Business news from Ukraine

AMONG UKRAINIAN POLITICIANS, ZELENSKY, KLITSCHKO, PRYTULA, GROYSMAN ENJOY GREATEST TRUST– STUDY

Among Ukrainian politicians, Volodymyr Zelensky (39.5% of Ukrainians trust him), Vitali Klitschko (33.8%), Serhiy Prytula (31.6%) and Volodymyr Groysman (31%) enjoy the highest level of trust from the population among Ukrainian politicians, evidenced by the results of an all-Ukrainian public opinion poll conducted by the Kyiv International Institute of Sociology (KIIS) from February 23 to March 1, 2021.

According to the survey, 39.5% of Ukrainians trust President Volodymyr Zelensky, while 54.3% do not trust him (the balance of trust-distrust is -14.7%); Kyiv mayor Klitschko is trusted by 33.8%, 52.8% do not trust him (balance -19%); public activist, volunteer and TV presenter Prytula is trusted by 31.6%, 34% do not trust him (balance -2.3%); ex-prime minister Volodymyr Groisman has trust of 31%, 53.1% have no confidence in him (balance -22.1%); Chairman of the Verkhovna Rada Dmytro Razumkov has trust of 28.3%, no trust from 30.6% (balance -2.3%).

At the same time, 26.3% of Ukrainians trust MP Yulia Tymoshenko, 67.6% have distrust of her (the balance of trust and distrust is 41.3%); MP Yuriy Boiko has trust of 24.6%, 52.2% have no confidence in him (balance -27.6%), ex-MP Oleh Liashko is trusted by 23.2%, 69.5% do not trust him (balance -46.3%), 22.4% trust Ihor Smeshko, 22.6% do not trust him (balance -0.2%), the fifth president, Petro Poroshenko, is trusted by 21.9%, 73.5% have no confidence in him (balance -51.6%).

The level of trust in other politicians is below 20%.

If we compare the percentage of confidence in a politician with the same indicator in January 2021, the greatest changes can be traced in the case with Zelensky – an increase from 35.6% to 39.5%, Prytula – an increase from 27.3% to 31.6%, Boiko – a decrease from 28.9% to 24.6%, Medvedchuk – a decrease from 19.6% to 16.2%, Palytsia – a decrease from 5.3% to 3%.

The respondents were also asked a similar question about trust in the leaders of other states.

As it turned out, 30.3% Ukrainians trust Alexander Lukashenko, while 56.8% do not trust him, so his balance of trust-distrust is -26.5%. Moreover, compared to January 2021, the level of trust in him decreased.

Joe Biden is trusted by 29.4% of Ukrainians, and not trusted by 25.5%. Its balance is positive and amounts to + 3.9%, respectively. Compared to January 2021, no significant changes have been observed.

Vladimir Putin was the most unfavorable among Ukrainians – 82.4% do not trust him versus 10.8% of those who trust (-71.6% balance).

The public opinion poll was conducted by the Kyiv International Institute of Sociology from February 23 to March 1, 2021 using computer-assisted personal interviewing (CAPI). Some 1,207 respondents living in 86 settlements of all regions of Ukraine (except for the Autonomous Republic of Crimea) were randomly selected during three rounds with a quota selection at the final round, which is representative for the population of Ukraine aged over 18.

The margin of sampling error for the full sample is not more than 2.9% for indicators close to 50%, 2.5% for indicators close to 25%, 1.9% for indicators close to 12%, and 1.3% for indicators close to 5%.

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FITCH RATINGS AFFIRMS UKRAINE AT ‘B’

Fitch Ratings has affirmed Ukraine’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘B’ with a stable outlook, the rating agency said on its website.

“The ratings of Ukraine reflect its credible macroeconomic policy framework that had lowered inflation and narrowed fiscal deficits prior to the coronavirus shock, and a record of multilateral support. These strengths are set against low external liquidity relative to high financing needs associated with large sovereign debt repayments, a vulnerable, albeit improving, banking sector, and weak governance indicators. The coronavirus shock has at least temporarily reversed Ukraine’s improvements made in recent years in terms of a declining debt burden, normalization of growth prospects after the 2014-2015 geopolitical and economic crises, and reduced growth volatility,” it said.

“Ukraine’s new IMF program has been designed to reduce financing constraints and support a recovery in international reserves. Ukraine received the first tranche ($2.1 billion) under a $5 billion 18-month Stand-By Arrangement (SBA) for budget support in June. The sovereign also issued a $2 billion eurobond in July. Easing of external-financing constraints allowed the sovereign to buy back external bonds maturing in 2021-2022 and to repurchase close to 10% of its outstanding GDP warrants,” the report says.

