Market comment
In-line with markets globally, Ukraine enjoyed gains during the week in a series of quiet summer sessions. Rising commodity prices and gains in Russia in particular provided support to regional bourses. The UX Index was up 8% in late trading Friday while the PFTS was just over 4% higher. Volumes remained subdued with many market participants on the sidelines during the summer rally. An economic forecast from a presidential economic advisor called for an 18% drop in Ukrainian 1H09 GDP, with the final number to be announced in mid-August – though local markets took the announcement in stride, continuing higher.
With the recovery in crude prices, Ukrnafta (UNAF UZ) was among the most actively traded stocks, posting a 15% gain. The market broadly moved however, with most blue chips 5-10% higher on locally-driven activity. Traders breathed life back into Ferrexpo (FXPO LN) during the week, recovering from weakness earlier in the month to GBp 151.75, among the top performing names on the main market in London with a 405% YTD gain.
Eurobonds went from strength to strength, buoyed by an oversubscribed two-tranche deal from Gazprom. The Euro tranche was 2 points higher in aftermarket trading and kept the market bid only in Eastern European names for much of the week. Georgia’s sovereign issue pushed aggressively higher, trading as high as 90 – a move that could add further tightening pressure to the Bank of Georgia issue, which held in the mid 70s on very light activity. In equity trading, Bank of Georgia’s share price remained somewhat volatile given the wide spreads in the quiet sessions, trading 10% higher at US$ 5.30 late on Friday.
Ukraine
Economy
1H09 C/A deficit narrows to US$ 657mn
Preliminary BOP data disclosed by the NBU showed Ukraine’s 1H09 C/A deficit narrowed to US$ 657mn after a US$ 66mn surplus in June (down 69.4% m/m). Ukraine closed out 2Q09 with a US$ 162mn C/A surplus. June’s trade numbers showed a reversal to positive territory with a US$ 223mn surplus vs. May’s deficit of US$ 102mn. 2Q09 net FDI increased 55.7% q/q to US$ 1.1bn. Ukraine’s overall 2Q BOP deficit narrowed to US$ 2.1bn, bringing the 1H09 deficit to US$ 7.3bn.
Advisor says NBU has US$ 3bn to support hryvnia by September
Central bank advisor Valeriy Lytvytsky said the NBU has up to US$ 2.8bn in its reserves to use by the start of September to support the hryvnia, or 40% more than gross NBU FX market interventions in 2Q09, Interfax reported. He said central bank reserves currently stand at a comfortable 5.7 months of imports versus international standards that place the minimum acceptable level at 3-4 months of imports.
Economic aide sees 18% 1H09 GDP decline
Presidential economic advisor Roman Zhukovskyi said Ukraine’s GDP is likely to have contracted 18% in 1H09 (vs. 6.3% growth in 1H08). The State Statistics Committee plans to announce the preliminary 2Q09 real GDP number in mid-August, 45 days after the end of the quarter.
Banking sector NPL share grows to 5.4% in June
The share of NPLs increased 0.5ppts m/m to 5.4% of total loans in June, according to NBU data. Total NPLs were up 11.5% m/m to UAH 40.8bn (US$ 5.3bn), taking YTD growth to 125.8%. The NBU also reported banking sector registered share capital increased 2.2% m/m in May to UAH 92.0bn (US$ 12.0bn).
Banking
Seven banks post 1H09 results
Last week, seven top-tier Ukrainian banks reported 1H09 results. PrivatBank and Ukrsotsbank (USCB UZ) reported 1H09 net profits, UAH 405.3mn (US$ 42.8mn, down 45.1% y/y) and UAH 61.7mn (US$ 8.1mn, down 76.8% y/y), respectively. Five lenders posted net 1H09 losses: Bank Forum (FORM UZ) – UAH 283.3mn (US$ 36.9mn); Raiffeisen Bank Aval (BAVL UZ) – UAH 1.1bn (US$ 140.6mn); Alfa-Bank Ukraine – UAH 192.8mn (US$ 25.1mn); First Ukrainian International Bank – UAH 604.1mn (US$ 78.7mn); and VAB Bank – UAH 74.1mn (US$ 9.6mn).
