Market comment

Despite the 0.5% drop, yesterday was relatively active on the PFTS; daily trading increased quite a bit compared to the previous couple of weeks. The most active name once again was Ukrnafta (UNAF), which dropped 4.88%. Yesterday, the hryvnya continued to fall (9.3% on the day); it has lost about 25% so far in November, which erodes confidence in the Ukrainian economy and the exchange on one hand, while on the other hand, it is contributing to making Ukrainian assets cheaper than ever. Today Asian stocks have risen once again, ending their second best week this year, optimism and a feelgood sentiment continue to prevail on hopes that joint global government efforts will pull the world economy out of the recession. If these hopes are to materialize, export oriented economies will benefit immensely and Ukraine should be no exception. We expect the PFTS to climb today on the last trading day of the month; European bourses look set to gain today as well.

Economics

Ukraine's current account deficit hits 6.5% of GDP in 10M08. According to the National Bank’s preliminary report on Ukraine’s balance of payments, Ukraine's current account deficit widened to USD 10.5 bln (6.5% of GDP) in 10M08. The trade deficit reached USD 14.3 bln: exports totaled USD 59.5 bln while imports amounted to USD 73.8 bln. The capital account surplus (USD 12.7 bln) managed to cover the C/A shortfall in 10M08,however, in the month of October, the capital account balance was negative (USD 2.1 bln). Andrii Parkhomenko: The deterioration in both current and capital accounts is the key reason for the sharp fall in the UAH/USD rate, 59% since the beginning of September. However, though the current and capital accounts will remain negative in 2009, we believe that the decrease in demand for imports, as well as the cheaper hryvnya will help to improve the C/A imbalance. We forecast C/A deficit to make 3.3% of GDP in 2009.

NBU: Ukraine must pay USD 5 bln in foreign debt by end-2008. Deputy Head of the National Bank of Ukraine Alexander Savchenko said yesterday at a conference in Kyiv that Ukraine will pay USD 5 bln in foreign debt by the end of 2008. He said that USD 30 bln in sovereign and corporate debt must be paid in 2009.

Telecom

Communications Minister says Ukrtelecom should be sold for at least USD 1.5 bln. Ukraine's Minister of Transportation and Communications Josyp Vinsky, in an interview with newspaper Delo, spoke in favor of Ukrtelecom's (UTEL) privatization in 2009. According to Vinsky, Ukrtelecom should be sold for no less than USD 1.5 bln. Deputy Prime Minister Alexander Turchinov said in late October that the Cabinet of Ministers was considering using proceeds from privatizing Ukrtelecom as a key financial source for the government's economic stabilization plan. Alexander Paraschiy: Vinsky's “starting price” is 37% lower than the starting price announced by the government in April 2008. Still, the new starting price represents a 177% premium to the current market price.

Machine building

Defense Ministry plans to buy 1,000 trucks from AvtoKrAZ in 2009. The Chief of the General Staff of Ukraine's Armed Forces Sergey Kirichenko said yesterday that the Defense Ministry is planning to purchase 1,000 trucks from AvtoKrAZ (KRAZ) in 2009. The Defense Ministry plans to use the AvtoKrAZ vehicles as troop and equipment transports, and for special purposes.

Fixed income

Fitch downgrades Metinvest, IUD, Interpipe, Ukrainian banks. Yesterday, Fitch Ratings downgraded its long-term ratings on Metinvest, IUD, and Interpipe. Fitch took down its long-term national currency rating on Metinvest from BB- to B+ (stable outlook); the long-term issuer default rating (IDR) on the Industrial Union of Donbas from B+ to B (negative outlook); and the long-term IDR on Interpipe from B+ to B. Fitch also placed Donetskstal's long-term foreign and local currency IDRs of B- on Rating Watch Negative. In separate notes, Fitch cited the current global economic downturn and potential volatility in the demand for and pricing of metal products. Additionally, Fitch revised the outlooks on 11 Ukrainian banks ratings from stable to negative to reflect increased concerns about their credit profiles in light of sharp depreciation in the national currency.

Finance Ministry sells USD 2.9 mln in local bond at auction. Yesterday, Ukraine's Finance Ministry placed an additional UAH 19.6 mln (USD 2.9 mln) in local bonds at auction. The bond issue matures on October 23, 2010 and has a coupon of 15.6%. Including the proceeds from yesterday's auction, the government has sold USD 1.28 bln in local bonds this year. The Finance Ministry will hold its next local bond auction on December 1.