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October Telecom Revenues Fell 2.5%: NEUTRAL
In October 2008, revenues from the provision of telecommunications services in Ukraine decreased by 2.5% compared to September, falling from UAH 4,007.918 mln to UAH 3,909.746 mln. This information was released by the State Statistics Committee of Ukraine.
The overall decrease in revenues for telecommunications services occurred as a result of lower revenues for the mobile cell phone segment. Revenues for mobile telephone operators in October decreased 8.1% MoM to UAH 2,414.611 mln. The share of revenue from this type of telecommunication services, in general, accounted for 61.8% of all telecom revenues.
In January-October revenues from all forms of telecommunication amounted to UAH 38,114.367 mln.
September revenues from telecommunications services decreased by 0.9% MoM, dropping from UAH 4,043.739 mln to UAH 4,007.918 mln. In 2007, revenue from all forms of telecommunications amounted to UAH 39,869.797 mln.
Our view:
We see this news as NEUTRAL for Ukrtelecom [UTEL UZ, U/R] since the overall drop in revenues for telecommunications service in October was mainly dependent upon an 8.1% revenue drop for the mobile phone segment.
In revenue terms, the effect on the market share for UTEL, which has a 3G license and as a subsidiary of Ukrtelecom, is negligible. However, Ukrtelecom’s traditional services have demonstrated positive dynamics in October. Revenue from urban communications rose by 9.8% and domestic long distance (DLD) grew 4.8%. Only rural communications experienced as slight decreased of 0.3%.
92.79% of the OJSC Ukrtelecom is currently owned by the state, with the other 7.14% held by the company’s staff. We currently have this company under review and will keep investors posted as to important developments concerning this company as they arise.
AvtoKrAZ May Found Car Testing Center: MIXED
The AvtoKrAZ Holding Company [KRAZ UZ, N/R], a manufacturer of large-tonnage trucks based in Kremenchug (Poltava Region), is considering the options for creating a certificated national car-testing center.
According to the company’s plan, the center would be founded on the AvtoKrAZ base, in collaboration with the Yevhen Paton Electric Welding Institute. Both of these legal entities expect to apply scientific advances to automobile building, and especially those innovations that are connected with electric welding, in order to improve cars` quality.
In October, the AvtoKrAZ holding company maintained its production output at the September volumes.
In 2007, the plant produced 4,206 KrAZ automobiles and automobile sets. This is equivalent to 20.7% or 721 automobiles more than were produced in 2006.
AvtoKrAZ specializes in the production of 28 base models of dump trucks for opencast mines, timber trucks, tractor trucks, automobiles with enhanced maneuverability for the army, oil and gas mining equipment. It also has over 400 automobile modifications.
Our view:
We find this news POSITIVE for AvtoKrAZ in general and in future perspectives. However, if we look closely at the Ukrainian truck market and especially at AvtoKrAZ’s position therein, we see that the market share of Ukraine’s major truck producer has decreased from 17% to 12% in 2007.
Based on our estimates, AvtoKrAZ’s market share in 2008 will continue to decline to 9%. In terms of the volume of production in 2008, we estimate an output level of 4,800 trucks. We see several disadvantages for AvtoKrAZ in 4Q2008 and for all of 2009. Firstly, this economic crisis is impacting on the construction sector which is the major consumer of heavy trucks with respect to its traditional use of and reliance on credit financing. Secondly, the cost of raw materials and components has increased.
Thirdly, market competition from foreign truck producers has increased significantly, and namely from KAMAZ(Russia), MAZ (Belarus), in addition to several producers from the USA, Western Europe, China and India. Finally, the Company – like many others – faces the challenge of limited access to credit to boost its financial resources and liquidity.
ZAZ October Production Declines 20%: NEGATIVE
In October, the Zaporizhya car assembly plant (ZAZ) – the largest producer of cars in Ukraine – reduced output by 20% (or 4,560 cars) to 18,180 cars, compared to September’s output. This data was released in a statement issued by the company’s press service.
The total number of assembled cars can be broken down as follows: 324 ZAZ ; 2,356 VAZ; 294 PEL; 452 Chery; 4,908 Chevrolet; 201 Sens; 9,322 Lanos; and 303 minibuses of the I-VAN-20 model.
