Ukrainian Fixed Income Strategy: Gathering dark clouds in summer
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Ukrainian Fixed Income Strategy: Gathering dark clouds in summer Ukrainian Fixed Income Strategy: Gathering dark clouds in summer Document Transcript

  • Fixed Income Strategy July 1, 2009 Ukrainian Fixed Income Strategy: Gathering dark clouds in summer After spring rallying, Ukrainian òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) Ââèäó Eurobonds remain flat/slightly up. Despite EMBI spreads performance PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, investors start considering EM to be overvalued, andëó÷øå êðàñêàìè âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà the rally looks over, some ñèñòåìû PMS Process (CMYK). 4000 ideas have been left unnoticed. C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 EMBI Global R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 3500 EMBI+ Ukraine 3000 It looks like the darkness is gathering in the summer: a large amount of 2500 sovereign and quasi-sovereign debt is to be redeemed, and natural gas 2000 should be pumped into underground storage bunkers. 1500 We believe, Ukraine will be able to repay its debt in 2009, and prefer short- 1000 term notes over long-term and high-quality issues over high-yield. 500 0 For those who feel bullish even though the rally is over, we recommend Sep-08 Nov-08 Jan-09 Mar-09 May-09 investing in our top picks. Among Ukrainian banks it is UKRSIB11 and Source: Cbonds PRBANK 12. Among other corporate sector issues, we recommend taking a look at NAFTO 09 and AZOVTL 11, while selling MHP 11. 7 best and 7 worst performing Eurobonds in terms of BID YTM change For those who prefer riskier, ‘junk’-grade bonds but offering high-yield opportunities, we've done a case study of Ukrainian distressed debt and ALFAUA 11 recommend VABANK 10 (43% of par) and XXIC 10 (20% of par), since returns FICBUA on these issues could become significant. 10 NAFTO 09 TOP trading ideas ALFAUA ASK ASK 09 Price YTM Comments EXIMUK 09 Low-leveraged company, core asset of strong ALFAUA Azovstal 11 79.00 25.50 Ukrainian business group SCM 10 Naftogaz 09 88.50 63.32 State support should be there UKRAIN E 09 The largest Ukrainian bank in terms of assets KIEV 11 Privatbank 12 65.00 27.87 Could count on support of strong Ukrainian Privat Group UKRSIB 11 UkrSibbank BNP Paribas subsidiary 93.00 13.20 PRBAN 08/11 Undervalued compared to other bank's issues K 12 Is priced at the level of banks which are in PIVDE 10 VAB Bank 10 43.00 132.80 default on their liabilities – but still paying coupon VABAN K 10 Both liquidation and restructuring scenarios FIUKR XXI Century 20.00 425.00* leave investors with good return 10 NADRA *estimated return, % of initial investment at current price (ROI) 10 Source: indicative Bloomberg quotes, Phoenix Capital -15,000 -5,000 5,000 15,000 25,000 35,000 Source: Bloomberg Recent Reports: Nadra bank: no light at the end of tunnel Kernel: Initiating coverage (BUY: FP=$15.56) MHP: Recommendation Update Ukrainian Steel Industry: Staying Alive Maria Maiboroda 1 mm@phoenix-capital.com.ua t. +380 44 254 62 75
  • Table of Contents The rally is over: some ideas left unnoticed............................................................................................................ 2 TOP investment ideas............................................................................................................................................... 4 Calendar of major upcoming events for 2009........................................................................................................ 5 The crisis is far from over: economic implications for Eurobond issuers........................................................... 6 Corporates: leaving 1Q2009 behind, what’s next?.................................................................................................. 10 Interpipe (INPIP): Cautious hold.......................................................................................................................... 10 Azovstal (AZOVTL): Undervalued corporate credit............................................................................................ 11 Kyivstar (OKST): An expensive safe haven........................................................................................................ 12 Naftogaz (NAFTO): A risky buy............................................................................................................................ 13 .... 14 MHP (MHPSA): Too much popularity................................................................................................................... “Junk” bonds case studies: is there any value?..................................................................................................... 15 First Ukrainian Interbational bank (FIUKR): Hold............................................................................................... 15 Finance and Credit Bank (FICBUA): Hold........................................................................................................... 16 Nadra bank (NADRA): Sell.................................................................................................................................... 17 Alfa Bank Ukraine (ALFAUA): Fair YTM of new notes at 60%........................................................................... 18 XXI Century (XXIC): Buy........................................................................................................................................ 19 Eurobond market data............................................................................................................................................... 20 Appendix 1: Summary of anticrisis measures in agriculture, metals and banks................................................. 22 Appendix 2: TOP ideas. Companies' financials....................................................................................................... 23
  • Fixed-Income Strategy Strategist’s comment: The rally is over, but some ideas have been left unnoticed PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). Liquidity in global markets has gone up, as has sentiment towards Emerging Markets. R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 Liquidity in global markets has gone Central banks and government efforts have helped restore optimism – but who knows up... for how long. We remain cautious about global inflationary pressure, which may follow the recent growth in monetary supply. And in the long-run, if inflationary scenarios come true, it would appear wise to look to equity rather than to fixed income instruments. ... pushing Ukrainian Eurobond After the spring rally, Ukrainian Eurobonds experienced only a slight correction prices higher. in mid-May and then remained flat to slightly up. The rally was supported by global optimism and driven by huge liquidity injections from developed world governments and their central banks, as well as improved sentiment towards Emerging Markets and IMF support to Ukraine. But the liquidity surplus in financial markets, as before, has unpredictable consequences, and nobody knows how long these consequences will last. It must be said, at least, that the Ukrainian market was heavily undervalued in early 2009 (see PHNC “Ukraine's Credit Ratings and Default. Does the Picture Really Look so Gloomy?” from Feb. 26, 2009) and helped correct this imbalance. As of now, we believe the rally is As of now, we believe the rally is over, with yields on the Ukrainian Eurobond market over already close to pre-crisis levels – and the crisis is far from over. The world economy remains in a downward trend, with the Ukrainian economy still in a critical period. There are some buyers of Ukrainian risk at current levels, but holders remain reluctant to sell, and bid-offer spreads are rather wide. Lately, investors have even begun considering the EM to be overvalued, and Ukraine is one country where such sentiment could prevail. The country continues to reel from political turmoil, as well as the Gazprom-Naftogaz payment problem and the ongoing banking crisis. We therefore believe that Ukrainian risk should be valued higher than before the crisis when comparing it to global EMs. Ukrainian spreads have reached a seven-month low, but this should imply only slightly more optimism than a fair evaluation of Ukrainian risk. EMBI Global vs. EMBI+ Ukraine 4000 EMBI Global 3500 3000 EMBI+ Ukraine 2500 2000 1500 1000 500 0 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Source: Cbonds The summer should remain more or The summer should remain more or less calm, without slides or rallies like those over less calm, but August-September autumn 2008 to spring 2009. But it looks like the picture is becoming gloomier in Ukraine will be an important stress test for over its fiscal stability and the banking system. The big boom could fall as early as the country August-September 2009, when a large amount of sovereign and quasi-sovereign debt (Eurobond issues of $1,250 mln) are to be redeemed, and a large amount of natural gas should be pumped into underground storage bunkers (approx. $3.5 bln in funding for this remains to be found). We believe Ukraine will be able to repay its Eurobond debt in 2009, but the coming months will be an important stress test for the country’s fiscal and economic stamina. After Ukraine 09 redemption, Ukraine 11 and Ukraine 12 Eurobonds prices could increase significantly. Overall, we prefer short-term notes Overall, regarding any investment strategy in the Ukrainian fixed income market, we over long-term and high-quality prefer short-term notes over long-term and high-quality issues over high-yield. From this issues over high yield. point of view, the Eurobonds of foreign-owned banks (UkrSibbank, Ukrsotsbank, Forum Bank), sovereign and quazi-sovereign issues look preferable. 3