Aval repays US$ 84mn syndicated loan tranche
Raiffeisen Bank Aval (BAVL UZ) repaid US$ 83.5mn of a US$ 200mn syndicated loan it received in July 2008. The remaining US$ 116.5mn matures in July 2010. After the repayment Aval has no syndicated loans maturing in 2009.
State grows Ukreximbank share capital US$ 131mn
The Cabinet of Ministers increased the share capital of Ukreximbank 12% to UAH 9.4bn (US$ 1.2bn) by issuing new shares at par, according to a government press release. Minister of Industry Volodymyr Novytsky said UAH 728mn (US$ 10.2mn) of the funds will be used to increase crediting to Kharkiv- and Kyiv-based aircraft producers.
Electricity
Kyivenergo shows record profit due to compensation of past losses
Vertically integrated utility company Kyivenergo (KIEN UZ) reported an 11% y/y increase in net revenues in 1H09 to UAH 3.9bn (US$ 507.8mn) and a record NI of UAH 672.7mn (US$ 87.6mn), which was the result of more than UAH 1bn (US$ 130.2mn) in compensation from the City of Kyiv for loses from inefficient tariffs in past years. 1H09 operating losses grew 9.6x y/y to UAH 681.5m (US$ 88.7mn) due to the inefficient tariffs, creating a need for further compensation from the city in the future.
Donbas, Dniproenergo post 1H09 EBITDA declines
Donbasenergo (DOEN UZ) decreased 1H09 power production 4.9% y/y, but increased net revenue y/y 4.4% to UAH 1,070mn (US$ 139mn). The company’s EBITDA dropped from UAH 151mn in 1H08 to UAH -28mn (US$ -3.7mn). Dniproenergo (DNEN UZ) scaled back power production 27.7% y/y and saw net revenue fall 16.6% y/y. EBITDA dropped from positive UAH 163mn in 1H08 to UAH -5mn (US$ -0.7mn) in 1H09.
Fixed Income
Finance & Credit proposes Eurobond restructuring
Finance & Credit Bank named new restructuring terms for its US$ 100mn Eurobond maturing January 25, 2010. The lender proposed to extend maturity to 2012, with a 10.5% coupon (vs. the current 10.375%). Finance & Credit also said it is close to successfully restructuring a syndicated facility for 1.5-2 years. Galt & Taggart: We believe the proposed coupon rate is low in today’s environment, though overall restructuring terms walk a middle ground between the more attractive Alfa-Bank terms offered recently (10% of par value in cash, 90% in newly issued notes with a higher coupon), and the weaker Nadra Bank terms (buy-back at 15% of par, or a 60% write-off and bullet repayment in 2015 with a 9.25% annualized coupon).
Oil & Gas
Utilities’ gas tariffs to rise 20% in October
According to a report in Kommersant, which cited a National Electricity Regulatory Commission resolution, retail gas prices for households will rise 20% as of September 1 and for utilities companies from October 1. In 2010, gas tariffs are set to increase to an unnamed level that would free Naftogaz from subsidizing the difference between its Gazprom purchase price and selling price to utilities companies. Households will see a quarterly 20% increase next year. As part of the IMF loan negotiations, the fund requested Ukraine improve Naftogaz’s finances by raising prices to end state subsidies
Real Estate
XXI Century gives depositary interests, warrants to Eurobond holders
XXI Century (XXIC LN) issued 2,068,698 new ordinary shares, represented by depositary interests, as well as 163,241 warrants to holders of its US$ 175mn Eurobonds, entitling them to 4,244,266 shares in the company. The warrants may be exercised from May 24 2012 to May 24 2013. The depositary interests and warrants represent a consent fee in consideration of the agreement of noteholders to its earlier announced debt restructuring plan. XXI Century has applied to have the shares admitted to LSE AIM trading, and expects the shares to be admitted once the current trading suspension on the company’s shares is lifted.
