Market comment
Ukraine sank into the red in the first full week of July, falling 7.9% and pushing losses since the start of June to nearly 20%. Meanwhile, Bank of Georgia (BGEO LI), following on from recent weakness in regional markets, fell to US$ 5.0/share. Activity remained subdued in a quiet week, as equity and commodities markets internationally moved lower on concerns about the effectiveness of current stimulus and the speed of the recent market jumps generally – eastern Europe has been at the forefront of gains in 2009, Ukraine still up 27% year-to-date despite recent weakness.
A lack of supply in Eurobonds kept prices firm in corporate names in particular. Domestically owned banks showed the strongest price moves, lagging performance in the stronger credits that have been rallying for the last few months.
Ukraine
Economy
Cabinet to bypass Rada to inject US$ 2.4bn into Naftogaz
According to the Minister of Fuel and Energy Yuriy Prodan, the Cabinet of Ministers approved a ruling to increase Naftogaz’s equity by UAH 18.6bn (US$ 2.4bn) to UAH 24.2bn (US$ 3.1bn), bypassing parliamentary approval. An earlier attempt to push the respective law through parliament was blocked by the Party of Regions. At the start of June, media reported local currency government bonds will be entered into Naftogaz’s capital account, and subsequently acquired by state lenders Oschadbank and Ukreximbank. The bonds will be subject to “gradual redemption” by the NBU, with the funds reportedly sourced from a hryvnia emission. Maturity and other parameters of the bonds were not mentioned. According to an Interfax report last week, Naftogaz had UAH 18.0bn (US$ 2.3bn) in outstanding debt to state-owned Oschadbank as of mid-March, and attracted UAH 3.8bn (US$ 0.5bn) more in May. Meanwhile, Naftogaz said an injection of funds into its equity will allow it to attract near-term debt financing.
NBU reserves decrease 1.6% m/m in June, down 13.3% YTD
The National Bank of Ukraine (NBU) reported a 1.6% m/m decrease in its reserves to US$ 27.3bn as of June 30. Over 1H09, the reserves decreased 13.3% (US$ 4.2bn), from US$ 31.5bn at the start of the year. June net FX interventions were negative at US$ 690mn.
CPI up 1.1% in June, 8.6% in 1H09
Ukraine’s State Statistics Committee reported 1.1% consumer inflation in June, 8.6% YTD, and 17.6% in 1H09 vs. 1H08. PPI increased 1.4% in June and 4.2% YTD.
Broad money supply grows 1% m/m in June
According to NBU data, Ukraine’s broad money supply increased 1.0% m/m in June (down 8.3% YTD) to UAH 472.7bn (US$ 61.4bn), and the monetary base was up 3.9% m/m (up 1.1% YTD) to UAH 188.7bn (US$ 24.5bn).
State Treasury reports 1H09 budget income at UAH 91bn
According to the State Treasury, Ukraine’s 1H09 consolidated budget income amounted to UAH 90.5bn (US$ 11.7bn), or 37.9% of the FY09 plan. Budget expenditures were not mentioned. In a related announcement, the Presidential Secretariat said the 1H09 budget numbers include UAH 4.4bn (US$ 0.6bn) of overdue VAT reimbursement, which apparently must be paid out in 2H09. According to the state budget law, the 2009 consolidated budget deficit threshold is set at UAH 31.2bn, while the Secretariat expects it to reach UAH 60.0bn.
Banking
UkrSibbank repays US$ 75mn club loan to Middle East banks
UkrSibbank announced it repaid a US$ 75mn club loan it received last year from several Middle Eastern banks. The bank also disclosed it has to repay an US$ 80mn syndicated loan in October 2008, and has redeemed US$ 325mn of external debt YTD.
S&P, Moody’s downgrade Alfa Bank
Moody’s last week reacted to Alfa Ukraine’s recent Eurobond exchange offer by downgrading its ratings: local and foreign currency deposit and debt ratings were downgraded from B3 to Caa1, financial strength rating (BFSR) from E+ to E, and National Scale Rating (NSR) from Baa3 to Ba3. S&P followed suit, downgrading the bank’s long-term counterparty rating from CCC+ to CC, and placed them on Credit Watch with a negative outlook. S&P also said the ratings are likely to be downgraded further, to D (Default) or SD (Selective Default), and removed from Credit Watch Negative, upon completion of the restructuring deal.