  • Fixed-Income Strategy Top pics PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 Our top pick among first-tier Ukrainian banks is UKRSIB11 (undervalued compared to other foreign bank issues) and PRBANK 12 (undervalued compared to PRBANK 16). Among other corporate sector issues, we recommend taking a look at NAFTO 09 and AZOVTL 11, while selling MHP 11. For those who prefer riskier, ‘junk’-grade bonds that offer high-yield opportunities, we recommend VABANK 10 (37.5% of par) and XXIC 10 (20% of par), since returns on these issues could become significant. (Please find respective companies' financials in Appendix 2). Summary of recommendations on corporate Eurobond issues Eurobond Recommendation Price, % of par YTM, % p.a. Maturity Comment Low-leverage Azovstal 11 BUY 79.00 25.50 28.02.11 Backed by strong parent, Metinvest Demand in metallurgy slowly recovering Over-leveraged company Interpipe 10 HOLD 69.00 49.24 02.08.10 Dramatic (over 75%) downturn in output No sources of funding, except shareholders support Low operational risks Kyivstar 12 HOLD 99.00 8.15 27.04.12 Extremely low leverage Support from foreign shareholders Strong operational results MHP 11 SELL 73.00* 26.06* 30.11.11 Very liquid Eurobond Overvalued comparative to other corporates Naftogaz 09 BUY 88.50 63.32 30.09.09 State support should be there Restructuring ahead XXI Century BUY 20.00** - - Liquidation scenario leaves investors with good return Restructuring terms are as well very favorable *BID price and YTM, for others ASK price and YTM used **indicative price Source: indicative Bloomberg quotes, Phoenix Capital Summary of recommendations on banking Eurobond issues Eurobond Recommendation Price, % of par YTM, % of par Maturity Comment BNP Paribas subsidiary (parent to increase its stake by further 8%) Should be priced with YTM below sovereign curve UkrSibbank 08/11 BUY 93.00 13.20 08.04.11 as at other foreign-owned banks The issue is priced below other issues of UkrSibbank The largest Ukrainian bank in terms of assets Could count on support of strong Ukrainian Privat Privatbank 12 BUY 65.00 27.87 06.02.12 Group Could count on state support in need The issue is undervalued compared to PRBANK 16 Ukrainian bank co-owned by Israeli Kardan Group and a Ukrainian citizen Is priced at the level of banks which are in default VAB Bank 10 BUY 43.00 132.80 14.06.10 on their liabilities – but still paying coupon Low leverage: Eurobond issue is the only foreign debt to be redeemed Restructuring or liquidation ahead The restructuring terms are unfavorable, with the Nadra 10 SELL 13.00* 415.17* - most optimistic recovery of 11,5% of par In case of liquidation recovery rate will be close to zero *BID price and YTM, for others ASK price and YTM used Source: indicative Bloomberg quotes, Phoenix Capital 4
  • Fixed-Income Strategy Major upcoming events for 2009 PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 Major upcoming events that could determine market movements include the IMF’s decision on the third $3.8 bln tranche of the $16.5 bln loan to Ukraine which, according to Prime Minister Yulia Tymoshenko, could be given as soon as the end of July, depending on the outcome of the talks. The decision on the IMF’s 4th tranche, as well as EBRD participation and other funding from abroad, hold considerable importance for the public and banking sectors. Among other events we should note several debt restructuring proposals, which will be accepted or rejected this summer. Investors’ attitude towards borrowers and further developments (debt restructuring or bankruptcies) will determine prices on high-yield segment Eurobonds. Event July August September October November December Extremely Extremely Neutral to Overall environment and sentiment Neutral risky risky negative Positive Neutral Corporate debt FORUM 09 maturity, $100 mln 30.01.2009 ALFAUA debt restructuring proposal 22.12.2009 NADRA debt restructuring proposal FIUKR debt restructuring proposal XXI Century debt restructuring proposal 08.07.2009 Sovereign and quasi-sovereign debt UKRAINE 09 maturity, $500 mln 05.08.2009 EXIMUK 09 maturity, $250 mln 23.09.2009 NAFTO 09 maturity, $500 mln 30.09.2009 Major macro and industry events Monthly gas payments, $600-800 mln a month 07.07.2009 07.08.2009 07.09.2009 07.10.2009 07.11.2009 07.12.2009 Payments for gas stored underground, total of approx. $3.5 bln EBRD meeting on loans to Ukrainian entities IMF 3rd tranche decision IMF 4th tranche decision 15.11.2009 Six months to Presidential elections 17.07.2009 UEFA final approval on Euro 2012 in Ukraine 1Q2009 data on GDP publishing 01.07.2009 2Q2009 data on GDP publishing 01.10.2009 Seeding campaign Source: Phoenix Capital estimates 5
  • Fixed-Income Strategy The crisis is far from over: economic implications for Eurobond issuers PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 We believe the crisis is far At present, the positive newsflow is coming from global markets and Ukraine’s co- from over despite the positive operation with IFIs, but we believe the crisis is far from over. Public finances in Ukraine newsflow are in poor shape, with a huge hidden budget deficit and the government all but begging for money to make monthly gas payments and pump gas into underground storage bunkers. Banks, meanwhile, continue to suffer from growing NPL level, funding outflows and undercapitalization. Many other companies are suffering from the global downturn in demand and falling commodity prices, and the government must somehow deal with this mess ahead of the 2010 Presidential elections. Below we will try to examine the implications of these major economic developments on the Eurobond market. The budget is in poor shape… The government has announced plans to collect UAH 239 bln in budget revenues in 2009 with expenditures of UAH 267 bln. Deficit and debt repayments are to be financed by borrowing UAH 88 bln. The budget, which is based on assumed GDP growth of 0.4%, is unrealistic in our opinion, though we still think the government’s current budget targets could be reached in 2009, but only through an increase in the money supply. The government’s anti-crisis measures, including support for agricultural producers, steel mills and banks, looks underfinanced but will still put additional pressure on the budget, especially with respect to bailing out troubled banks and other economic support programs now in play (please see Appendix 1 for details of Ukraine’s anti-crisis measures). … but a sovereign default is Sovereign debt repayments total $2.0 bln through the end of 2009. Even if we add $0.7 unlikely bln of quasi-sovereign debt repayments, the total remains insignificant compared to the $27 bln of current foreign reserves; The state budget includes UAH 125 bln to be redistributed through the Finance Ministry. This is much more than the UAH 67 bln from last year, and the Ministry can now redirect money flows from other spending to meet its foreign debt obligations; The current account deficit is insignificant, totaling $600 mln over January-April and seems set to continue to improve against a background of rapidly shrinking import. A positive C/A would allow the government to spend less of its foreign reserves on hryvnia interventions and instead make that money available for foreign debt repayments; The EBRD and the World Bank have recently agreed to provide Ukraine with new loans. Moreover, we expect that they will also prolong the country’s existing debts, and foreign banks with operations in Ukraine have announced plans to inject $2 bln-3 bln into their Ukrainian affiliates. All of these measures will match net capital outflows from Ukraine this year, which will in any case be much lower than foreign debt repayments of $12 bln in 2H2009; The IMF announced it will give an additional $7 bln loan to Ukraine by the end of 2009 ($2.8 bln was already given in May). These funds are allowed to be used to fund the budget deficit and help the government manage its external liabilities. 6
  • Fixed-Income Strategy The situation is much worse in Though the situation in the Ukrainian banking system has started to show positive the banking sector… signals, dark clouds are gathering on the horizon, as banks will face huge write-offs as PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè ñèñòåìû PMS Process (CMYK). early as 3Q2009. The writing is already on the wall thanks to several banks (losses of C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 UAH 12 bln in 5M2009 were the result of UAH 28 bln in loan loss provisioning), so tough times lie ahead for domestic banks. According to our estimates, approximately 50% of problem loans could be restructured, whether by granting grace periods or delaying maturities, but this will put pressure on interest income. However, with the increased cost of borrowing, interest expenses will rise, but a more serious problem is the liquidity gap that typically appears between long-term, often restructured loan portfolios and short-term (up to three-month) funding bases created by current accounts and individual deposits. Money for the long-run (long-term deposits, syndicated loans, Eurobonds) remains a question mark for the future. We believe those banks receiving government help and those relying on funding from European parent banks or IFI funding will emerge the winners in the very end and could acquire larger market shares, as weaker banks lose clients and even go bankrupt. As such, we prefer to take an extremely conservative approach to banking risk; investment opportunities for conservative investors among banks should therefore include UKRSIB, USCBUZ, FORUM and EXIMUK (please see “PHNC Ukrainian Banking Eurobonds: Family Matters” from Mar. 26, 2009). At current levels, liquid foreign bank Eurobonds looks more or less adequately priced. Offers on FORUMZ 09, USCBUZ 10, EXIMUK 09 and 12 and UKRSIB 10 are too low to be interesting – slightely overvalued due to a lack of sellers – and spreads remain too wide to sell these bonds at BID levels. In the short-term, prices on UKRSIB 11 (with maturity in August) could rise on both the bid and offer sides. We believe it should be priced better than sovereign issues as other foreign bank debts are. … but the government’s bail- The recapitalization of troubled banks began on June 10, 2009, when the government out could help … injected UAH 9.6 bln of authorized capital into Ukrgazbank, Rodovid Bank and Kyiv Bank, in effect nationalizing them. Ukrgazbank received UAH 3.2 bln in exchange for GAINERS: the state receiving an 84.21% stake; Rodovid bank received UAH 2.81 bln in exchange NADRA FICBUA for a 99.97% stake; and Kyiv Bank was given UAH 3.56 bln for a 99.93% stake. With the injection, the IMF’s requirement to launch bank recapitalization has been met and we do not see any reason for the Ukrainian government to recapitalize any other banks. Delays in the recapitalization of Nadra Bank and Ukrprombank are therefore very likely we believe. In any case, the government will not repay these banks’ debts anytime soon but only after these are restructured. Finance and Credit Bank and Imexbank have put recapitalization negotiations on hold and probably will be denied government help. … as well as that of the EBRD Recent economic developments in Ukraine demand that we take a look at the EBRD’s and other IFIs activity in the country. The bank has recently announced that it intends to invest EUR 1 bln on different projects here, with half of this amount to be devoted to the banking GAINERS: sector. EBRD loans to banks are usually long-term (3-10 years) and subordinated so UKRSIB they can be added to the bank’s Tier 2 capital. The EBRD has already invested over USCBUZ $750 mln into Ukraine this year and plans to spend approx. $670 mln more. We expect EXIMUK FORUMZ EBRD targets to be Forum Bank, UkrSibbank, Megabank and ProCredit Bank, plus local infrastructure and agriculture projects. Help from the EBRD is very important for these banks’ capital and for the survival of the Ukrainian banking system in general. 7
