr, Ceyla Pazarbasioglu, chief of the IMF's mission in Ukraine, announced the proposal, to the fund's management and board, of revised second and third tranches of the IMF's standby loan programme, in equal amounts of about $2.8bn. The agreement's previous schedule envisaged second and third tranches of $1.8bn and $3.8bn, respectively. The Ukraine authorities will submit a new letter of intent and memorandum of economic and financial policies to IMF management for approval, in support of the facility. A final decision on the second tranche is due from the fund's executive board by mid-May. Payment of the third tranche remains subject to a review of progress in the implementation of the IMF's recommended economic programme for Ukraine. The overall tone of the IMF's announcement leads us to expect a positive decision on the second tranche, although we expect the standby loan programme to be significantly revised. Specifically, in light of recent statements by the IMF, we expect the following key points:

• Budget deficit: We expect the IMF to alter its quantitative criteria to allow Ukraine a budget deficit of 4%/GDP in 2009 (vs the zero budget deficit specified in the previous version of the programme), in response to the sharperthan- expected economic contraction facing the country. At the same time, the fund is continuing to encourage the Ukrainian authorities to seek additional external financing to part-finance the deficit.

• Exchange-rate regime: The IMF has noted that a flexible exchange-rate regime has served Ukraine well, and the authorities will retain this arrangement. Previously, the fund had suggested defining the official rate as the preceding day's market exchange rate with intraday adjustments to keep it within 2% of the market rate. At the same time, since the beginning of the year, the National Bank of Ukraine (NBU) has held the official exchange rate at UAH7.70/$1, allowing the market exchange rate to! fluctua te in a wide range.

Bank recapitalisation programme: The IMF has said the key element of Ukraine's framework for supporting its banking system is depositor protection, although the ongoing moratorium on term-deposit withdrawals in Ukraine is still negatively affecting confidence in the system. This may signal a change in the authorities' attitude to system regulation. Moreover, last week, President Viktor Yuschenko proposed that commercial banks hold talks with international financial organisations about restructuring or extending their financial obligations into 2Q09-4Q09. This contrasts with previous indications that the main priority was to pay down external debt (the NBU, for example, now sells currency at its daily auctions only for redemptions of external borrowings).

Anastasiya Golovach



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Azovmash ups 1Q09 output by 11% q-o-q

Dragon Capital, Kyiv

April 27, 2009

The Azovmash group, which controls freight car producers Azovzahalmash [Hold; FV $0.8] and MZVM [Hold; FV $2.6], has reported 1Q09 output of 1,543 railcars (-44% y-o-y but +11% q-o-q), implying average monthly production of 514 railcars. The group made 1,489 tank cars (+11% y-o-y and +68% q-o-q) over the period. (Interfax) Azovmash also announced it signed new contracts to produce 2,000 railcars, meaning its production capacities would remain loaded in the following months. The news is an encouraging sign of partial revival in regional demand for railcars, although we wouldn't view it yet as the beginning of a stable upward trend, the latter not likely to emerge before 2010.

The announced production numbers are in line with our 2009 output forecast for Azovmash of 6,050 vehicles (-35% y-o-y and 504 railcars/month). We maintain our recommendations on MZVM and Azovzahalmash.

Taisiya Shepetko



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Yenakievo Steel reports better than expected 2008 results

Dragon Capital, Kyiv

April 27, 2009

Yenakievo Steel has reported 2008 net sales of $1,597m (+57% y-o-y), EBITDA of $92m (+66%) and net income of $77m (+157%), increasing its EBITDA margin by 0.3pp y-o-y to 5.8%. (Company) In 2008, Yenakievo Steel churned out 2.6 Mt of pig iron (+5% y-o-y) but its finished steel output stood at a mere 0.6 Mt (-1%). We estimate the company's average prices in 2008 at $467/t for pig iron (+50% y-o-y) and $688/t for finished steel (+59%). The steel market's continued downswing has so far not affected Metinvest's modernization plans for Yenakievo, with the company continuing to build a $180m blast furnace as part of its $1bn modernization program scheduled for 2008-2015. We maintain our positive view on the company but intend to revise our forecasts and fair valuation downward.



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VimpelCom registers UAH1.3bn net loss in Ukraine in 2008

Rencap, Russia

Monday, April 27, 2009

Event: According to the State Commission for securities and the stock market in Ukraine, URS (a VimpelCom subsidiary) registered a UAH1.321bn net loss in 2008, which translates into around a UAH1bn (about $160mn) loss in 4Q08.

Action: We reiterate our BUY rating on the stock.

Rationale: The official hryvnia/dollar rate decreased by more than 35% in 4Q08, and URS's substantial net loss is likely to reflect non-cash forex losses on foreign-currency debt revaluation, as well as lower profitability. Overall, we do not regard the news as encouraging, although it is not entirely unexpected. We note that the Ukrainian business contributes just 2% to VimpelCom's consolidated revenues.

