Research

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.

May go bust. Creditors will not mind. Minority shareholders should SELL.

In this report we examine selected Ukrainian stocks that are still undervalued and look interesting for potential investors based on their strong fundamentals. The macroeconomic situation has become stable with a better outlook for the end of year compared with the figures which we predicted in 1Q09. The second IMF loan tranche played a positive role of increasing investor confidence in the local stock market. In our view, carefully chosen companies can be found with growth and value potential. We recommended to BUY such companies in the agriculture sector; MAYA GR, KER PW, MHPC LI; in energy PREN UZ, DOEN, UZ; in machinery MSICH UZ; in banking USCB UZ. We recommend to SELL positions in NFER UZ because the company could be going bankrupt. For each stock we provide a description of the price triggers that will help investors better understand the drivers which could influence possible stock price movements.

With this report, we decided to introduce the most promising Ukrainian agricultural companies that, in our view, have a winning combination of the strongest positions on the Ukrainian market, together with good corporate governance and a well-build business structure.

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.

Дефляция на практически все виды товаров и сырья в 2008–2009 гг. была особенно ярко выражена для природного газа. Падение цен на азотные удобрения было меньшим, и может продолжиться. Украинские азотчики неконкурентоспособны, так как цены на природный газ в Украине существенно выше спотовых мировых. Тяжелые краткосрочные перспективы создают предпосылки для передела отрасли, которая, на наш взгляд, очень перспективна со средне– и долгосрочной точки зрения.

Finding itself in a situation characterized by a fiscal deficit and a deteriorating economic situation, both in Ukraine and worldwide, the Ukrainian Government decided to resume the privatization of large state-owned property in 2009, including the privatization of power distributing companies (oblenergos). On March 18 and April 1, 2009, Ukraine’s State Property Fund announced the auction for privatizing the blocking package of six electricity distribution companies. The auctions are scheduled on April-May 2009.

The economic crisis has been unwinding rapidly in Ukraine, forcing many economists to revise their earlier forecasts regarding the macroeconomic scenarios in 2009. Namely, the depth of the real sector downturn, the substantial devaluation of the hryvnia caused by panic on the foreign exchange market, and a weak government response to changing economic conditions are among the factors that were not entirely anticipated by either domestic or foreign analysts.

The energy sector in Ukraine is one of the country’s great assets. A country with a population of 47 mln and heavy industries generates significant demand for electricity. Currently there are 27 major electricity distribution companies (oblenergos) in Ukraine, 20 of which are public. This enables equity investors to play the Ukrainian electricity distribution sector on the stock market and gain benefits from the ongoing changes in the sector. The Ukrainian electricity distribution sector is one of the hottest on the stock market. After growing 208% YoY, on average, in 2007, the cumulative MCap of electricity distribution companies fell 90% YoY in 2008. Considerably low prices suggest that equities can be acquired for a penny; however, high spreads and low liquidity suggest that the investments should be held for a long time.