  • Fixed-Income Strategy Global economic and We forecast a 9.9% y-o-y decline in Ukraine’s GDP for 2009, including a 15.4% y-o-y commodity price slumps have drop in industrial output. The downturn has caused numerous problems: a significant PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè ñèñòåìû PMS Process (CMYK). drop in production in the metallurgy (AZOVTL) and pipe sectors (INPIP), a decline in gas C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 heavily affected Ukraine… R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 consumption and slackening payment discipline (NAFTO), and a drop in households’ GAINERS: LOSERS: income which, in turn, has led to a severe crisis in the public finance and banking sectors NAFTO AZOVTL (sovereign, City of Kyiv, banks). At the same time, the oil prices decline in 2H2008 put INPIP NAFTO Naftogaz’s costs down. We still assume a global recovery to start in 4Q2009 and expect industrial production in Ukraine to hit rock bottom over 2Q-3Q2009. These forecasts are supported by positive signals that have started to come from industry and agriculture. … but metallurgy has shown Metallurgy production volumes and prices have started to slowly recover with new some signs of recovery orders from Southeast Asia and China. In May, the domestic steel industry saw output increase 9.3% m-o-m. The pipe sector is far from stable, with production volumes at 55% of pre-crisis levels. The first signs of recovery must wait for oil & gas demand to GAINERS: LOSERS: return and infrastructure projects to be launched. And if rising oil prices give us some AZOVTL INPIP reasons for optimism, state infrastructure projects and the communal service sectors NAFTO (major Interpipe consumers) are unlikely to enjoy a recovery in the foreseeable future. At the same time, currently rising oil prices (to $70 per barrel from $40 in the bottom) mean hard times for Naftogaz and for Ukraine’s state budget and current account, as imported gas price in 3Q2009 could decline to $240 per tcm from the current $270 per tcm but then rise to $250 per tcm in 4Q2009 (implying an oil price level of $65 per barrel). Hryvnia stability favors After the hryvnia depreciated in autumn-winter (the interbank rate changed from UAH domestic sellers and importers 4.60/US$ to a peak of UAH 9.50/US$), it strengthened and reached UAH 7.65/US$ as of June 18, 2009. A period of relative stability has lasted since March 2009, and GAINERS: LOSERS: a stable hryvnia favors domestic sellers and importers – which have obligations in NAFTO AZOVSTL foreign currency – as well as municipals and the state. By contrast, UAH appreciation MHP INTPIP BANKS has hit domestic exporters, whose goods have lost their competitiveness against the background of an overall decline in global demand. For 2009 we expect the hryvnia to be stable or even to slightly depreciate (target exchange rate – UAH 8.50/US$), with a slight depreciation also expected for early-2010. UAH/$ 8.80 Bid 8.60 Ask 8.40 8.20 8.00 7.80 7.60 7.40 7.20 7.00 2-Mar 16-Mar 30-Mar 13-Apr 27-Apr 11-May 25-May Source: Ukrdealing The political situation has The political outlook that was expected to bring changes in June, when the formation brought no changes to the of a broad coalition seemed possible, has instead only resulted in minor change. We market expect the president will be elected in January 2010 through a general election, with one of three candidates – former PM Viktor Yanukovych, current PM Yulia Tymoshenko and former Parliament Speaker Arseniy Yatsenyuk – likely to win the poll. No one political force will dominate the race and so the confrontation between the branches of power will remain. The political situation, at least until parliamentary elections in 2012, will be unlikely to differ from that seen in recent years. 8
  • Fixed-Income Strategy Summary of macro and operating environment implications PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 Event/trend Impact Gainers (Losers) Government anti-crisis measures Banks + NADRA, FICBUA, EXIMUK Metallurgy + AZOVTL Oil & gas + NAFTO IFI help Banks + FORUM, UKRSIB, USCBUZ, EXIMUK Agriculture + Infrastructure + Commodity price slump Metallurgy - AZOVTL Pipes - INPIP Oil&gas + NAFTO Economic downturn NADRA, FICBUA, VAB, FIUKR, Banks - PIVDE, UKRSIB, USCBUZ, FORUMZ, EXIMUK, PRBANK, ALFAUA Metallurgy - AZOVTL Oil & gas - NAFTO Pipes - INPIP Municipal - KYIV CITY Hryvnia stability/appreciation NADRA, FICBUA, VAB, FIUKR, Banks + PIVDE, UKRSIB, USCBUZ, FORUMZ, EXIMUK, PRBANK, ALFAUA Domestic sellers, importers + MHP, OKST, NAFTO, KYIV CITY Exporters - AZOVTL, INPIP Source: Phoenix Capital 9
  • Fixed-Income Strategy Corporates: leaving 1Q2009 behind: what’s next? PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). Interpipe: Cautious hold R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 • The Interpipe Eurobond is being offered at 49% YTM, implying a 2,800 bps Interpipe 10 issue parameters spread over the sovereign curve. A substantial share of the issue was bought YTM, %* 49.24 back by an Interpipe affiliate company at a price below par, meaning the issue is Price, %* 69.00 no longer very liquid. Redemption Aug 2, 2010 • We believe a fair level exists at 2500-3000 bps, thus this Eurobond should be Amount, $mln 200 rated as a Hold, while holders should very carefully examine the situation in the Coupon, % p.a. 10.25 domestic pipe business. Frequency S/A *offer • Dramatic output decline over 2H2008-1H2009 and redundant leverage are bad Source: Bloomberg signs for investors. Interpipe 10 performance • Early signs of a revival in the pipe market could boost the Interpipe Eurobond, but if the situation continues into 2H2009, the company could wind up unable to 120 8000 redeem its debt without the help of its main shareholder, Ukrainian businessman 100 6000 Viktor Pinchuk. 4000 80 2000 Interpipe has suffered from a downturn in pipe demand (mainly the result of reduced 60 0 funding for infrastructure projects) maybe more than all other Ukrainian issuers. Its largest -2000 40 mill – Interpipe NTRP – has seen monthly production decline in September 2008 by -4000 20 -6000 76% from its peak to 11,000 tonnes in April. Other mills have performed the same or 0 -8000 even more poorly. Together with the heavy price correction, the drop in demand has hit Interpipe particularly hard, leading us to expect a significant deterioration in the company’s Jan-08 Jul-08 Jan-09 financials: profitability and debt ratios are likely to appear dramatically worse than 1H2008 BID YTM, % (lhs) results, and we do not exclude the possibility of net loss in 1H2009. Spread over sovereign curve, b.p. (rhs) Source: Bloomberg Interpipe’s future depends on pipe demand. If the current situation lasts through 2H2009, Interpipe financials, IFRS, $mln the company could suffer substantial losses, leaving only shareholders to redeem company 2007 1H2008 debts. Any early signs of revival will stem from increases in world crude oil prices and communal infrastructure investments reviving, as well as Interpipe changing its production Revenues 478 804 mix in favor of railcar wheels. EBITDA 154 278 Net income 47 180 The company performed a buy-back of its Eurobonds (the buyer was Millen Financial Ltd.) Assets 953 1,359 and a meeting of bondholders agreed changes to the covenants on Interpipe’s Eurobond Equity 419 781 issue in exchange for a 1.5pp coupon rate increase, to 10.25% p.a. The covenant on leverage ratio was increased from 3.5 to 4.5, and a $355 mln loan, secured by SACE, was Financial debt 427 436 added to the list of permitted indebtedness. We doubt the company will comply with this Debt/EBITDA 245% 127% leverage ratio when it releases its FY2009 financials (though for 2008FY IFRS financials Debt/ Equity 102% 56% the situation could be rescued by posting strong 1H2008 results together with today’s Source: Interpipe lower steel prices, Interpipe’s major input). As of Dec. 18, 2008, Interpipe had total debt of $970 mln, of which $465 mln was secured by company assets. Interpipe’s 1H2008 EBITDA totaled $170 mln (expected FY2008 EBITDA is $300 mln-350 mln), and is expected to decline dramatically in 2009. Given unsecured status of $200 mln in Eurobonds, Fitch assumes a 31-65% recovery of this debt in the event of default. The good news is that Interpipe’s main beneficiary, Viktor Pinchuk, is likely to support the company. He appears to have the cash to do this following the sale of Ukrsotsbank, Ukraine’s 4th-largest bank, to Italy’s UniCredit Group for $2 bln in 2007. Interpipe mills monthly tubes production, Average prices on seamless pipes, FOB, '000 tonnes Black and Azov sea 2500 60 50 2000 40 1500 30 1000 20 10 500 0 0 Jan-08 May-08 Sep-08 Jan-09 Jan-08 May-08 Sep-08 Jan-09 May-09 Interpipe NTRP Seamless pipes 168-325 mm Interpipe NIKO TUBE Interpipe NMPP Seamless pipes 57-159 mm Source: Metal-Courier Source: Metal-Courier 10