“Fitch estimates that Ukraine has met close to 68% of its 2020 fiscal financing needs of $23.5 billion ($14.2 billion in amortizations including debt prepayments). Fitch expects one additional disbursement from the IMF SBA ($700 million) and the first tranche of a new EUR1.2 billion loan in 2020. Available domestic liquidity and government cash holdings provide room to accommodate remaining financing requirements, which in turn are dependent on the pace of expenditure implementation. Domestic banks, most notably state-owned, have increased exposure to government debt, as foreign investors have reduced their share of domestic government bonds by about $1.5 billion since February to 16% (not including National Bank of Ukraine, NBU, holdings),” according to the document.

“International reserves rose to $29 billion at the beginning of September, due to central bank FX purchases (net $1.2 billion YTD in 2020) and external financing. We expect international reserves to finish 2020 at $27.4 billion or 4.5 months of current external payments (CXP), slightly above the projected 4.1 months for the ‘B’ median. In our forecast for a gradual return of the current account deficit and continued access to external financing, reserve coverage will average 3.8 months of CXP in 2021-2022. External liquidity, measured by the country’s liquid external assets-to-liquid external liabilities, will rise to 112% for 2021, close to the 118% forecast for the ‘B’ median,” it reads.

“External financing needs have declined compared with previous years (35% of international reserves) in spite of large debt repayments, reflecting higher international reserves and a projected current account surplus (2.5% of GDP) in 2020, due to fairly resilient exports and remittances, sharp decline in imports and improved data availability on reinvested earnings by foreign investors. External financing needs will rise in 2021-2022 with the return to a current account deficit (reaching 3.5% of GDP by 2022). External sovereign amortizations (government plus NBU) will decline from $6 billion in 2020 but will remain large averaging $4.3 billion in 2021-2022 (bond repayments of $2 billion and $1 billion, respectively),” Fitch experts noted.

“Fitch considers that continued engagement with the IMF is key for Ukraine to maintain access to external financing. However, the IMF SBA implementation risks are significant given Ukraine’s poor record from previous programs and potential judicial rulings and legislative initiatives that lead to reform reversals. In Fitch’s view, unexpected and frequent cabinet changes early in the year, especially those related to key economic positions such as the Minister of Finance, and political pressure on NBU, leading to the governor’s resignation in July, create policy uncertainty. In addition to eroding hard-earned policy credibility, reduced central bank independence could lead to reversal in the improvements in macroeconomic and financial-sector stability, constrain access to external financing and increase Ukraine’s vulnerability to shocks,” they added.

“Inflationary pressures remain subdued (2.4% y-o-y in July; core 3%), but inflation is expected to approach the 5% NBU target by end-2020 due to higher energy and food prices as well as recovering domestic demand. Fitch expects inflation to average 5.3% in 2021 and 5.7% in 2022, above the forecast 4.4% and 4.8% ‘B’ medians. The NBU cut policy rates to a record low 6% in June (750bp in H1, 2020) in response to the pandemic, but further easing could be constrained, in Fitch’s view, by rising inflationary pressures and the proposal of a significant minimum wage increase in 2021,” they stated.

“Fitch maintains its April forecast that the economy will contract 6.5% in 2020. The economy reportedly contracted 11.4% in Q2, 2020. Improving retail sales, industrial production and construction reflect reviving consumption and investment, while faster expenditure implementation in H2, 2020 and lower interest rates will support recovery. We expect growth to reach 3.8% and 3.5%, respectively, in 2021 and 2022, in line with our medium-term forecasts for Ukraine. However, downside risks to our forecasts remain, given uncertainty around the extent and duration of the coronavirus outbreak, and the duration or re-introduction of restrictions, especially given the reported uptick in coronavirus cases in Ukraine,” Fitch said.

“Fitch forecasts the general government deficit to reach 6.5% of GDP in 2020, below the projected 7.7% under the IMF SBA and 7.3% ‘B’ median. Large dividend payments from state-owned companies (1.8% of GDP), and recovering tax collection (except for import-related taxes) have supported government revenues, while expenditure growth remains moderate YTD and concentrated in social transfers and health spending. We forecast fiscal consolidation to proceed at a gradual pace, with the general government deficit shrinking to 5.4% of GDP in 2021 and 4.2% in 2022. Although the government has indicated they intend to pursue expenditure initiatives to support growth such as the proposed minimum wage increase (up to 30% in 2021), the actual pace of fiscal consolidation will depend on continued engagement with the IMF and available financing,” it added.

“General government debt will increase to 57.4% of GDP (65.1% including guarantees) and 60% by 2022, from 44.4% (50.4% with guarantees) in 2019 and close to the forecast 65.3% ‘B’ median. Fitch forecasts that Ukraine general government debt will stabilize at around 60% in 2022-2023 and decline gradually thereafter with the return of primary surpluses. Risks to the debt dynamics stem from a weaker exchange rate (64% foreign currency-denominated debt), lower-than-expected growth or failure to narrow the fiscal deficit,” it summarized.

