Flash notes

Last week, Ukrainian CDS quotations declined by 51.8 b.p. from 980.2 b.p. to 928.4 b.p. The main influence on investors’ attitudes to Ukrainian risks was news from the political arena, including the new President’s inauguration (held February 25) and a decline in investors’ apprehension about further political destabilization in Ukraine.

Last week, Ukrainian CDS quotations declined by 1.7 b.p. from 980.8 b.p. to 979.1 b.p. Investors’ apprehension about further political destabilization in Ukraine after the second ballot of the presidential election has begun to decline. In our view, this should result in a lowering of Ukrainian CDS again next week.

Last week, Ukrainian CDS quotations took a 50.4 b.p. jump from 919.8 b.p. to 970.2 b.p. Such an increase occurred due to investor apprehension in relation to further political destabilization in Ukraine after the second ballot of the presidential election. Despite such a jump, Ukrainian CDS are still trading lower than Argentina’s and Venezuela’s CDS.

Last week, Ukrainian CDS quotations showed a decline of 37.3 b.p. from 956.7 b.p. to 919.4 b.p. Thus, Ukrainian CDS quotations moved to occupy the third place in the world, after Venezuela’s President reported about the nationalization of its retail network.

The Ukrainian electricity generating company Zakhidenergo [ZAEN UZ] won access to a 100 MW power export capacity for the year 2010 through the very first auction to be held for access to electricity exports from Ukraine. As a result, now the Company will be able to sell part of its power directly to foreign clients. The auction itself signifies the liberalization of Ukrainian electricity exports and constitutes a driver for the entire power generating sector.

Stakhaniv Railcar Works, a member of the AutoKrAZ holding and is controlled by the Finance & Credit Group, is the largest Ukrai nian producer of gondolas and hoppers, previously the railcars that were most ‘in demand’. Despite the fact that the Company has suffered a lot in the past year, recent news about the Company led us to review our models of and opinion about SVGZ`s valuation.

On 23, June Ukrainian Parliament has passed a bill #3585 which main official aim is to “overcome the consequences of financial crisis” how it is written in the name of draft. This document regulates some issues of debt restructuring procedure, restricts foreign currency lending and preliminary external debt repayments. The law was passed by the overwhelming majority of parliament and main disputable issues were solved in compromise way, therefore we anticipate that President will sign this law soon. The final version of bill that was passed still hasn’t been officially published, therefore in our analysis we rely on information available from open sources such as news postings, newspapers, authorities’ interviews and latest available versions of draft.

In 1Q09, OJSC Enakievo ISW sold its 37.04% stake in JV Metalen LLC to Metinvest Holding LLC. The price is unknown; our estimate is USD 55-65 mln. Our interpretation: Metinvest Holding provided OJSC Enakievo ISW with liquidity, to be used in particular for the construction of Blast Furnace No. 3. Metinvest benefited from that deal by effectively increasing its share in the Enakievo ISW group, because OJSC Enakievo ISW will now have to issue 9.07 mln new shares in order to acquire all rights in Metalen (previously, we expected the issuance of 5.71 mln new shares). We also do not rule out additional share issuances aimed at financing BF No. 3’s construction.

A memorandum on economic policy was sent to the IMF this week, Ukrainian officials have announced. The memorandum describes a number of actions aimed at stabilizing the economic situation in the country. The key points of the document will be announced once it is signed by the President, Prime-Minister, the Governor of the National Bank and the Minister of Finance.

The instability regarding currency exchange has become the main theme in Ukrainian life these days. Severe UAH devaluation has cast doubt on the ability of some Ukrainian companies to meet their FX obligations, as well as the ability of retail loan borrowers to repay their FX debts. Ukraine’s President Viktor Yuschenko, NBU Chairman of the Board Volodymyr Stelmakh and Ukraine’s Finance Minister Viktor Pynzenyk have made a series of important declarations about their intentions and further actions regarding the stabilization of the situation in the banking sector and the FX market. As well, Prime Minister Yulia Tymoshenko has said that she wants the President to resign the NBU’s Chairman of the Board, the respective draft legislation for which has already been registered in the Parliament. We would like to provide our view about the latest declarations made by authorities.