In October 2008, the enterprise reduced production by 40% (or 12,141 cars) YoY, down from October 2007’s output level of 30,321 cars.
In the period January-October 2008, ZAZ reduced production by 7.7% (or 20,342 cars) to the level of 244,980 cars, compared with the same period in 2007.
In September, ZAZ had increased production by 1.53% (or 342 cars) to 22,740 cars MoM. However, output dropped by roughly 7.9% YoY to 22,740 cars in September, down from 24,690 in September 2007.
The plant ended 2007 with a net profit of UAH 0.564 bln and increased its net revenue by 86.3% (or UAH 5.999 bln) to UAH 12.951 bln, compared to that achieved in 2006.
ZAZ, which is registered as a closed joint stock company, is controlled by the UkrAvto Corporation [AVTO UZ, U/R], otherwise known as the Ukrainian Automobile Association.
Our view:
These statistics are unquestionably NEGATIVE for the Zaporizhya car assembly plant (ZAZ) and its parent company, the UkrAvto Corporation. Nonetheless, this news comes as no surprise, with market players predicting that Ukraine`s car sales could drop 10-20% YoY in 2009 due to the financial crisis. While lowering production has also been considered, but ZAZ Chairman of the Board Mykola Yevdokymenko affirmed the company’s intention to maintain its production targets for 2008. He did, however, warn that ZAZ production could indeed fall in 2009.
Other vehicle producers have also been affected by the crisis, with many announcing plans to cut their production. The Kremenchug Car Assembly Factory has said it intends to drop 2008 production to 34,000 cars instead of the previously announced target of 38,000 and to lay off 10% of its staff. Meanwhile, the country’s second largest car producer – the Bogdan Automobile Corporation [LUAZ UZ, BUY] – plans to send half of its workers on short-term leave, and the third largest producer – Eurocar, which produces 14 Volkswagon models – will cut production by half and obligate 86% of its employees to take temporary leave.
ZAZ’s parent company UkrAVTO is now redirecting its attention more towards exports due to falling demand in Ukraine as a result of the current financial crisis. We view this move as a natural extension of the company’s current export operations. ZAZ products are currently exported to Russia (71,000 motor cars), Armenia, Belarus, Georgia, Syria, and Indonesia.
ZAZ is also re-introducing the Slavuta mark to the company’s product line, which fits with the company’s strategy of product diversification. Ironically, ZAZ management had previously announced last July that it would be terminating the production of Slavuta cars by August.
No clarification has been made with respect to plans, announced in November 2005, that ZAZ would scale back production of Tavria-Nova and Tavria Pickup vehicles by 2010, and July statements that it would terminate the manufacture of Tavria Pickup cars by August.
Milk production Slips 11.2% MoM in October: NEUTRAL
According to a press release made by the State Statistics Committee of Ukraine, milk production in October has decreased 11.2% to 962.7 thsd mt. Moreover, in the last ten months, milk output has declined 3.9% YoY to 10.3 mln mt.
Our view:
The decline of milk production in October is mostly of a seasonal nature, as historically starting from October, milk output decreases.
The other reason for the decline in milk output is that the number of milk cows has drastically decreased over the last ten years (8% CAGR over the period 1997-2007). We forecast a 6% decrease in the number of milk cows for 2008 and a slight decrease in milk output to approximately 12 mln mt. We believe that milk output will stay around the level of last year on the back of increasing milk yields per cow (7% CAGR over the period 1997-2007).
NBU Supports Loans’ Prolongation for Agrarians: POSITIVE
The National Bank of Ukraine (NBU) officially stated its support for prolonging the loans terms for agrarians until June 1, 2009. According to the Prime Minister of Ukraine, Yuliya Tymoshenko, the NBU confirmed its support at their last meeting on Tuesday.
Our view:
Earlier in November, the Ukrainian Government proposed the loans’ prolongation. The draft legislation proposed that loans, obtained by agrarians in the period of 2005-2008, would be prolonged until November 1, 2009 and interest would be retained at the levels registered in the previous loan agreements.
In our view, the proposed draft would not be effective without NBU support. With the NBU’s agreement to support this, we see the loans’ prolongation as an effective tool in mitigating the possible negative consequence of the credit crunch for both agrarians and banks as well, as it decreases the risks of unpaid loans.