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FITCH AND S&P UPGRADE STEEL COMPANY METINVEST RATINGS

Fitch Ratings has upgraded Ukrainian integrated steel company Metinvest B.V.’s (Metinvest) Long-Term Local- and Foreign-Currency Issuer Default Ratings (IDRs) and senior unsecured bonds to ‘BB-‘ from ‘B+’. The Outlook is Stable.

“The upgrade follows Ukraine’s Country Ceiling upgrade to ‘B’ from ‘B-‘on 6 September 2019. The IDR of Metinvest remains two notches above the Country Ceiling,” Fitch said in a report.

Fitch said that this happened due to its comfortable hard-currency (HC) external debt service coverage, and also its ‘BB’ category business and financial profiles.

In addition, S&P Global Ratings raised Metinvest’s issuer credit rating and its issue ratings on the existing notes to ‘B’ from ‘B-‘. The Outlook is Stable.

S&P said that the Ukrainian steel maker Metinvest has built a track record of balanced financial policy in the past 18 months, with relatively low gearing and positive free cash flow, supporting an adequate spending between growth and shareholder returns.

The two agencies also assigned preliminary ratings to senior unsecured notes of at least $500 million proposed by Metinvest to issue at once after purchase for cash up to $440 million notes in circulation: Fitch – ‘BB-(EXP),’ and S&P – ‘B.’

“The proposed senior unsecured notes of at least $500 million will smooth the maturity profile and strengthen liquidity,” S&P said.

Fitch expects Metinvest’s HC external debt service cover ratio to be comfortable at above our 1.5x threshold on a 18-month rolling basis, allowing the company’s IDR to remain two notches above Ukraine’s ‘B’ Country Ceiling . The top line of the ratio is mainly comprises substantial export EBITDA, aided by abroad EBITDA and cash. The bottom line of the ratio represents HC debt service, comprising principal repayments and interest payments, which are fairly smooth over 2019-2022. The company faces a $945 million notes maturity in 2023 but this would be addressed by the upcoming notes issue, which will improve HC external debt service coverage for 2023.

Fitch said that since the last rating action in April 2019 we have revised Metinvest’s full-year EBITDA down to slightly above $1.5 billion in both 2019 and 2020 and slightly under $1.5 billion in 2021 and 2022, reflecting sharper-than-previously expected price contraction across the steel value chain.

Fitch said that Metinvest is an important eastern European producer of metal products (8.8 million tonnes in 2018) and iron ore (27.3 million tonnes of concentrate and pellets in 2018), with around 300% self-sufficiency in iron ore but only 40%-45% in coking coal.

“The steel segment’s proximity to Black Sea and Azov Sea ports allows the company to benefit from both cheaper steel exports and seaborne coal imports logistics. The operations are also further integrated into downstream operations in Italy, Bulgaria and the UK. Partial integration into key raw materials and exposure to high value-added products help Metinvest mitigate but not avert steel market volatility,” Fitch said.

Fitch said that the conflict in eastern Ukraine continues to pose risks to day-to-day operations. Metinvest’s exposure to the risks of conflict escalation remains high relative to its EMEA peers, although Fitch admitted that most of its 1H19 EBITDA is generated by its mining assets located substantially farther from the conflict zone.

S&P expects that the company will maintain an adjusted funds from operations (FFO) to debt of 35%-40% in 2019 and 2020, well in the range commensurate with the current ‘B’ rating (20%-40%), with a positive discretionary cash flow (free cash flow after capex and dividends).

“We believe that the current market conditions will have a mixed impact on the company’s results in 2019,” S&P said.

“We expect Metinvest to benefit from the abnormal iron ore and pellet prices. Under our calculations, the EBITDA would need to fall to about $1.1 billion in 2020, compared with $1.5 billion-$1.7 billion in our base case, before witnessing a pressure on the rating,” S&P said.