  • Fixed-Income Strategy Azovstal: Undervalued corporate credit PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 • AZOVTL is still relatively cheap compared to local peers, particularly MHP. Azovstal 10 issue parameters AZOVTL 11 is on offer at 25.5% YTM, implying a 1,245 bps spread over the YTM, %* 25.50 sovereign curve. We believe a fair level should stand between 750-1,000 bps. Price, %* 79.00 Redemption Feb 28, 2011 • Despite the expected 30% decline in output in 2009, we expect Azovstal to be able to service its foreign debt. Amount, $mln 175 Coupon, % p.a. 9.13 • Parent Metinvest Group (controlled by the SCM holding) has a consolidated debt/ Frequency S/A EBITDA ratio below 1.0, and Azovstal itself has low levels of leverage. *offer Source: Bloomberg Azovstal’s operational activity was badly hit by the global downturn, the decline in metal prices, and its low volume of orders. However, strong growth in 1H2008 laid the groundwork AZOVTL11 performance for good operational results for FY2008. In 2009 the situation will likely be much tighter, as the company has announced plans to decrease crude steel production by 39% y-o-y. 120 10000 In any case, we believe this AZST forecast is too pessimistic given the current recovery 100 8000 underway on global steel markets. 80 6000 60 4000 We expect Azovstal to be able to service its foreign debt. Azovstal is currently operating at approx. 58% of its total steel production capacity, having produced 1.25 mln tonnes of 40 2000 crude over January-May (-41% y-o-y). Despite an announced 39% decline in crude steel 20 0 output in 2009 (to 3.36 mln tonnes) and a reduction in its rolled steel output of 41.4% y-o-y 0 -2000 (to 2.96 mln tonnes) brought about by major declines in steel prices, the company should Jan-08 Jul-08 Jan-09 be sustainable in the mid- and long-term. Azovstal’s greatest competitive advantage is its BID YTM, % (lhs) vertical integration, which provides for stable product demand from related European re- Spread over sovereign curve, b.p. (rhs) rolling mills, while also ensuring a stable and cheap supply of raw materials. Source: Bloomberg, Phoenix Capital estimates The company’s Debt/EBITDA ratio under UAS for 2008 was 0.31x, while its share of short- Azovstal financials, IFRS, $mln term debt is negligible at 0.9%. Azovstal’s EBITDA was $571 mln in FY2008. For 2009, we 2006 2007 assume a 30% drop in output and a 50% decline in selling prices for its products, meaning Revenues 2,467 3,294 EBITDA will be much lower, at $175 mln-200 mln, but still leaving its Debt/EBITDA ratio EBITDA 343 558 lower than 1.0x. Net income 139 349 Azovstal parent Metinvest Group maintains a strong financial position compared to other Assets 2,627 3,615 Ukrainian companies. Despite the weak demand for steel products in general, Metinvest Equity 1,825 2,670 has been able to generate positive results in the first few months of 2009 and also benefits Financial debt 343 235 from the substantial depreciation of the Ukrainian hryvnia and its self-sufficiency in raw materials, both of which give the company a significant cost advantage against other steel Debt/EBITDA 90% 28% mills focused on semi-finished products. Debt/ Equity 19% 9% Source: Azovstal Free cash flows generated by the holding have helped finance the first installment of Metinvest’s acquisition of U.S.-based United Coal Company. We cannot estimate the real level of leverage that Metinvest will have after the acquisition, as UCC is not a public company, but in general our filings about the group’s leverage are more positive than cautious. Metinvest’s short-term debt payable in 2009 (as of Dec. 31, 2008) is approx. $0.7 bln, which coincides with its cash and accounts held in various banks (mainly foreign). The group’s total debt was $2.5 bln as of Apr. 1, 2009, and is mainly long-term in nature. According to Moody’s, in 2008 Metinvest generated revenues of $13.3 bln and had operating profits of $4 bln. We believe its operational profit is sufficient for short-term debt redemption of the Metinvest Group (except for those of UCC, which are unknown) and will allow it to accumulate funds for further redemptions. AZST production structure Steel products prices, $/tonne, FOB, Black 0.6 1400 0.5 1200 0.4 1000 0.3 800 600 0.2 400 0.1 200 0 0 Jan-08 May-08 Sep-08 Jan-09 May-09 Jan-08 May-08 Sep-08 Jan-09 May-09 Crude steel Rolled steel Pig iron Billet Rebar Slab HRC Source: Metal -Courier Source: Metal-Courier 11
  • Fixed-Income Strategy Kyivstar: An expensive safe haven PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 • Kyivstar Eurobonds seem to have been a safe haven during the crisis, as the Kyivstar 12 issue parameters telecom business is well insulated against the economic downturn. YTM, %* 8.15 Price, %* 99.00 • Low operational risk, a stable business model, extremely low leverage and the Redemption Apr 27, 2012 presence of foreign shareholders helps the company’s Eurobonds to trade close to par, with a negative spread over the sovereign curve even in Autumn 2008. Amount, $mln 172 Coupon, % p.a. 7.75 • YTM of the Kyivstar 12 Eurobond is 8.15%, which is not of interest for risk- Frequency S/A inclined investors, but may be suitable for conservative ones. *offer Kyivstar, being the low leveraged mobile telecommunications firm in Ukraine, has hardly Source: Bloomberg felt the global economic downturn. Its shareholders, Norway’s state-owned Telenor and Russian firm Altimo (Alfa Group) seem to have finally found common ground and have held OKST 12 performance several recent shareholders meetings in which the two sides have reached agreement on 30 2000 distribution of $1 bln in dividends from 2004-2005 and 2006-2007. 25 1000 20 0 Ukraine’s largest mobile phone services operator is overly liquid, having $1 bln in cash as of Jan. 1, 2009, and $730 mln as of Apr. 01, 2009, with total company liabilities of 15 -1000 $272 mln as of Apr. 1, 2009. Needless to say, the dividend payouts will not damage the 10 -2000 company’s liquidity profile. Though Kyivstar’s revenue and profits declined in USD-terms 5 -3000 due to the hryvnia depreciation ($130 mln of net profit in 1Q2009 vs. $217 mln in 1Q2008), 0 -4000 its efficiency remains very high, with an EBITDA margin of 58% and net margin of 36% based on 1Q2009 results. Jan-08 Jul-08 Jan-09 BID YTM, % (lhs) Spread over sovereign curve, b.p. (rhs) We believe Kyivstar is the best corporate credit in Ukraine, though its Eurobonds are Source: Bloomberg, Phoenix capital estimates very expensive compared to other Ukrainian issues, including sovereign Eurobonds, and attractive for conservative investors only. According to unaudited company financials Kyivstar financials, IFRS, $mln available on their website), Kyivstar has just $90 mln outstanding from its $175 mln Kyivstar 12 par value Eurobond. The rest is likely to be bought out by the company. 2007 2008 1Q2009 Revenue 2,148 2,465 360 EBITDA 1,251 1,458 211 Net profit 697 947 130 Total assets 3,024 2,267 1,916 Total equity 2,023 1,515 1,644 Financial debt 434 124 90 Financial debt/ EBITDA 35.0% 9.0% - Financial Debt/ Equity 21.0% 8.0% 5.0% Source:Kyivstar 12
  • Fixed-Income Strategy Naftogaz: A risky buy PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 • We regard Naftogaz as a buying opportunity for risk-inclined investors. Naftogaz 09 issue parameters YTM, %* 63.32 • We believe it will trade at the sovereign level plus a risk premium of approximately Price, %* 88.50 750-1,250 bps given that the probability of state support is high. The NAFTO 09 Redemption Sep 30, 2009 spread over Ukraine 09 now stands at 3,450 bps, which seems unnaturally wide (and at the same time too tight for those who are bearish on NAFTO). Amount, $mln 500 Coupon, % p.a. 8.13 • The point of no return will be the maturity of the Ukraine 09 Eurobond on Aug. 5, Frequency S/A 2009, which is prior to the Naftogaz maturity on Sept. 30, 2009. After the sovereign *offer Eurobond maturity, the chances of a successful redemption of Naftogaz should Source: Bloomberg surge. Our understanding of Naftogaz risks takes into greater consideration the general fiscal and NAFTO 09 performance political environment in Ukraine and the government’s attempts to rescue the company 300 25000 rather than manage its own financials. The company’s standalone quality is poor, as it 250 20000 has to provide subsidized gas to local consumers at prices lower than is paid to Russia 200 15000 for imports. For 2009, imported gas prices were calculated with a formula widely used in 10000 150 Europe. For 1Q2009 the total was $360 per tcm and for 2Q2009 it was $270.5 per tcm, and 5000 for 3Q2009 we expect it to be $200 per tcm, then increasing to $220 per tcm in 4Q2009 100 0 due to oil priced rising. At the same time, gas prices for local consumers are fixed by the 50 -5000 National Energy Regulation Committee (NERC) at unsustainably low levels ($53-216 for 0 -10000 households and $253-266 for industrial consumers, excluding VAT and other fees). These Jan-08 Jul-08 Jan-09 payment levels, especially from the side of communal utilities, leave Naftogaz with huge BID YTM, % (lhs) accounts receivable, though since 2010 prices for industrial consumers will be established Spread over sovereign curve, b.p. (rhs) on quarterly basis. Source: Bloomberg, Phoenix capital estimates The Russia-Ukraine gas contract assumes very strict payment discipline and liquidity gaps have to be covered by borrowing. Naftogaz still needs money to pay for the gas it Naftogaz financials, IFRS, $mln consumes on a monthly basis (the bill is $600 mln-800 mln per month), and according to 2006 2007 UAS results for 2008, it has $2.5 bln of short-term debt to be repaid but with just $261 mln Revenues 5,460 6,025 of available cash. The company’s financial plan FY2009, approved with a $1.3 bln surplus, still assumes a $3.5 bln-4 bln funding deficit for pumping gas into underground storage EBITDA 335 1,145 containers. Net income -431 -13 Assets 20,685 21,513 We have not changed our opinion on the government’s willingness to support the company; Equity 11,028 11,298 avoiding default on Naftogaz debt will help the government in at least three areas: Financial debt 2,409 2,549 • Positive internal political ratings, as Naftogaz will be a favorite topic for speculation Debt/EBITDA 720% 223% ahead of the presidential elections; Debt/Equity 22% 23% • Securing an international reputation as a reliable gas transit partner, as well as Source: Naftogaz supporting a positive credit history to receive funding from the IMF, EU and other foreign lenders in future; and • National security considerations, as Naftogaz is of great strategic importance for the country. The steps taken by the government up to the present moment support our view: • Naftogaz has received UAH 18 bln in loans from state-owned Oshchadbank, which was funded by government injections into the bank’s statutory fund; • Naftogaz has redeemed its three-year $200 mln L+165 bp bilateral to Standard Bank with the help of loans from state-owned banks; and • The Ukrainian government has authorized an increase in Naftogaz’s share capital by UAH 18.6 bln, to UAH 24.16 bln. Naftogaz subsidiaries Ukrtransgaz and Ukrgazvydobuvannya will also see their statutory funds increased, though final approval will only be possible after final amendments are made to the 2009 state budget. 13