Ivan Kim



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Kyivenergo, Centrenergo post 1Q09 losses

Galt &Taggart, Kyiv

April 27, 2009

Two Ukrainian GenCos, Kyivenergo (KIEN UZ) and Centrenergo (CEEN UZ), reported 1Q09 losses, UAH 167.9mn (US$ 21.8mn) and UAH 64.4mn (US$ 8.4mn), respectively, according to UkrNews. Kyivenergo saw net sales grow 15.5% y/y to UAH 2.1bn (US$ 273mn) in the quarter, while Centrenergo's net sales fell 7.8% y/y to UAH 983.5mn (US$ 127.7mn).



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Azovstal's net income beats expectations

Foyil Securities, Ukraine

April 27, 2009

Ukraine's leading steel producer and flagship of the Metinvest conglomerate has released its FY2008 preliminary financials, which should that the Company's net income slipped only 7% y-o-y to UAH 1.9bn while net sales were UAH 21.3bn, or 29.6% up from last year.

Our view: Although we await the full financials, we can reasonably conclude that the steel industry's dreadful 4Q 2008 surprisingly did not affect the performance of flat and semi-finished steel producer all that much. Azovstal's 3Q 2008 net income came in at UAH 1bn, and so effectively the plant added over UAH 900m in the final quarter. Until we view the full financials, we will refrain from speculating about the nature of the massive gain, yet given the market sentiment between October-December, it is safe to conclude that the gain did not originate from increased volume of sales or growth in prices. Nevertheless, by holding its bottom line virtually flat to the highly successful 2007, Azovstal beats most of its domestic competition and remains one of our top picks in local steel universe. We recommend BUYing this stock.

Ismail Safaraliyev


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Ukrsotsbank, Raiffeisen Aval, Alfa report 1Q results

Galt &Taggart, Kyiv

April 27, 2009

Three banks on Friday reported 1Q09 results. Ukrsotsbank (USCB UZ) posted a UAH 54.2mn (US$ 7.0mn) net profit, down 58% y/y, while Raiffeisen Bank Aval (BAVL UZ) and Eurobond issuer Alfa-Bank showed significant 1Q09 losses, UAH 368.9mn (US$ 47.9mn) and 161.4mn (US$ 21.0mn), respectively.



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Fitch affirms MHP at B, outlook negative

Troika, Russia

Monday, April 27, 2009

Fitch ratings on Friday affirmed its rating of MHP, Ukraine's leading agricultural producer, at B, the outlook negative. In the rating report, the agency states that it is broadly satisfied with MHP's current operating situation, liquidity and leverage, adding that the company faces several challenges ahead. First, the agency expects local demand for poultry to decline, and it remains to be seen whether MHP will be able to offset this through higher pricing. Second, it expects government grants to agricultural producers to also decline going forward. Fitch pointed out MHP's relatively good liquidity position, while noting, however, that of its $79m in cash reported at year end, around 25% was affected by the deposit withdrawal restrictions that were recently introduced in Ukraine.

Overall, we find the tone of the rating report to be benign.

We are constructive on the credit. As with other Ukrainian corporates, the company is exposed to a number of macroeconomic and general risks, but it has good vertical integration and operating fundamentals. The MHP 11 Eurobond is being quoted at 56 pp (up 10 pp over the past two weeks) or a YTM of 38%.

Alexey Bulgakov



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Mariupol Steel expects to post UAH1bn ($120m) net loss in 2009

Troika, Russia

Monday, April 27, 2009

Mariupol Steel expects to post a net loss of UAH1bn ($120m) in 2009, CFO Alexander Chako stated at Friday's AGM. At the meeting, shareholders approved Mariupol Steel's 2008 financial results and decided not to pay dividends for 2008.

Troika's view: The gloomy bottom line forecast stems from the current weakness in global steel demand and the fact that Mariupol Steel has been operating at a loss since the beginning of the year. The management's expectations confirm our negative view on the stock.

Alexander Martynenko



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Enakievsky Metals Plant boosts 2008 net income by 2.5x

Alfa, Russia

Monday, April 27, 2009

Enakievsky MP (ENMZ) reported a 2.5x hike in 2008 net income to $77m, yielding a 4.8% net margin. The increase came at the expense of net gain from other operational revenue (above EBIT), which included operating lease, foreign exchange gain and inventory write off, while gross profit actually decreased by 23%. The company does not explain this increase with other operational revenue, and we think the major increase comes from revenue from the operating lease of ENMZ's assets to Metalen. As a result, income from operations (EBIT) doubled to $81.2m, yielding a 5.1% EBIT margin.

Therefore, while we welcome this increase in profitability as it suggests a slight improvement in corporate reporting standards, we do not see this increase as an indicator of an improvement in the company's fundamentals.



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