Steel
Minister forecasts 14% m/m steel output growth in July
Industry Minister Volodymyr Novitsky forecasted Ukrainian producers will boost July steel and cast iron output volumes 14% m/m to 2.7mmt and 2.3mmt, respectively, and rolled product output 10% m/m to 2.2mmt, based on output from the first 10 days of July, Interfax reported. He expects external demand to cause stockpiles to dwindle, leading to renewed production. Rolled product stocks in Ukrainian ports are down 2.2x from November peaks to 0.7mmt in July.
Georgia
Economy
Central bank keeps refinancing rate at 6%
With annualized CPI growth at 2.3% and average annual CPI at 5.4%, the National Bank of Georgia maintained its refinancing rate at 6%. The Monetary Policy Committee’s next meeting is set for August 19.
Politics
Saakashvili announces reforms on eve of Biden visit
In a speech ahead of US Vice President Joe Biden’s official visit, Georgian President Mikheil Saakashvili named reforms aimed at meeting some of the opposition’s recent demands. Saakashvili named direct mayoral elections, cross-partisan agreement on key political posts, and measures to entrench the independence of the judiciary. The president also announced a Georgia-wide dialogue between the government and citizens between late July and early September to discuss political and constitutional reform. Galt & Taggart: Coming on the eve of Biden’s visit, Saakashvili’s speech was directed more at shoring up US support for Georgia’s reliability as a partner by showcasing its ability to foster democratic processes. Domestically, the speech is also important as it cited specific reforms that are likely to appease certain moderate opposition factions. After a meeting with Biden yesterday, four key opposition leaders (Irakli Alasania, Nino Burjanadze, Levan Gachechiladze, and Giorgi Targamadze) said they were pleased with US support for Georgia and its democratic processes.
Banking
Bank of Georgia named country’s Best Bank
Global capital markets magazine Euromoney awarded Bank of Georgia (BGEO LI) its Award for Excellence as the country’s Best Bank in 2009. The bank has won the award for the past five years.
Belarus
Economy
Belarus bans foreign currency household loans
The National Bank of Belarus on July 14 banned the issuance of foreign currency loans to households to mitigate currency risks related to retail non-performing loans (NPLs) on the back of the Belarusian ruble devaluation. The move takes effect July 28.
State ready to cut budget expenses to meet IMF demands
Belarus’ Finance Minister Andrei Kharkovets said the country is prepared to cut budget expenditures to meet IMF demands for further stand-by loan cooperation, Interfax reported. He also admitted the economic situation is weaker than originally seen by the government, and said the country will pursue a strict budgetary policy in 2010. The IMF has called for a balanced state budget in 2009.
Banking
EBRD ups Belgazprombank’s trade finance allowance
The EBRD approved a 10x increase in the volume of foreign trade that Belgazprombank can finance under its Trade Facilitation Programme to US$ 10mn/deal. The increase is designed to support lending to the SME sector. Belgazprombank joined the programme in 2004 and has so far used it to finance over US$ 3mn in foreign trade transactions.
Oil & Gas
Russian gas imports down 35% in 5M09
Belarusian imports of Russian natural gas declined 44.6% y/y to 3.5bcm in 1Q09, but slowed to a 35.4% y/y fall, to 6.1bcm in 5M09, according to Prime-Tass, which cited National Statistics Committee data. Belarus said it will import 22.1bcm of gas in FY09, up 2.3% y/y.
Other
Economy
Uzbekistan posts 8% 1H GDP growth
Uzbekistan reported a 1H09 real GDP growth rate of 8.2%, which was supported by a 9.1% increase in industrial production and 4.6% in agriculture, according to Interfax. The state budget showed a 0.3% of GDP surplus. The country set a FY09 GDP growth target of 8%.
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