  • Fixed-Income Strategy MHP: Too much popularity PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 • The MHP 11 Eurobond is now on offer at 78% of par, which corresponds with a MHP 11 issue parameters yield to maturity of 22% and an 848 bps spread over the sovereign curve, the YTM, %* 22.60 lowest among Ukraine’s corporate Eurobond market, excluding Kyivstar. Price, %* 78.00 Redemption Nov 30, 2011 • The note skyrocketed on the release of the company’s financial results (accompanied by a conference call) and now looks rather overvalued. We Amount, $mln 250 understand the high liquidity and popularity of the issuer but consider the price Coupon, % p.a. 10.25 too high compared to other Ukrainian issues. Frequency S/A *offer • MHP is well-positioned in the ongoing financial crisis from an operational point Source: Bloomberg of view, but its leverage is slightly higher than what we consider comfortable. MHP 11 performance MHP is a large, vertically integrated poultry producer. It owns and operates companies involved in all stages of the poultry production process, from feed grains and fodder 80 8000 production to egg hatching and grow out farms to processing, distribution and sales 70 6000 60 channels. We assume that MHP’s vertically integrated production allows the company 4000 50 to control up to 70% of COGS. Poultry is the cheapest meat product in Ukraine and the 2000 40 elasticity of demand for the product is low, allowing prices to be increased. 0 30 20 -2000 10 -4000 A recent boost in output has led revenues and EBITDA to skyrocket, but the company’s 0 -6000 debt burden remains high. Total revenues for MHP rose by 69% y-o-y in 2008, to $803 mln, while EBITDA increased to $301 mln (+92% y-o-y), with EBITDA margin rising to 37.5%. Jan-08 Jul-08 Jan-09 The government has extended VAT payment benefits and the fixed agricultural tax for BID YTM, % (lhs) agribusinesses through 2009, both of which benefit MHP, but direct state subsidies ($48 Spread over sovereign curve, b.p. (rhs) mln in 2008) are unlikely in 2009. This will drag MHP’s EBITDA down, so to compensate Source: Bloomberg for this the company plans to increase the selling price of its poultry. MHP financials, IFRS, $mln Leverage levels are slightly above the comfort level; the company needs to renegotiate 2007 2008 some of its debt. MHP’s Debt/Equity ratio stands at 1.47x (1.02x in 2007), but management Revenues 474 803 feel comparatively comfortable with this, even at current debt levels, given MHP’s large EBITDA 157 301 share of long-term debt and established long-term relations with banks and other lenders. MHP’s leverage decreased in 2008 due to the growth of production volumes and an Net income 47 5 improved EBITDA margin, while the company’s financial Debt/EBITDA ratio declined from Assets 953 925 2.7x in 2007 to 1.7x in 2008. The company’s maximum debt redemption obligations stand Equity 419 346 at $109 mln for 2009, according to MHP management. At the same time, a $20 mln loan Financial debt 427 508 from OTP Bank has already been rolled over to 2010, and a $35 mln loan from ING Bank Net Debt/EBITDA 259% 142% is actually a revolving committed credit facility, which will mature in 2010, but was reported as a short-term loan in MHP’s IFRS statements due to its semi-annual pay-out. Financial debt/ Equity 102% 147% Source: MHP Funding sources mean the company has working capital, but just barely. The company plans to finance its $150 CAPEX ($40 mln of which has already been spent in 1Q2009) and redeem existing short-term debt from available cash, new debt facilities (already committed) of $25 mln-40 mln and from other internal sources. If hryvnia dynamics become less volatile than we expect, the company’s financial position will appear much stronger: At the current UAH/US$ exchange rate, MHP would realize 2009 EBITDA of approx. $250 mln. Note that the company anticipates receiving $100 mln in USD-denominated revenues from sunflower oil sales in 2009, thus providing a partial hedge against currency risks. In our view, hryvnia depreciation could place the company in a very tenuous situation, but with debt repayment and execution of its CAPEX program manageable even despite such currency risks. MHP average COGS vs selling price, $/kg 2007-2008 MHP production volume, '000 tonnes 3.0 2.7 2.7 60 2.5 2.1 50 1.7 1.9 1.9 2.0 1.6 1.5 40 1.38 1.5 1.9 30 1.7 1.7 1.0 1.5 20 1.1 1.2 0.5 1.0 0.87 10 0.8 0.0 0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 Poultry COGS, USD per kg Seling price, USD per kg Source: MHP, Phoenix Capital estimates Source: MHP, Phoenix Capital estimates 14
  • Fixed-Income Strategy «Junk» bonds case studies: is there any value? PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 • The main issue lying in the forefront of investors’ minds these days is whether a company in default will survive or be liquidated, and what return on investment can be expected in such cases. We have made certain assumptions with respect to liquidation and restructuring scenarios for each of the following companies and have evaluated the recovery bondholders could expect to receive in each case. • International rating agencies have assigned a recovery rating for the senior debt of most Ukrainian corporates and banks at 31%-50% of current principal and related interest. In our opinion, the recovery on defaulted banks’ Eurobonds with respect to our liquidation scenario seems much lower. • We have chosen XXIC as our top pick in this risk-filled segment as bondholders should benefit in case of either liquidation or restructuring at the company. First Ukrainian International Bank (FIUKR): HOLD FIUKR 10 issue parameters YTM, %* 127.39 First Ukrainian International Bank (FIUKR), Ukraine’s 13th-largest bank by assets, failed to Price, %* 58.00 redeem its $10 mln loan to Cargill Financial Services in April 2009 and has entered technical default. The bank announced its intention to restructure its foreign debt, which is rather an Redemption Feb 16, 2010 advance measure given the bank’s deteriorating loan portfolio quality. FIUKR’s $168 mln cash Amount, $mln 275 position, though rather strong, is still insufficient to cover its $479 mln of public liabilities which Coupon, % p.a. 9.75 come due in 2009 or its other $421 mln of debt, including bilaterals and trade financing. Frequency S/A *offer Currently, the FIUKR 10 Eurobond is trading at 53-58% of par. The demand for the issue is stable and high, and the price is following a positive bias. This leads us to believe that the Source: Bloomberg market is anticipating parent company System Capital Management (SCM) to repay FIUKR’s debts. FIUKR Debt profile Amount, Maturity/ However, we are concerned about the level of support for the bank that can be expected from $mln Put SCM. At present, SCM is focused on supporting its core assets, Metinvest and DTEK. After Syndicated loans 204 2009 spending considerable funds to purchase United Coal Company (estimated price- $1.4 bln-1.7 LPN (Eurobond) 275 Feb 16, 2010 bln), SCM itself may suffer a liquidity squeeze. Supporting FIUKR’s debt could therefore become burdensome and unappealing to SCM shareholders given the size of the bank’s liabilities. The Local bonds 121 2010-2011 first step towards neglecting the bank has already taken place by allowing it to default on the Bilateral and Cargill loan, which pales in comparison to SCM’s assets. trade finance 421 2009-2014 Source: FIUKR’s 2008 UAS results Restructuring case scenario For the purpose of analyzing a possible recovery in the case of restructuring, we have made several assumptions on possible restructuring offer, which would likely be attractive for investors. FIUKR's financials, UAS, $mln It would include extension of the loan maturity date for 3 years (to Feb. 16, 2013), adoption of 2008 1Q09 an annual amortization schedule starting from 2011, and change of the interest rate from 9.75% Total Assets 2,618 2,409 to 11.75%. We use the MID YTM of the Ukraine 13 Eurobond as discount ratio (14.89%). This Total shareholder brings us a recovery rate of 98% if the coupon is capitalized. equity 453 437 Total liabilities 2,165 1,973 Liquidation case scenario Net income 2 -16 The liquidation case scenario could come to pass, but only if debt restructuring is rejected. The scenario at first glance looks quite attractive (assuming 100% Eurobond par value recovery ROA* 0.02% -0.20% rate), but the risk exists that the actual recovery rate on unsecured debt will be at a very low ROE* 0.14% -1.15% level – common for all Ukrainian banks. Loan loss reserves/ loan portfolio 6.46% 8.97% Restructuring case Equity/assets 17.30% 18.12% Liquidation case *Annualized Issue par value, $ mln 275 Total assets, $ mln 2,409 Source: NBU Assumed coupon rate 11.75% Assumed amortization schedule Annual beginning in Assumed loans recovery, %* 86% 81% 76% 2011 Total adjusted assets, $ mln 2,147 2,053 1,959 Assumed maturity 2013 Total liabilities, $ mln 1,973 NPV of cash flows on restructured 98% bond, % of FIUKR 10 par Eurobond recovery rate (% of par) 100% 100% 95% Source: Phoenix Capital estimates * Recovery rates in optimistic scenario refer to FIUKR management estimates Source: Phoenix Capital estimates 15
