Business news from Ukraine

MEVICS STARTUP RAISES $500,000 FROM BRITAIN’S UBTOWER

KYIV. Dec 13 (Interfax-Ukraine) – Ukraine’s Mevics has raised $500,000 from Britain’s UBTower consulting company.

The company has not presented other details of the deal.

The Mevics team has created a gadget, which controls your posture and synchronizes it with your smartphone using Bluetooth.

According to tentative data, the price of the gadget would vary from $80 to $100.

The team is designing the brand, working on the new website and accounts in Instagram and Twitter. The company is also working on designing new electronics and prototypes.

Mevics CEO Viktor Laushtan said that soon the company intends to launch a campaign at Kickstarter and bring the product to the market.

“First shipments of the product are scheduled for August 2017. Then the company will enter the U.S. and European markets,” Mevics said.

EU INTERESTED IN CLOSE COOPERATION WITH KHARKIV REGION – AMBASSADOR

KHARKIV. Dec 13 (Interfax-Ukraine) – EU Ambassador to Ukraine Hugues Mingarelli supports the broadening of the EU’s cooperation with the Kharkiv region. He said this during a meeting with head of the Kharkiv Regional State Administration Yulia Svitlychna as part of his first regional visit to Kharkiv.

Mingarelli said following the meeting at a press briefing on Tuesday that the European Union seeks closer cooperation with the Kharkiv region. The ambassador said that we are all Europeans, we share the same values and we must work together to improve the lives of people who live in the region.

He noted that the EU, in particular, is ready to promote the integration of internally displaced persons living in the region with the help of humanitarian and economic development programs, as well as share their experience in conducting reforms.

The diplomat said that now, thanks to the opening of the EU markets, Kharkiv companies were able to increase exports to the EU markets.

According to Mingarelli, the EU is also interested in developing cooperation with the Kharkiv scientific research centers and educational institutions.

ARCELORMITTAL KRYVYI RIH STARTS BUILDING SECOND CONTINUOUS-CASTING MACHINE, LADLE FURNACE FOR OVER $100 MLN

KYIV. Dec 13 (Interfax-Ukraine) – ArcelorMittal Kryvyi Rih (Dnipropetrovsk region) has started building the second continuous-casting machine and a ladle furnace with an annual capacity of 1.4 million tonnes of steel investing over $100 million.

ArcelorMittal Kryvyi Rih CEO Paramjit Kahlon said at a press conference at Interfax-Ukraine last week the company has not yet selected the supplier of the equipment.

The enterprise intends to finish the project in Q2 2018.

He added that the enterprise continues modernizing other facilities, particularly the converter shop, investing in rolling mills and building other new facilities.

“We have built one coke-oven battery. We will build another one. Only we in Ukraine are building coke-oven batteries. Total investment is $170 million,” Kahlon said.

“We are doing our best to finish modernization as soon as possible,” the top manager said.

He said that there is a lack of skilled staff, in particular, contractors do not have them. This slows the implementation of investment projects. Kahlon urges the state to pay attention to training of employees and not to strangle business. Otherwise nothing positive would be seen, he said.

NATIONAL INVESTMENT COUNCIL HEAD WANTS TO GET QIA INTERESTED IN UKRAINE

KYIV. Dec 12 (Interfax-Ukraine) – Head of the National Investment Council and former head of the Presidential Administration of Ukraine Borys Lozhkin wants to get the Qatar Investment Authority (QIA) interested in Ukraine’s potential in the energy, agriculture, aerospace and IT sectors.

“Today representatives of QIA have arrived to Kyiv under an invitation of the National Investment Council. We have prepared an eventful program: meetings with ministers of infrastructure, regional development, agriculture, head of the State Property Fund and representatives of business are scheduled. We would show to foreign investors that Ukraine has a huge potential from the point of view of the placement of capital, first of all in the energy, agriculture, aerospace and IT spheres,” Lozhkin wrote on his Facebook page on Thursday.

He said that QIA is a sovereign wealth fund founded by the government of Qatar in 2005. It manages capital of $492 billion.

“QIA works on the markets of many countries, and Europe is in the focus of the interest of Qatari investors. The fund holds shares in Empire Statе Building, Shell, Siemens, Volkswagen and Agricultural Bank of China,” Lozhkin said.

In turn, head of office of the National Investment Council Yulia Kovaliv said that this is a first visit of representatives of QIA to Ukraine.

“We will speak about privatization, potential public private partnership projects, development of energy effective technologies in Ukraine [by the way, we assess the investment potential of the energy effective technologies market for household consumers at near EUR 35 billion)… I will keep you informed,” Kovaliv wrote on her Facebook page.