Eurocement Ukraine EGM to Sell Over 50% Property
On October 23, shareholders of the Eurocement Group Ukraine (Kyiv) will gather for an Extraordinary General Meeting, at which participants will consider the sale of more than 50% of the company’s property.
The meeting of Eurocement Group Ukraine, originally scheduled for November 24, has been bumped up by nearly an entire month. According to Interfax-Ukraine, publicly-released company reports had earlier indicated that a number of issues up for discussion were listed on the agendas for Balcem’s EGM, originally scheduled for December 21, and the EGM for the Kramatorsk ‘Pushka’ Cement Plant, originally scheduled for December 22.
The Eurocement Group Ukraine includes the OJSC Balcem, based in the Kharkiv Region, and the OSJC Kramatorsk ‘Pushka’ Cement Plant [KRCS UZ, U/R], which is based in the Donetsk Region. While KRCS stock is regularly traded on the PFTS, the Balcem’s stock is not currently listed, as it was removed from the PFTS listing in 2006; however, recent market rumors say that the stock might be relisted on the PFTS in the near future.
Other topics up for discussion at that time include renaming the post of director and changing the company`s business address, according to a statement the company had issued to Interfax-Ukraine. Apparently, the meeting’s agenda also includes the approval of changes to the company`s statute, as well as providing powers to the Directors’ Generals of the respective companies to sign agreements.
The joint production capacities of the Balcem Company and Kramatorsk “Pushka” are 5 mln metric tons of cement per annum. The Eurocement Group Ukraine ranks third among domestic producers of cement in Ukraine.
The Eurocement Group Ukraine commenced operation in June 2005. It is a subsidiary of the Russian holding OJSC Eurocement Group, which produces and sells cement and unites 16 enterprises in Russia, Ukraine, and Uzbekistan. It has an annual total output capacity of 35 mln metric tons, making it the region’s biggest producer with a 40 percent share of the Russian cement market.
Earlier in 2008, the Cyprus-based Galaks Holdings Limited bought the controlling stake in the OJSC Eurocement Group Ukraine. The current ownership of the two comprising companies are broken down as follows: 99.17% Galaks, 0.83% freefloat (for Balcem); and 92.86% Galaks, 7.14% freefloat (for Kramatorsk ‘Pushka’). It is unclear who controls Galaks Holding Limited.
Our view:
We view this as NEGATIVE for minority shareholders. We have been trying to obtain any comments from the Eurocement Group’s central office in Moscow. The Head of the company’s Press Center, Elena Rudovska, strongly refused to comment on the possible asset stripping of over 50% of the company’s assets.
The Eurocement Group has performed a lot of minority shareholder squeezes in Russia and we believe that it might also happen in Ukraine. Moreover, the agenda for this approaching EGM indicates that the General Director of the Company will be authorized to sign a number of connected Agreements for a sum that exceeds 50% of the Company`s property, in addition to Specifications, Transfer-Acceptance Acts and Additional Agreements that grant him the right to individually define the order and term of cash settlements on behalf of the Company.
Watch out for our upcoming report on the JSC Balcem and the Kramatorsk “Pushka” Cement Plant. For a better understanding of the construction market in Ukraine, see our November 4 flash note “Volyn-Cement: Fortified Enough to Withstand Crisis” and our 22-page company overview “Volyn-Cement: from Wet to Dry” of July 14, 2008.
Metinvest shifts 10.5% in HRTR on PFTS: Why?
According to an official filing by Khartsyzk Pipes & Tubes [HRTR UZ, N/R], as of November 18, Metinvest B.V. of the Netherlands owns 76.78% of shares outstanding in the company, having just increased its stake by 10.49%. On the other hand, MetalUkr Holding Limited has just decreased its stake by 10.49% and now owns 16.22%.
As we reported earlier, on November 12 a block of 272.57 mln of shares in Khartsyzk Pipes & Tubes changed hands on the PFTS exchange. The shares were sold at UAH 2.12 (USD 0.367) per share, for the total amount of USD 100.15 mln.
According to our calculations, Metinvest Holding LLC of Ukraine continues to own 5% of Khartsyzk Pipes & Tubes’ shares. The free float amounts to 2%.