  • Fixed-Income Strategy Finance and Credit Bank (FICBUA): HOLD FICBUA issue parameters Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, YTM, %* 303.13 âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). In March 2009, Finance & Credit Bank (FICBUA), ranked 14th by assets in Ukraine, defaulted R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 Price, %* 38.00 on its $70 mln syndicated loan, which triggered a default on its $100 mln Eurobond issue. The bank is developing a restructuring offer at the moment. According to FICB President Volodymyr Redemption Jan 25, 2010 Khlyvniuk, the bank intends to redeem its debt, and shareholders are ready to provide some Amount, $mln 100 security regarding debt repayment. Coupon, % p.a. 10.38 Frequency S/A FICBUA has to date resisted disclosing its 2008 IFRS results openly. We assume its asset- *offer quality deterioration is less significant than that of other 2nd-tier banks given that the bank’s loan portfolio mainly consists of loans to corporate clients, predominantly in export-oriented sectors Source: Bloomberg (62% of its loan portfolio). The bank is no longer looking for the state to step in as it did before, but is going to try to resolve the situation itself. Public debt profile Amount, Looking ahead, the bank is likely to be rescued by parent Finance & Credit Group. Given that $mln Maturity/Put the bank has underwritten past and ongoing payment schemes within the Group, rescuing the Syndicated loans 70 default bank is likely very important for shareholders. Syndicated loans 43 2009 Restructuring case scenario LPN (Eurobond) 100 Jan 25, 2010 We assume the terms of any restructuring offer to be largely similar to those of FIUKR, with Source: Bloomberg, Loan Radar maturity postponed by three years, coupon paying around 12.375%, capitalization of interest and adoption of an amortization schedule. This brings us a recovery rate of 100% if the coupon Finance&Credit Bank financials, is capitalized. UAS, $mln Liquidation case scenario 2008 1Q09 A liquidation scenario looks unlikely to us in the case of Finance & Credit because it would be Total assets 2,395 2,379 highly unattractive for bondholders. We estimate the recovery rate on bank Eurobonds to be 23% Total Equity 322 322 of par, implying 72% recovery on its retail loan portfolio and 85% recovery on its corporate loans. Total Liabilities 2,073 2,057 We should note, however, that the actual recovery rates are very likely to prove much lower. Net income for 12 month 27 25 ROA 0.3% 0.2% Restructuring case Liquidation case ROE 2.0% 1.8% Issue par value, $ mln 100 Total assets, $ mln Loan loss reserves/loan 2,379 portfolio 1.5% 4.6% Assumed coupon rate 12.375% Assumed loans recovery, %* 86% 81% 76% Equity/assets 13.4% 13.5% Assumed amortization schedule Annual beginning in 2011 Total adjusted assets, $ mln Source: Bank 2,070 1,967 1,864 Assumed maturity 2013 Total liabilities, $ mln 2,057 NPV of cash flows on restructured 100% bond, % of FICBUA 10 par Eurobond recovery rate (% of par) 100% 23% 0% Source: Phoenix Capital * Recovery rates assumed to be similar to those for FIUKR Source: Phoenix Capital 16
  • Fixed-Income Strategy Nadra Bank (NADRA): SELL NADRA 10 issue parameters Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, YTM, %* - âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). Nadra Bank, ranked 10th by assets among Ukrainian banks, has suffered a liquidity squeeze R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 Price, %* 13.00 and has to be nationalized if foreign lenders agree the debt restructuring. After a scandal about misapplication of NBU refinancing funds in late 2008, Nadra Bank fell under temporary Redemption Jun 28, 2010 administration and began developing its $829 mln debt restructuring offer. On June 23, 2009, Amount, $mln 175 the bank announced its $175 mln Eurobond restructuring terms, which are highly unfavorable Coupon, % p.a. 9.25 to bondholders even under the most optimistic scenario. Frequency S/A *bid The government will step in only if the restructuring terms are accepted (with a UAH 5.5 bln injection of equity to be directed towards repayment of individual deposits), and even this does Source: Bloomberg not guarantee the bank’s survival in the long term. However, the government’s equity injection, according to the Nadra presentation, will be directed towards individual deposits repayment. We Debt profile do not believe that the government would be an effective collector for the bank’s problem loans Amount, $mln portfolio and presume Nadra will be liquidated sooner or later under state management, just as Bank Ukraina was after floundering from the late 1990s until the early 2000s. The only hope as Trade related loans 408 such lies in the state selling the bank to an investor, but this looks highly doubtful at present. Eurobond 175 Local bonds 68 Given our assumptions on restructuring and liquidation scenarios, we recommend selling the Nadra Bank Eurobond at any price higher than 11.5%. Off-balance liabilities 178 NBU/ State-owned Restructuring case scenario lenders 1,103 Option 1. Buy-back Source: Bank Debtholders are offered a buy-back at 15% of par. However, Nadra has only $20 mln reserved for this transaction (we believe, assuming both accrued interest and principle repayment), while total issue volume stands at $175 mln of par. Under this scenario, one could expect to receive up to 11.5% of par in the best case (barring special treatment of particular investors, Nadra Bank's balance sheet, $mln which is highly probable). 1 Jun 2009 Cash and equivalents 70 Option 2. Discounted rescheduling Amounts due from banks, net 131 This scenario assumes the write-off of 60% of par and bullet repayment in July 2015 with an Loan portolio, net 2,684 interest rate of 9.25% p.a. This scenario assumes Nadra’s survival until 2015 and that it will be able to repay its debt, which is doubtful given the very poor financial condition of the bank and Retail 1,971 the fuzzy strategy disclosed in its debt restructuring presentation. Corporate 1,011 Provisions -298 Liquidation case scenario Securities 135 Bondholders are the last among ranking creditors after secured creditors, individual depositors Property, plant and equip. 228 and others. As such, the recovery rate in case of the troubled bank’s liquidation will be close to Other assets 275 zero. Total assets 3,522 Amounts due to NBU 1,013 Customer funds 1,249 Retail 1,068 Corporate 181 Amounts due to banks, IFIs, and other liabilities 1,040 Subordinated loans 109 Total liabilities 3,412 Total equity 110 Total liabilities and equity 3,522 Source: bank 17
  • Fixed-Income Strategy Alfa Bank Ukraine (ALFAUA): Fair yield of new notes - at 60% p.a. ALFAUA issue parameters Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, 09 10 11 âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). On July 1, 2009 Alfa Bank Ukraine, 9-th largest Ukrainian bank owned by Russian Alfa Group, R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 Price, % of par* 63.00 54.00 58.67 announced the beginning of an exchange offer and consent solicitation for any and all of the $345 mln 9.75% LPN due 2009; the $450 million 9.25% LPN due 2010; and the $250 mln Amount, $mln 345 450 250 12.00% LPN due 2011 for dollar-denominated 13.00% amortizing LPN, due 2012, to be issued Coupon, % p.a. 9.75 9.25 12.00 by Ukraine Issuance plc and cash. Cash payment per 1000 of par 270 150 270 Considering that the new notes should yield 60% p.a. after restructuring (assuming a premium New notes of 3,000 bps over PRBANK 12, which could later squeeze to 1,500–2,000 bps after the principle, per restructuring is approved), we discovered a level of 61.5% BID/64.5% ASK of par for ALFAUA 1000 of par 730 850 730 09, 52.5%/55.5% of par for ALFAUA 10, and 57.17%/60.17% of par for ALFAUA 11. *estimated fair price, MID Source: Bloomberg The exchange consideration that each holder who elects to participate in the exchange offer prior to the early exchange deadline for holders of 2009 and 2010 notes or the expiration deadline for Alfa Bank Ukraine Financials, 2011 notes holders (July 14, 2009) will receive is as follows: $mln, IFRS 2007 1H2008 • 2009 notes – for every $1,000 of 2009 notes: a cash amount of $270 and $730 principal Total assets 2,598 3,737 amount of new notes; Total shareholder 313 544 • 2010 notes – for every $1,000 of 2010 notes: a cash amount of $150 and $850 principal equity amount of new notes; and Net interest 116 212 • 2011 notes – for every $1,000 of 2011 notes: a cash amount of $270 and $730 principal income amount of new notes. Net income 12 24 ROA 0.6% 0.87% Otherwise, noteholders who exchange their existing notes after the early exchange deadline but prior to expiration (July 21, 2009 for the 2009 notes and 2010 notes holders), where applicable, or Net interest 6.9% 7.4% margin who are obliged to exchange their existing notes following exercise of the call option (assuming the proposed amendments are approved), will receive the following: Cost/income ratio 64.5% 58.2% liquid assets/total 7.8% 8.2% • 2009 notes – for every $1,000 of 2009 notes: $1,000 principal amount of new notes; assets • 2010 notes – for every $1,000 of 2010 notes: $1,000 principal amount of new notes; and loans/deposits 268.3% 223.7% • 2011 notes – for every $1,000 of 2011 notes: a cash amount of $100 and $900 principal Loan loss 1.5% 2.1% amount of new notes. reserves/gross loans Key terms of the new notes are as follows: Equity/Assets 12.0% 14.6% Coupon: 13.00% payable quarterly Debt Securities/ 261.7% 214.9% Maturity: August 2012 (three years from the issue date of the first new notes issued) Equity Average Life: Two years Capital adequacy 16.1% n/a Amortization Schedule: equal quarterly principal installments until 2012 commencing one year ratio after the first coupon payment Source: Bank Minimum Denominations: $100,000 + $1,000 18