METINVEST POSTS 21% RISE IN EBITDA IN NINE MONTHS

KYIV. Dec 12 (Interfax-Ukraine) – Metinvest B.V. (the Netherlands), the parent company of Metinvest international vertically integrated mining and steel group, in the first nine months of 2016 saw consolidated EBITDA rise by 21% compared to the same period last year, to $989 million.

According to preliminary financial results, its revenues during the reporting period fell by 15%, to $4.568 billion, while capital investment rose by 4%, to $199 million.

Metinvest noted since the beginning of the year it managed to reduce total debt by 1%, to $2.907 billion, while net debt by 4%, to $2.668 billion, increasing available funds by one-third, to $239 million.

 

RATINGS ON UKRAINE AFFIRMED AT ‘B-/B’, OUTLOOK STABLE – S&P

KYIV. Dec 9 (Interfax-Ukraine) – S&P Global Ratings has affirmed its ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings on Ukraine, reads a posting on the rating agency’s website.

“The outlooks on the long-term foreign and local currency ratings are stable. At the same time, we affirmed the ‘uaBBB-‘ Ukraine national scale rating,” the agency experts said.

“The affirmation reflects the broadly stabilizing macroeconomic picture within Ukraine in 2016. Positive growth has returned (after a significant contraction in 2015) and inflation has calmed. The government also implemented some key reforms that paved the way for the disbursement (albeit delayed) of $1 billion from the IMF in September 2016. At the same time, our ‘B-‘ long-term rating captures the significant economic and political challenges that Ukraine still faces. These include the unpredictable security situation in the east of the country, sizable contingent liabilities, and questions relating to the health of the banking and financial sector,” they stated.

“Ukraine’s economy has returned to growth in the last two quarters, and we forecast real GDP growth of 1% for 2016 despite weak exports, ongoing security risks, the weak domestic business environment, and the need for fiscal prudence. We expect continuing growth over the forecast period; a pickup in the later years should lead to GDP growth averaging 2.3% annually between 2016-2019,” S&P said.

“Earlier in the year, a no-confidence vote led to former Prime Minister Arseniy Yatsenyuk being replaced by Volodymyr Groysman from the larger coalition partner Petro Poroshenko Bloc (PPB). PPB supports President Poroshenko, so Volodymyr Groysman’s appointment has provided some of the stability that was needed to push through a series of IMF-supported reforms. Against this backdrop, we believe broader reforms will continue, albeit with setbacks, and that Ukraine’s western partners will remain engaged. Tensions with Russia and the quasi-separatist areas in the east remain and the situation has improved but not stabilized, with about one-to-three casualties per day. Trade with Russia has fallen significantly, but has been partly compensated with increasing trade with Europe and Asia,” the document reads.

“In 2016, we forecast the current account deficit (CAD) will widen significantly to 3.1% of GDP owing to a rebound in imports (the CAD had narrowed sharply in 2015 to 0.2% of GDP owing to import compression following a sharply deteriorated hryvnia). As the economy stabilizes and exports pick up, we estimate the current account deficit to average 2.8% of GDP in 2016-2019. We forecast external debt, net of liquid assets, to average 151% of current account receipts (CARs) in 2016-2019, while gross external financing needs as a percentage of CARs and usable reserves, our key external liquidity metric, will also stand at 146%,” the experts reported.

“Since the beginning of last year, the IMF has disbursed over $7.6 billion of the $17.5 billion available under the four-year Extended Fund Facility (EFF) program. Our ratings on Ukraine factor in our assumption that the government will remain broadly on course with the IMF program and engaged with development partners, albeit with some continued lags. The next tranche of IMF funds, along with the associated external donor funds, is likely to be disbursed in the first half of 2017. While the bulk of IMF funds are lent to Ukraine’s central bank to boost foreign exchange reserves, continuation of the program requires Ukraine to be fiscally prudent and meet IMF requirements to unlock other funds from the EU and other donors. The latter have explicit or implicit IMF conditionality,” they added.

“Given that Ukraine’s external commercial debt redemptions have been extended beyond 2018 as a consequence of a debt exchange settled in October 2015, its obligations have become slightly more manageable. The debt exchange lowered the effective interest rate on the entire outstanding stock of general government debt while increasing the weighted average maturity, giving Ukraine a couple of years during which it can try to improve debt dynamics by improving the fiscal situation and enacting reforms to boost growth. However, big redemptions in 2019, a likely election year, may prove challenging but could be partly mitigated by up-front funding. We expect Ukraine will meet its 2017 sovereign debt obligations using donor funds, bond issuances, existing foreign exchange, and hryvnia balances held at the central bank. We note that Ukraine can also issue dollar denominated (as well as hryvnia) bonds in the domestic markets,” according to the report.

