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MARKETS OVERVIEW:
Ukrainian stock market little changed. NBU deploys market-based approach to liquidity control
The UX index added just 0.1% to 1631 points on Friday, while the PFTS index gained 0.4% to finish at 625 points. Intraday dynamics on European markets was generally negative after the release of JP Morgan results, which brought Ukrainian indexes down after they opened 1% higher. Trading volume on the UX totaled UAH 29m. Azovstal and Yenakievsky Steel were among the best performing issues adding 2% and 2.8% respectively.
Konstantine Lytvyn
The Interbank FX Market ended the week positively for the hryvnia, the devaluation pressure calmed. The National Bank continued to support the hryvnia with its interventions at UAH/USD 8.01. These interventions have been limited and the NBU was selective in terms of what banks got these deals and the amounts they were getting. Actually, this explains why the rate did not go down to the UAH/USD 8.01 level this week. However, the NBU’s measures managed to calm the Interbank FX Market and it closed at UAH/USD 8.0615-8.0880, with the hryvnia even appreciating 0.1% against the dollar. During the week, the hryvnia became 0.5% cheaper and, since the start of 2010, it has devalued by 1% against the greenback. The NBU has also switched to a market-based tool of containing UAH liquidity as the liquidity has strongly increased over the last few weeks. For instance, the corresponding accounts of commercial banks with the NBU stood at UAH 13-15bln in November’09, while they had reached UAH 22.6bln as of January 12, 2010. This week, the NBU increased its ceiling for the interest rate on 7-day deposit certificates twofold, from 4% p.a. to 8% p.a. This allowed it to take as much as UAH 2.3bln from commercial banks this Wednesday. On Thursday, the regulator attracted another UAH 1.2bln. As a result, commercial banks’ corresponding accounts with the NBU decreased to UAH 18.7bln, thereby reducing potential demand for foreign currency. The NBU held a target auction for individual borrowers on Friday, selling CHF 862thd to five commercial banks at a fixed rate of UAH/CHF 7.86.
Oleksiy Blinov
ECONOMICS & POLITICS
Business expectations: cautious improvement
The NBU has published its survey of business expectations in 4Q09. The survey is based on interviews with 1,245 companies across Ukraine, and provides a good representation of the Ukrainian business community. The results of the 4Q09 survey point to a slight – and, in some aspects, significant – improvement in business sentiment. The negative balance of macroeconomic expectations for the next 12 months improved by 15.6 p.p. to 32.7%. Devaluation expectations also decreased significantly in 4Q09. While, in 3Q09, as many as 79.8% of respondents stated that they expect hryvnia devaluation against the US dollar in the next 12 months the respective share in 4Q09 decreased to 58.6%. At the same time, the balance of general expectations about the economic and financial state of companies in the next 12 months turned from a negative 2% in 3Q09 to positive 6.6% in 4Q09, becoming positive for the first time since the crisis entered its harsh stage in 4Q08.
Astrum’s perspective: The survey was carried out from November 14 to November 30. This period was marked by prevailing appreciation pressure on the hryvnia, with the Ukrainian currency going from UAH/USD 8.15 to UAH/USD 8.0. However, this failed to settle a pro-appreciation mood among Ukrainian businesses, and the share of those who expected devaluation in next 12 months, at 58.6%, was even higher than the 46.4% registered in the 2Q09 survey (see Astrum Daily of July 20, 2009 for more detail). This means that the Ukrainian business community remains wary of hryvnia stability.
In absolute terms, 25.8% of respondents expected improvements in the economic and financial state of their companies in the next 12 months vs. only 19.2% in the pessimists’ camp. There is still a high level of uncertainty among Ukrainian businesses, with 55.1% of respondents expecting no change. At the same time, a strong positive trend in sales expectations, which was already evident in 3Q09 (see Astrum Daily of October 19, 2009), continued. Only 24% of respondents expect their sales to decline in next 12 months, which is the lowest level seen since 3Q08. The balance of responses between sales optimists and sales pessimists shot up to 51.1% from the 41.2% level in 3Q09. For the question related to sales on foreign markets, the balance improved to 61%, up from 41% in 3Q09. This supports our view that the impending recovery will be externally-led.
At the same time, the balance of expectations about staff numbers remains negative. However, the respective indicator has decreased from 19.9% in 3Q09 to 12% in 4Q09. This supports our view that unemployment peaked in 4Q09. The most prominent decrease in expectations about staff cuts was registered in the extraction and manufacturing industries, as well as in the trade sector.
Oleksiy Blinov
Freight transportation down 21.9% in 2009
According to the State Statistics Committee, freight transportation decreased 21.9% in 2009. Freight transportation by railways saw a 21.5% drop, while truck freightage declined by 24.8%. At the same time, Ukraine’s pipeline transportation volumes fell by 17.2%. In particular, Ukraine saw a 19.9% reduction in gas transit and an 11.4% reduction in oil transit volumes.