  • Fixed-Income Strategy XXI Century (XXIC): BUY XXI Century 10 issue parameters Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, YTM, %* - âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè XXI Century, a UK-listed Ukrainian real estate developer with approximately 60 different projects C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 in its portfolio, has recently announced its final restructuring proposal with regard to its $175 mln Price, %* 20.00 Eurobond issue. Redemption - The results of the ongoing talks are to be announced July 3 – this is the first Eurobond restructuring Amount, $mln 175 to take place among Ukrainian issuers and if it is rejected, it could become a catalyst for the Coupon, % p.a. - prices of other Eurobond issues in default to drop. The company is currently in the process Frequency S/A of selling off its less attractive projects in order to funnel the cash into the development of its *offer more attractive ones and thereby ensure that the company will generate enough cash for future remaining debt repayments, if restructured. Source: Bloomberg We have chosen XXIC’s Eurobonds as our top pick among Ukrainian issues in default as it Public debt profile provides benefits for its bondholders in any given scenario. Amount, Maturity/ Restructuring case scenario $mln Put The restructuring terms involve two options: coupon payment in cash and capitalization of LPN (Eurobond) 175 interest. Both of them offer a very high ROI, if this Eurobond is bought at its current market price. We used a discount ratio of 14.27%, which corresponds with the sovereign curve. Source: Bloomberg, Loan Radar Under the first option, the interest rate would change from 10% to 9%, the final maturity date XXI Century financials, IFRS, $mln would be extended to Nov. 24, 2014, and an amortization schedule would be introduced. In this 2007 1H2008 case, its NPV would total 88% of Eurobond par value. The second option differs by including Revenues 20 15 capitalization of the interest rate and the rate changing from 10% to 9% by November 2009, and EBIT 1,396 -68 to 15% for following periods. This would imply a recovery rate of 89% of par. Net income 1,380 -77 We should note that this restructuring proposal was developed by Renaissance Capital, which Total Assets 2,337 2,578 together with ING Bank are rumored to be the main bondholders of the company. As such, the Total Equity 2,010 2,018 probability that this restructuring proposal will be accepted is high (we assume a 90% likelihood at this point). Financial debt 197 421 Debt/Equity 9.8% 20.8% Liquidation case scenario Source: XXI Century We believe the XXI Century Eurobonds remains a buying opportunity even if the liquidation case scenario takes shape. Based on the information we have about the company’s recent disposal of four of its projects in mid June 2009 and the disposal of its Kharkiv real estate development XXI Century projects valuation and partnership (which was conducted in late June), we made assumptions about a fire-sale discount disposal discounts and conservatively evaluated the company’s current liquidation value with this in mind. According $ mln, Discount to conservative estimations, the current value of the company’s portfolio is between $97mln-204 as of for fire mln assuming an asset fire sale. And the appraisal of the company's real estate portfolio as at Dec. Project 30/06/08 sale 31, 2008, which was recently completed by CB Richard Ellis LLC, gives a figure of $474 mln. Emerald - Sevastopol apartments 35.3 97% Thus we've made estimations for three scenarios with fire-sale discounts of 95%, 87% and Lisnyky 215.3 95% 79%. Our estimates showed than even a 95% discount would mean a 29% recovery rate (more Boryspil mixed-use 12.9 93% than current indicative market price). Kvadrat-Donetsk 26.7 91% Weighted average - 95% Source: XXI Century XXI Century liquidation case calculations, $mln Restructuring case Property and investments as of June 31, 2008 2269 Issue par value, $ mln 175 Discount for firesale 95% 87% 79% Coupon rate (I option) 9%, paid semiannually in cash Coupon rate (II option) 9% and then 15%, capitalized Current assets value with discount 113 294 474 Amortization schedule Annual beginning in 2010 Net liabilities 237 Maturity 24 Nov 2014 Left on Eurobond issue (under assumption that Eurobond holders are of the least priority among the creditors) 51 232 412 NPV, % of XXIC par (I option) 85% Recovery rate, % of par 29% 100% 100% NPV, % of XXIC par (II option) 97% Source: XXI Century, Phoenix Capital estimates Source: XXI Century, Phoenix Capital estimates 19
  • Price YTM Amount, $ Duration, Ratings Name Ticker Coupon, % Maturity Bid Ask Bid Ask mln years S&P Moody Fitch Sovereign Ukraine 09 UKRAIN 97.00 98.25 42.30 26.85 500 5.15 05.08.09 0.11 CCC+ B2 B Ukraine 11 UKRAIN 85.00 88.00 17.66 15.31 600 6.88 04.03.11 1.55 CCC+ B2 B Ukraine 12 UKRAIN 77.50 80.00 16.22 14.96 500 6.39 26.06.12 2.71 CCC+ B2 B Fixed-Income Strategy Ukraine 13 UKRAIN 76.00 79.00 16.12 14.89 1,000 7.65 11.06.13 3.37 CCC+ B2 B Ukraine 16 UKRAIN 68.00 70.00 13.58 13.03 1,000 6.58 21.11.16 5.54 CCC+ B2 B Ukraine 17 UKRAIN 68.00 70.00 13.18 12.67 700 6.75 14.11.17 5.98 CCC+ B2 B Municipal Kiev 11 CITKIE 64.34 67.34 34.52 31.67 200 8.63 15.07.11 1.79 CCC+ /*- B2 B Kiev 12 CITKIE 54.00 58.00 31.15 28.30 250 8.25 26.11.12 2.83 CCC+ /*- B2 B Eurobond market data Kiev 15 CITKIE 47.00 52.00 25.13 22.60 250 8.00 06.11.15 4.37 CCC+ /*- B2 B Corporate Azovstal 11 AZOVTL 74.00 79.00 30.29 25.50 175 9.13 28.02.11 1.52 NR B3 n/a Interpipe 10 INPIP 66.00 69.00 54.60 49.24 200 8.75 02.08.10 0.99 NR n/a CCC /*- Kyivstar 12 OKST 95.00 99.00 9.82 8.15 172 7.75 27.04.12 2.53 NR WR n/a MHP 11 MHPSA 73.00 78.00 26.06 22.60 250 10.25 30.11.11 2.12 n/a B3 B Ukrainian Eurobond quotes, as of 01 July 2009 Naftogaz 09 NAFTO 86.50 88.50 74.42 63.32 500 8.13 30.09.09 0.26 n/a Caa1 B /*- Banking Alfa Bank Ukraine 09 ALFAUA 67.00 73.00 121.00 93.50 345 9.75 22.12.09 0.49 n/a B3 /*- n/a Alfa Bank Ukraine 10 ALFAUA 61.00 66.00 66.09 56.07 450 9.25 26.07.10 0.96 n/a B3 /*- n/a Alfa Bank Ukraine 11 ALFAUA 67.00 73.00 502.00 382.00 250 12.00 11.08.11 0.09 CCC+ B3 /*- n/a Finance&Credit 10 FICBUA 28.00 38.00 460.71 303.13 100 10.38 25.01.10 0.54 n/a Caa2 /* n/a Forum 09 FORUMZ 93.00 97.00 33.85 19.70 100 10.00 30.10.09 0.35 n/a B1 B FUIB 10 FIUKR 53.00 58.00 152.33 127.39 275 9.75 16.02.10 0.57 n/a B1 NR Nadra 10 NADRA 13.00 22.00 415.17 265.37 175 9.25 28.06.10 0.92 n/a C WD Pivdenniy 10 PIVDE 70.00 75.00 49.37 41.25 100 10.25 03.08.10 1.01 n/a B2 B- Privatbank 12 PRBANK 62.00 65.00 30.20 27.87 500 8.00 06.02.12 2.21 n/a B1 B Privatbank 16 PRBANK 40.00 48.00 32.86 27.30 150 8.75 09.02.16 1.38 n/a B1 n/a Ukreximbank 09 EXIMUK 93.00 98.00 42.51 17.06 250 7.75 23.09.09 0.21 n/a B1 B Ukreximbank 11 EXIMUK 75.00 80.00 22.88 19.35 500 7.65 07.09.11 1.99 NR B1 B Ukreximbank 12 EXIMUK 76.00 79.00 16.66 15.23 250 6.80 04.10.12 2.86 n/a B1 B PMS 483C R:122 G:31 B:16 Ukreximbank 16 EXIMUK 58.00 68.00 20.19 16.55 125 8.40 09.02.16 4.51 n/a B1 CCC C:0 M:91 Y:100 K:60 UkrSibbank 08/11 UKRSIB 88.00 93.00 16.27 13.20 250 9.25 04.08.11 1.88 BB-e B1 B PMS 179C R:213 G:53 B:27 C:10 M:90 Y:100 K:0 UkrSibbank 10 UKRSIB 91.00 95.00 17.11 12.61 200 7.38 23.07.10 0.99 n/a B1 B UkrSibbank 12/11 UKRSIB 86.00 90.00 14.74 12.60 500 7.75 21.12.11 2.26 n/a B1 B PMS 728C R:230 G:188 B:151 C:10 M:30 Y:42 K:0 Ukrsotsbank 10 USCBUZ 91.00 96.00 24.23 14.86 400 8.00 22.02.10 0.60 NR B1 B VAB Bank 10 VABANK 38.00 43.00 156.07 132.80 125 10.13 14.06.10 0.93 n/a B2 /*- WD Source: Bloomberg, Phoenix Capital estimates 20 ñèñòåìû PMS Process (CMYK). Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid,
  • Ukraine's Eurobond Yield Map 180.00 160.00 Fixed-Income Strategy VAB Bank 10 FUIB 10 140.00 120.00 Alfa Bank Ukraine 09 100.00 80.00 Naftogaz 09 Alfa Bank Ukraine 10 BID YTM, % p.a. 60.00 Interpipe 10 Pivdenniy 10 Ukreximbank 09 40.00 Ukraine 09 Privatbank 16 Kiev 11 Forum 09 Azovstal 11 Privatbank 12 Kiev 12 MHP 11 Kiev 15 Ukreximbank 11 20.00 Ukrsotsbank 10 UkrSibbank 08/11 Ukraine 12 Ukreximbank 16 Ukreximbank 12 Ukraine 17 Ukraine 11 UkrSibbank 10 UkrSibbank 12/11 Ukraine 13 Kyivstar 12 Ukraine 16 0.00 Alfa Bank Ukraine 11 PMS 483C R:122 G:31 B:16 0.00 1.00 2.00 3.00 4.00 5.00 6.00 C:0 M:91 Y:100 K:60 Duration, years PMS 179C R:213 G:53 B:27 C:10 M:90 Y:100 K:0 PMS 728C R:230 G:188 B:151 C:10 M:30 Y:42 K:0 21 ñèñòåìû PMS Process (CMYK). Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid,
  • Fixed-Income Strategy Appendix 1. Anti-crisis measures summary PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). Bailing out Ukrainian farmers The Ukrainian Parliament has adopted a law supporting farmers. On Mar. 4, 2009, R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 parliament deputies voted to override President Viktor Yushchenko’s veto on Law #3353, which would have helped support the Ukrainian agriculture sector. The main points of the law were: • Export duties for sunflower seed were reduced by 1% to 13% in compliance with WTO agreements; • The State Agrarian Fund may intervene by purchasing up to 1 mln tonnes of sunflower seed to stabilize prices; • Banks will provide credits to processing enterprises to cover the purchasing cost of milk and meat by Ukrainian farmers. Banks were prevented from penalizing processing enterprises if loans became delinquent and needed to be prolonged. Banks are obliged to prolong loans attracted in the sector over 2005-2008 by one more year; • The state will compensate farmers for up to 70% of their grain storage costs; and • The land purchase moratorium would be prolonged until Jan. 1, 2010. Bailing out Ukrainian metallurgy In order to support export-oriented industries despite tightening demand, the Ukrainian government adopted Resolution #925 dated Oct 14, 2008, in which a number of indirect subsidies were given to metallurgical and chemical enterprises through end-1Q2009. In March 2009, the terms of the Resolution were prolonged to end 1H2009. The main points of the Resolution are: • Domestic chemical and metallurgical enterprises (including those in the steel, coke and mining sectors, but excluding tube and pipe-making plants) were released from paying the 2% markup on natural gas owed to Naftogaz Ukrainy until the resolution expires; • The Transport Ministry and the NERC were recommended not to increase railway and electricity tariffs respectively until the resolution expires. As a result, metallurgical enterprises have not seen an increase in electricity tariffs or railway transportation costs since November 2008. The Industrial Policy Ministry estimates that the total amount of indirect subsidies given to metallurgical enterprises over October 2008-February 2009 is at least UAH 1 bln ($140 mln). Government actions, meanwhile, have helped domestic steel mills to assure operational profitability over 1Q2009. Although there is no certainty that the government will prolong the Resolution for 3Q2009, it is very likely that it will do so. Bailing out Ukrainian banks The government and the NBU are cooperating to rescue the troubled Ukrainian