Khartsyzk Pipes & Tubes, MetalUkr Holding Limited, and Metinvest Holding LLC are members of the MetInvest Group, an assembly of the metallurgical and mining assets belonging to Rinat Akhmetov, which is strategically directed by Metinvest Holding LLC. Vadim Novinskiy and his Smart Holding have a 25%+1 stake in Metinvest Group business.
Our view:
Some sources cited SCM (the main holding of Rinat Akhmetov) and Metinvest in reporting that the deal was an internal restructuring within the Metinvest Group. The official November 18 filing supports this claim.
However, it is still not clear why the Metinvest Group chose to transfer the block via the PFTS exchange. Previously, similar consolidating steps bypassed local exchanges: for instance, in November 2007, Metinvest B.V. acquired a 60.97% stake without any observable PFTS trade.
Recently, we proposed an explanation of Metinvest having pawned the stake. Apparently, this was not the case. Nevertheless, it is possible that Metinvest may need money for acquisitions and has established the price for large stakes in Khartsyzk Pipes & Tubes for pawning (or, less likely, selling) up to 21.22% of shares in the future.
Raiffeisen Bank Aval Repays USD 200 mln Loan: NEUTRAL
Raiffeisen Bank Aval, which is the second-top Ukrainian bank by assets, has repaid a syndicated loan of USD 200 mln, according to a press release issued by the bank. The lead administrators of the loan were The Bank of Tokyo Mitsubishi UFJ, Bayerische Landesbank, HSBC Bank plc, and Intesa Sanpaolo. The loan was drawn in November 2007 for a period of one year on the terms of LIBOR+0.8% per annum.
As of October 1, the net assets of the bank were UAH 52,559.2 mln, its credit portfolio amounted to UAH 42,660.4 mln, and equity capital equaled UAH 5,724.7 mln. For the period January-September, the bank’s net profit was UAH 680.602 mln. The bank ended 2007 with a profit of UAH 578.424 mln.
Austria`s Raiffeisen International Bank Holding AG owns a 95.68% stake in Raiffeisen Bank Aval, which is registered as an open joint-stock company.
Our view:
We see this news as NEUTRAL for Raiffeisen Bank Aval (RBA). As was mentioned in previous Sokrat news, RBA recently received several loans from its parent company, Raiffeisen Zentralbank Osterreich AG, for a total amount of USD 330 mln. This has allowed the bank to repay this syndicated loan, as well as maintain its liquidity.
As we stated earlier, we see the fact that Raiffeisen Zentralbank continues to refinance RBA according to its previously-announced funding strategy as positive for this Ukrainian daughter.
Nadra Bank Pays Back USD 130 mln Loan: NEUTRAL
Nadra Bank has paid off a syndicated loan worth USD 130 mln on time, according to the bank`s press service. The syndicated loan was provided by BayernLB and Fortis Bank SA/NV. The credit was provided at a one-year rate of Libor + 1.5%. The initial amount of the loan was USD 100 mln, but the amount was subsequently increased during the term of its syndication.
The net assets of Nadra Bank were valued at UAH 26,185.90 mln as of October 1, 2008, when its loan portfolio amounted to UAH 19,013.40 mln. The bank`s statutory capital was UAH 321.763 bln (UAH 5.79 / USD 1) as of October 1, 2008.
Shareholders with more than 10% of shares in Nadra Bank include Novartik Trading Ltd. (Cyprus), which holds 60.99%, and Manmade Enterprises Ltd. (Cyprus), with 30.74%.
As was previously reported by Sokrat, the DF Group reached an agreement on the purchase of more than 50% of the shares in Nadra Bank in early November.
Our view:
We see this news a NEUTRAL for Nadra Bank. Recently, after the Ukrainian banking crisis struck, Nadra Bank received UAH 1.5 bln in refinancing from the National Bank of Ukraine, with the official expressed purpose of repaying the above-mentioned debt and paying off USD 100 mln Eurobonds, which has already been done.
Nadra Bank is still suffering from liquidity problems and a declining level of deposits. We see the possible acquisition of the bank by the DF Group and the funding injection, which is expected to be made by the new owners, as the only way to save this bank from the problems it is currently facing.
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