Astrum’s perspective: As freight transportation trends usually accompany those for industrial production, with dynamics of the two indicators in 2009 especially similar, this supports our estimate that industrial output in 2009 decreased by 22% (respective data are to be published this week). Just as in previous months (see Astrum Daily of November 13 and December 15), December’s improvements in freight transportation are broad-based ones, ranging from shipments of metals to coke and petroleum products. At the same time, the rate of growth in grain and grain product shipments continued to decline, from 29.8% y/y in 11M09 to 26.3% in FY09, reflecting the increasing baseline of late 2008. In 2008, the grains harvest stood at 53.3 mln tonnes, compared with the 2009 harvest of 46 mln tonnes.
Oleksiy Blinov
COMPANIES & INDUSTRIES
City of Vinnitsya restructures its Series D bonds
The Vinnitsya City Council did not redeem its domestic bonds. A total amount of UAH 6m worth of Series D bonds were supposed to be redeemed on December, 30, 2009. As a result, the Vinnitsya City Council is now in the process of restructuring its second bond issue. Vinnitsya also failed to redeem its Series C bonds for a total amount of UAH 4m, which was slated for May, 30, 2009.
Astrum’s perspective: This happened in line with our expectations. What is known at this time is that the Ministry of Finance has agreed on the terms of the bonds’ restructuring. The City Council has redeemed bonds for a total amount of UAH 2m, while the remaining portion of the bonds are to be restructured over a period of 16 months. Effectively, the full redemption has now been postponed to April, 29, 2011. According to the terms that were agreed upon, the City Council will have to pay a cash portion equal to UAH 300thd every month in February-December’10 and in February-March’11. The last cash payment, scheduled for April’11, should equal UAH 100thd. The coupon rate for the restructured bond cannot exceed 28%.
Sergey Fursa
Pryvatbank posts UAH 1.3bln net income in 2009
Pryvatbank's 2009 net income came to UAH 1,300m, 3.8% down from UAH 1,352m posted in 2008. In 2009, the Bank’s assets increased by 7.4%.
Astrum’s perspective: We believe that Pryvatbank’s 2009 net income will be one of the highest among the Ukrainian banks. The Bank’s bottom line looks impressive on the background of the crisis and a UAH 27.6bln aggregate net loss of the whole banking sector in 11M09. We expect that the Bank will raise its net income in 2010 due to the improved asset quality.
Yaroslav Stetsik
Ukrainian steelmakers end 2009 with losses
The CEO of the Metallurgprom Association Vasiliy Kharahulah announced Ukrainian steelmakers' 2009 preliminary net loss of UAH 5bln, down from the 2008 net income of UAH 17bln, while 2009 sales dropped by 37%.
Astrum’s perspective: Our estimates for 2009 are in line with those of Metallurgprom. We expect that the drop of rolled steel output by 16% and rolled steel prices by 24% (in hryvnia terms) will result in a 36% drop of Ukrainian steelmakers’ net sales in 2009. We expect that Azovstal (AZST: BUY), ArcelorMittal Kryvyi Rih (KSTL: HOLD) and Mariupol Illich (MMKI: BUY) will be the only profitable steelmakers in 2009 in terms of net income. In 2010, Ukrainian steelmakers’ net sales should grow by 39%, driven by output growth by 11% and prices growth of 25%. The 2010 net income margin should be 4%-6% on average.
Yuriy Ryzhkov
Electricity export to the EU reaches 435 MW
According to the Fuel and Energy Ministry, Ukraine’s electricity export to the EU from the Burshtyn Power Plant by Zakhidenergo (ZAEN) amounted to 300-400 MW in the period January 4-10. This level increased to 435 MW in January 11-12, 2010.
Astrum’s perspective: Since January 1, 2010, Zakhidenergo, DTEK’s Skhidenergo and Ukrinterenergo have been independently carrying out electricity exports to the EU based on export auctions held by the state-owned Ukrenergo in December’09. Ukrenergo had auctioned off all 500 MW of available export capacity to the EU in January 2010 out of which Zakhidenergo is entitled to supply 100 MW, Skhidenergo – 250 MW and Ukrinterenergo – 150 MW. According to the Fuel and Energy Ministry, in January 1-3, 2010 the total export capacity from the Burshtyn Power Plant to the EU equalled to 300MW. We view this news as POSITIVE for the sector as the gradual increase of the export capacity to its full 500 MW potential shows that the export auctions may involve other thermal gencos in 2010.
Yan Lipchinsky
To receive additional information, please contact:
Yuval Shavit
Communications Director
Astrum Investment Management
Mob.: +380 (67) 236 46 73
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