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FITCH UPGRADES UKRAINE’S LONG-TERM RATINGS TO ‘B’, OUTLOOK POSITIVE

Fitch Ratings has upgraded Ukraine’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to ‘B’ from ‘B-‘, the outlooks are positive, according to a report on the rating agency’s website.
“Ukraine has demonstrated timely access to fiscal and external financing, improving macroeconomic stability and declining public indebtedness, while a shortened electoral period has reduced domestic political uncertainty. Expected macroeconomic policy continuity, the new government’s strong stated commitment to structural reforms and engagement with IFIs mean that Fitch expects further improvements in creditworthiness,” the report says.
“President Volodymyr Zelensky’s strong popular support and his party’s control of government and parliament provide the government with a uniquely strong position to move ahead with its reform-minded policy agenda. After a commanding victory in the second round of presidential elections, the president’s party Servant of the People (SOP) obtained control of the Verkhovna Rada (256 out of 450 seats) in snap parliamentary elections (originally scheduled for end October). The recently formed government under Prime Minister Oleksiy Honcharuk includes technocratic, pro-western and reform-minded ministers. Key economic policy makers such as Minister of Finance Oksana Markarova remain in their positions, supporting the continuity of policies underpinning reduced macroeconomic imbalances and improved stability,” Fitch said.
“The new prime minister intends to negotiate a new and longer program with the IMF, possibly an Extended Fund Facility (EFF), in the near term. The high likelihood of continued IMF engagement will facilitate access to official and market financing to meet large sovereign debt repayments in 2020-2021, and serve as an anchor for policies and reforms that could potentially lift growth prospects,” the agency experts stated.
“Prudent fiscal management, stable growth, declining interest rates and moderate exchange rate depreciation pressure will support continued government debt reduction. We expect government debt to decline to 47.9% of GDP (55.8% including guarantees) by end-2019, down almost 20 p.p. from the peak of 69.2% (80.9% including guarantees) in 2016 and below the current 57.5% ‘B’ median, and reach 44.4% by 2021. Government debt dynamics are highly exposed to currency risk as 67% is foreign currency denominated, but greater non-resident participation in the local bond market will help increase the share of local currency debt and extend maturities,” according to the document
“The long-awaited increase in Ukraine’s credit rating was made possible thanks to macroeconomic stabilization, a decrease in government debt and a reduction in political risks. This means that confidence in Ukraine is growing, and the risks associated with our creditworthiness are decreasing. And most importantly, the cost of borrowing will decrease,” Finance Minister of Ukraine Oksana Markarova said.

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S & P AFFIRMS RATINGS ON UKRAINE AT ‘B-/B’, OUTLOOK IS STABLE

S&P Global Ratings affirmed its ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings on Ukraine. The outlook is stable. “While the economy is growing and inflation is on a downward path, the financing outlook is uncertain for government foreign currency redemptions beyond 2019, when Ukraine will have to negotiate a fresh agreement with the International Monetary Fund (IMF),” S&P said.
Ukraine faces sizable external debt repayments against the backdrop of presidential and parliamentary elections in 2019.
The stable outlook reflects our expectation that Ukraine will broadly comply with the terms of the $3.9 billion IMF stand-by arrangement, potentially with some delays.
Ratings pressure could build if disruptions to funding from concessional programs or capital market access over the next year call into question Ukraine’s ability to meet large external repayments over the remainder of the year and in 2020.
“An adverse final ruling in Ukraine’s legal battle with Russia over a Eurobond issued in December 2013, and held by Russia, could have implications for Ukraine, in our opinion. Such a ruling could be some years away. However in a worst-case scenario, it might create technical constraints for Ukraine’s ability to repay its commercial debt held by other creditors, which would pressure the ratings. We note that the government believes there is no potential for technical constraints on debt service, even in the case of an adverse ruling in the future,” S&P said.
“We could consider a positive rating action if we see improvements in growth, fiscal and external imbalances beyond our expectations, and if we conclude that the security situation in the non-government-controlled areas in the East of the country has stabilized and further escalation is unlikely,” S&P said.

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YULIYA TYMOSHENKO ON TOP OF PRESIDENTIAL RATINGS, POROSHENKO HAS ONLY 8% LEVEL OF SUPPORT

Yuliya Tymoshenko, leader of the All-Ukrainian Union Batkivschyna (Fatherland) party, has been on the top in presidential ratings in Ukraine, being followed by such candidates as showman Volodymyr Zelensky, the leader of the Civil Position party Anatoliy Hrytsenko, the leader of the Opposition Platform — For Life bloc Yuriy Boiko, and the incumbent president Petro Poroshenko. This has been established as a result of an all-Ukrainian opinion poll jointly conducted by the Ukrainian Oleksandr Yaremenko Institute for Social Research and the Social Monitoring Center from December 1 to 10, 2018.
Some 14.8% of those polled said they would vote for Tymoshenko in the upcoming presidential elections in Ukraine, which are due on March 31, 2019. The other candidates have the following ratings: 8.8% for Zelensky, 8.6% for Hrytsenko, 8.3% for Boyko, and 8.1% for Poroshenko. At the same time, 14.1% of those polled could not provide an answer and another 11.8% said they would not go to vote at all.
Among the respondents who have made up their mind and are going to cast their votes in the elections in March, 20% would vote for Tymoshenko, 11.9% would vote for Zelensky, 11.6% would vote for Hrytsenko, 11.1% would vote for Boiko, and 10.9% would vote for Poroshenko. Some 3.2% of those polled said they would vote for some other candidates.
A total of 2,198 people were polled in face-to-face interviews across Ukraine for the exception of the temporarily occupied territories. The sample standard deviation is not more than 2.1%.

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