“The government’s draft budget for 2017 targets a fiscal deficit of 3% of GDP for the year, although we believe this will slip somewhat. The budget includes a planned increase in the minimum wage (but this is not expected to have an impact on social security outlays and is planned to be broadly fiscally neutral), increased infrastructure investment, and hikes in local government budget revenue and spending, while cutting expenditure on health and education and procurement,” the statement notes.

“While we expect lower growth will subdue government revenues, reforms to widen the tax base may broaden what has traditionally been a narrow and porous tax pool and thereby deliver more tax in the medium term. Other ways the fiscal deficit may be controlled include ongoing reforms to revenue administration and the prospect of state-owned oil and gas company Naftogaz breaking even or even making a profit this year (given higher tariffs), thereby eliminating the need for transfers from the central government,” the rating agency said.

“We remain cautious on the fiscal outlook, however, owing to the sizable risks that persist, including the conflict in the east where military spending is draining public finances (estimated at 5% of GDP). Overall, we forecast that the annual change in general government debt will average 3.7% of GDP in 2016-2019, with net general government debt to GDP declining to 61% in 2019 from 71% in 2015. At an estimated 76% of GDP by the end of 2016, Ukraine’s net general government debt remains high for a low-income economy, even after the public debt restructuring in October 2015. In our view, the high level of debt means that targeting a primary budgetary surplus and retaining access to relatively cheap official financing via the IMF and other donors are essential for debt sustainability, alongside sustained GDP growth,” according to the document.

“Large contingent liabilities also pose a risk for the fiscal outlook. These include two court cases relating to a $3 billion eurobond issue to Russia, and a $31.8 billion litigation case filed by Gazprom against Naftogaz (for non-payment relating to a potential take-or-pay contract, noting that Naftogaz has countersued Gazprom for a similarly large amount). In addition, there is the possibility that the coalition government could fall, prompting snap early elections next year and potentially leading to more seats for populist parties, slowing the pace of fiscal reforms,” the report says.

“Reserves accumulation remains one of the central bank’s primary aims, and it has been able to purchase dollars. From a low point in February 2015, official reserve assets increased by over $8 billion to $15.3 billion (although we believe that some of the reserves are encumbered) as of November 30, 2016. This reflected IMF foreign currency loan inflows, reduced external debt payments, the imposition of capital controls, sizable FDI inflows as well as the shift of the current account to near balance (due to an even sharper contraction in imports versus exports),” it reads.

“Rising reserve assets have bolstered the NBU’s credibility, promoting increasing stability in the hryvnia market. Recent hryvnia stability reflects buoyant steel prices abroad, as well as the more stable macroeconomic picture domestically. Some capital controls, which the NBU has begun partially liberalizing, remain in place. We expect the foreign exchange liberalization process will move slowly throughout the year as the NBU weighs the burden these controls have on investment flows against the risks that lifting them poses to the exchange rate,” the experts said.

“Conditions in the financial sector have improved but further recovery will be slow due to high credit risk. We view positively the withdrawal of 80 banking licenses due to a lack of transparency regarding ownership structure. A key negative is the high level of nonperforming loans (NPLs) within the sector. We classify Ukraine’s banking sector in group ’10’ (‘1′ being the lowest risk, and ’10’ the highest) under our Banking Industry Country Risk Assessment (BICRA) methodology. Recapitalization of the largest banks operating in Ukraine, led by newly reformed and more prudent stress tests by the central bank, is in process. Deposit outflows have largely stopped and there is some small growth in hryvnia deposits which we expect to continue. While liquidity in the banking sector has largely improved, legacy issues pertaining to related party lending presents a serious risk to some large systemic banks, and hence the broader system. The authorities’ ability to save any such bad banks remains uncertain,” the report reads.

“The stable outlook reflects our view that over the next 12 months the Ukrainian government will maintain access to its official creditor support by pursuing required reforms, albeit with a delay, on the fiscal, financial, and economic fronts. Downside risk to the ratings could build if Ukraine fails to effectively implement further reforms required by the IMF for more funding, if sizable contingent liabilities migrate to the general government balance sheet, or the proportion of populist MPs within the Rada increases and inhibits the reform agenda or central bank independence, or if we conclude that a further debt exchange is inevitable. We foresee possible ratings upside if economic growth significantly outperforms, alongside falling fiscal and external deficits, and the situation in the east of the country improves,” it says.