Ukreximbank to get US$ 134.5mn in EBRD financing
The EBRD announced it will provide state lender Ukreximbank with US$ 134.5mn in financing, of which US$ 84.5mn will be syndicated by a group of commercial banks that includes Standard Bank, Deutsche Pfandbrifbank, Calyon Bank, Citibank’s London unit, UniCredit Bank Austria, and Bayerische Hypo- und Vereinsbank. In May 2009, the EBRD said it planned to provide Ukreximbank with a US$ 250mn subordinated loan.
Media
Poverkhnost TV seeks to raise up to US$ 100mn
Media group Poverkhnost TV is considering placing a 25-51% equity stake to raise US$ 50-100mn, according to Interfax, which cited mergermarket.com. According to the source, the funds will be used to finance the holding’s penetration into the commercial TV segment. The Poverkhnost TV group controls six TV channels (five sports and one music channel), a broadcasting technical base, as well as exclusive broadcasting rights for retranslating sporting events on local Ukrainian channels.
Oil & Gas
EBRD to acquire Galnaftogaz stake worth up to US$ 50mn
The EBRD announced it will invest US$ 50mn in Galnaftogaz (GLNG UZ, C9Z GR) equity, with an agreement signed on July 8. The injection is designed help strengthen the company’s balance sheet and liquidity position and mitigate negative consequences from the financial crisis and local currency devaluation, as well as to allow Galnaftogaz to pursue its development strategy by acquiring new gas stations and modernising existing stations via energy efficiency measures. The capital injection will be completed in two tranches, US$ 20mn by YE09, and the remaining US$ 30mn next year. According to Vitaliy Antonov, beneficiary owner of around 82% of the company, the EBRD stake will not exceed 15-16%. Galt & Taggart: In a phone call with us, company management confirmed the transaction assumes a 100% cash injection and will be completed through an additional share placement, the price of which has been negotiated with the EBRD and is subject to approval by Galnaftogaz shareholders. Antonov’s expectation that the EBRD stake won’t exceed 15-16% implies the placement price is likely to be higher than the current market price. We estimate it to be around EUR 5-6 per DR (UAH 0.12 per share), which implies an MCap of US$ 300-360mn. Galnaftogaz’s current MCap is US$ 78mn.
Naftogaz settles June gas import payment
Naftogaz announced it paid in full for June gas imports from Russia, confirmed by Gazprom. Ukraine imported an estimated 1.1bcm of Russian gas in June, worth roughly US$ 300mn. Since January, Ukraine has imported around 8.4bcm of gas (2.5bcm in 1Q and 5.9bcm in 2Q) worth an estimated US$ 2.5bn. The government earlier said it planned to pump 27bcm into storage before the heating season starts on October 15, while Naftogaz said it had accumulated nearly 19bcm in underground facilities as of June 24.
Real Estate
XXI Century noteholders approve restructuring plan
XXI Century said holders of its US$ 175mn Eurobonds agreed on July 3 to the proposed restructuring plan. According to the plan, the notes, which originally carried a 2010 maturity and a May 24, 2009 put option, will now be redeemed in five tranches on every November 24 over 2010-2014. The resolution was approved by 99.9% of voting rights.
Georgia
Economy
Georgia’s state debt up 0.6% in June to US$ 2.9bn
Georgia’s total government debt grew 0.6% m/m in June to US$ 2.9bn, according to the Ministry of Finance. Bilateral debt increased 0.2% to US$ 538mn (Georgia currently has 17 countries as bilateral creditors). Additionally, Georgia owes US$ 2bn to international financial institutions and has US$ 500mn in outstanding Eurobonds.
CPI nearly unchanged in June, up 1.3% YTD
Georgia posted a 0.01% m/m CPI growth rate in June (vs. 1.2% m/m in May), led by transportation services (+1.1% m/m), according to the State Statistics Committee. YTD inflation came in at 1.3% in June and 2.3% vs. June 2008.
World Bank approves US$ 85mn for Georgia
The World Bank Board of Executive Directors last week approved the US$ 85mn “First Development Policy Operation” program for Georgia. The program is designed to provide direct budgetary support to back the government’s policy reform agenda. The DPO supports key reforms directed at mitigating the impact of the current economic downturn in the near-term and facilitating recovery and preparing Georgia for post-crisis growth in the mid-term by bolstering investor confidence, enhancing global market integration, and improving public expenditure efficiency.
Politics
Georgia, Russia negotiate non-use of force in Abkhazia
During the sixth round of Geneva talks held last week, chaired by the EU, UN and OSCE, Georgia and Russia exchanged written proposals on the non-use of force in Abkhazia. According to the agreement, the Georgian and Abkhaz sides will meet on July 14 to discuss incident prevention mechanisms. The next round of Geneva talks is scheduled for September 17.
Discussion about this post