banking system, the main problems of which are rising NLP levels, funding outflows and undercapitalization. The most important measures have been as follows: • On June 10, 2009, the government launched recapitalization of troubled banks starting with Ukrgazbank, Rodovid Bank and Kyiv Bank by acquiring a majority stake in each via a share capital dilution. The total amount of funds set aside in the state budget for bank recapitalization is UAH 44 bln (UAH 9.6 bln is to be spent on the three banks listed above); • On June 24, 2009, the Parliament adopted anti-crisis law #3585 on the banking sector, which includes a selective moratorium on the disposal of residential apartments, mortgage loans restructuring terms, restrictions on foreign currency lending and other; • The NBU has actively provided refinancing to banks via overnight credits and regular liquidity support tenders (up to UAH 11 bln was granted in 1Q2009, allowing banking system liquidity to surge); • The Bank has eased reserve requirements and regulations for banks that are in the process of restructuring problem loans (i.e. concerning mortgage loan restructuring and loans to industrial producers, and a change in loan currency from foreign- to hryvnia-denominated); • A moratorium on early withdrawal of retail deposits was introduced during the peak run on deposits, though this moratorium has now expired; and • Recently, the NBU’s official base rate was lowered from 12% to 11%, while actual refinancing rates were lowered by 2%, from 18%/20% to 16% for collateralized loans and 18% for blank loans. 22
  • Fixed-Income Strategy Appendix 2. TOP ideas. Companies' financials Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). Azovstal financials for 2004-2009, $ mln R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 Income Statement IFRS IFRS IFRS IFRS UAS UAS UAS 2004 2005 2006 2007 2007 2008 E2009 Revenues 1,826.0 2,526.0 2,466.8 3,294.3 3,243.0 4,014.2 1,356.5 COGS -1,546.3 -2,229.7 -2,098.4 -2,717.0 -2,481.0 -3,318.9 -1,151.7 Gross profit 279.6 296.3 368.4 577.2 762.1 695.3 204.8 Net operating expense -16.2 -116.2 -141.0 -130.5 -224.4 -198.1 -60.8 Operating profit 263.4 180.2 227.4 446.7 537.7 497.2 144.1 EBITDA 318.8 270.5 343.2 558.4 595.1 571.0 189.1 Net profit 204.7 119.1 138.6 348.5 420.3 370.3 100.3 Margins gross 15.31% 11.73% 14.94% 17.52% 23.50% 17.32% 15.10% operational 14.43% 7.13% 9.22% 13.56% 16.58% 12.39% 10.62% EBITDA 17.46% 10.71% 13.91% 16.95% 18.35% 14.22% 13.94% net 11.21% 4.72% 5.62% 10.58% 12.96% 9.23% 7.39% Balance Sheet IFRS IFRS IFRS IFRS UAS UAS UAS 2004 2005 2006 2007 2007 2008 E2009 Cash and equivalents 50.0 237.9 34.1 76.2 84.3 66.3 31.1 Other current assets 542.9 668.5 1,030.5 1,333.1 1,422.8 1,733.5 747.1 Non-current assets 1,205.4 1,407.6 1,562.0 2,205.1 1,026.7 689.3 456.9 Total assets 1,798.3 2,314.0 2,626.7 3,614.5 2,533.8 2,489.1 1,235.1 Short-term debt 62.0 144.2 69.3 55.4 50.4 1.6 0.5 Other current liabilities 363.3 361.4 288.3 430.9 454.9 1,011.8 294.0 Long-term debt 115.3 41.9 274.0 179.0 175.0 175.0 175.0 Other non-current liabilities 145.1 193.7 169.9 278.8 5.4 1.7 0.0 Total liabilities 685.7 741.2 801.5 944.2 685.7 1,190.1 469.5 Shareholders' equity 1,112.6 1,572.8 1,825.2 2,670.3 1,848.1 1,298.6 778.1 Debt IFRS IFRS IFRS IFRS UAS UAS UAS 2004 2005 2006 2007 2007 2008 E2009 Financial debt 177.3 186.1 343.4 234.5 225.4 176.6 175.5 Share of short-term debt 35.0% 77.5% 20.2% 23.6% 22.4% 0.9% 0.3% Net debt 127.4 -51.8 309.2 158.2 141.1 110.3 144.4 Net interest expences 12.8 2.3 22.7 15.0 4.1 114.1 17.4 Ratios IFRS IFRS IFRS IFRS UAS UAS UAS 2004 2005 2006 2007 2007 2008 E2009 Debt/EBITDA 0.56 0.69 1.00 0.42 0.38 0.31 0.93 Net debt/EBITDA 0.40 -0.19 0.90 0.28 0.24 0.19 0.76 Revenues/Financial debt 10.30 13.57 7.18 14.05 14.39 22.73 7.73 Financial debt/Assets 0.10 0.08 0.13 0.06 0.09 0.07 0.14 Financial debt/Equity 0.16 0.12 0.19 0.09 0.12 0.14 0.23 EBITDA / Net interest expense 24.83 119.50 15.13 37.11 145.62 5.01 10.85 Liquidity ratio 139% 176% 298% 290% 298% 178% 264% Sources: Company, Phoenix Capital estimations 23
  • Fixed-Income Strategy Naftogaz financials, $ mln PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). Income statement IFRS UAS UAS UAS R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 2007 2007 2007 (restated) 2008 Comments Revenues and COGS increased in 2008 due to increase Revenues 6,025 3,421 4,265 9,587 in imported gas sales. Revenues, taxes and COGS were restated for FY2007. In 2008, Naftogaz sustained negative gross income due to the difference between imported gas price Gross profit 925 782 695 -235 and domestic tariffs (the Ukrainian government later compensated Naftogaz for the difference). Net operational expenses -398 -127 -2,313 3,510 In 2007, other operating expenses were restated (increased Operational profit 527 656 -1,618 3,275 by $2,189 mln to $4,557 mln) and other expenses were restated (+$593 mln to $605 mln). We believe the Net profit -13 619 -2,393 2,211 restatements regard budget payments. In 2008, Naftogaz reported a gross loss, compensated by higher other Gross margin 15.36% 22.87% 16.30% -2.45% operating income (likely received as subsidies paid in by the Net margin -0.22% 18.08% -56.11% 23.06% government). Balance sheet IFRS UAS UAS UAS 2007 2007 2007 2008 (restated) Comments Cash and equivalents 116 82 82 261 In 2007, receivables on internal payments were restated Total assets 21,513 8,958 9,763 9,441 (+$797 mln to $2,753 mln). In 2007, payables were restated (+$846 mln to $1,099 Total liabilities 10,235 5,295 9,111 7,299 mln) and amounts due to the state were restated (+$3,031 mln to $3,417 mln). Shareholders' equity was restated in 2007 following Shareholders' equity 11,298 3,663 651 2,142 restatement of net profit for the year (- $3,011 mln in accumulated profits) Financial debt 2,549 2,189 2,189 4,496 - Short-term debt 685 147 147 2,542 In 2008, financial debt increased following receipt of several large short-term loans from various, Long-term debt 1,864 2,042 2,042 1,953 mainly state-owned, banks (media reports debt to Share of short-term debt 26.90% 6.70% 6.70% 56.60% Oshchadbank stands at UAH18 bln or $2.3 bln). Source: State Securities and Stock Market Comission, Phoenix-Capital 24
  • Fixed-Income Strategy Privatbank Financial Results, $mln, IFRS Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, Balance sheet âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 2006 2007 1H2008 Total assets 6,738 11,143 14,470 Cash and balances with NBU 765 1,575 2,691 Due from banks 121 263 278 Loans to customers 5,340 8,529 10,816 Loan loss reserves 429 556 675 Impaired loans 308 158 310 Total shareholder equity 643 1,070 1,600 Total liabilities 6,095 10,072 12,870 Due to banks 845 1,236 1,450 Customers' accounts 4,695 7,129 9,623 Debt securities and subordinated debt 367 1,445 1,497 Income Statement 2006 2007 2007 Net interest income 470 795 1,066 Net fee and commission income 189 260 272 Net income 122 222 351 Ratios 2006 2007 2007 Return on average assets 2.15% 2.49% 3.00% Return on equity 23.99% 25.93% 25.90% Cost/income ratio 61.52% 59.75% 60.80% liquid assets/total assets 19.52% 17.10% 18.60% loans/deposits 111.08% 125.62% 112.39% Impaired loans/gross loans 5.34% 1.74% 2.70% Loan loss reserves/gross loans 7.44% 6.12% 5.87% Loan loss reserves/NPLs 139.27% 351.69% 217.57% Equity/Assets 9.54% 9.61% 11.06% Debt Securities/Equity 56.99% 134.96% 93.57% Capital adequacy ratio 12.80% 13.50% 14.10% Source: Bank 25
  • Fixed-Income Strategy UkrSibbank Financial Results, $mln, IFRS Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, Balance sheet âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 2005 2006 2007 Total assets 2,163 4,360 7,261 Cash and balances with NBU 196 325 520 Due from banks 67 66 206 Loans to customers 1,536 3,576 6,026 Loan loss reserves 55 102 166 Impaired loans 40 57 122 Total shareholder equity 189 395 637 Total liabilities 1,975 3,965 6,624 Due to banks 222 1,329 2,540 Customers' accounts 1,056 1,297 2,303 Debt securities and subordinated debt 655 1,229 1,639 Income Statement 2005 2006 2007 Net interest income 58 138 267 Net fee and commission income 22 67 77 Net income 9 8 70 Ratios 2005 2006 2007 Return on average assets 0.58% 0.25% 1.21% Return on equity 5.67% 2.75% 13.65% Net interest margin 1.94% 4.98% 5.22% Cost/income ratio 86.73% 70.37% 63.09% liquid assets/total assets 53.27% 14.57% 12.28% loans/deposits 139.79% 224.00% 274.23% Impaired loans/gross loans 2.49% 1.55% 1.97% Loan loss reserves/gross loans 3.43% 2.78% 2.67% Loan loss reserves/NPLs 137.85% 179.56% 135.62% Equity/Assets 8.72% 9.07% 8.78% Debt Securities/Equity 347.28% 310.77% 257.14% Capital adequacy ratio 11.50% 12.50% 12.70% Source: Bank 26
  • Fixed-Income Strategy VAB Bank's financial results, $mln, IFRS Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, Balance sheet âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 2006 2007 2008 Total assets 731 1,211 928 Cash and balances with NBU 149 199 88 Due from banks 0 1 2 Loans to customers 502 893 759 Loan loss reserves 13 18 50 NPLs* 9 15 76 Total shareholder equity 102 123 103 Total liabilities 629 1,088 825 Due to banks 132 172 112 Deposits and customers' accounts 492 738 503 Debt securities issued and subordinated debt 4 153 133 Income statement 2006 2007 2008 Net interest income 25 37 77 Net fee and commission income 9 16 19 Net income 2 2 -12 Ratios 2006 2007 2008 Return on average assets 0.35% 0.18% neg Return on average equity 2.67% 1.59% neg Net interest margin 6.24% 4.94% 8.78% Cost/income ratio 76.45% 88.91% 68.88% Liquid assets/total assets 29.10% 17.96% 13.53% Loans/deposits 100.22% 116.01% 138.59% NPL*/gross loans 1.70% 1.67% 9.35% Loan loss reserves/gross loans 2.56% 1.97% 6.14% Loan loss reserves/NPLs 150.29% 117.89% 65.69% Equity/assets 13.97% 10.13% 11.12% Debt securities and subordinated debt/equity 3.55% 141.57% 148.48% Capital adequacy ratio 15.00% 16.00% 116.00% * Loans individually determined to be impaired Source: Bank 27
  • Fixed-Income Strategy XXI Century financials, $mln, IFRS PMS 483C PMS 179C PMS 728C Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). Balance Sheet R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 2005 2006 2007 6M2008 Current Assets 144 65 129 312 Cash & Equivalents 128 16 17 175 Trade Receivables 2 4 11 9 Inventories 8 21 78 98 Other Current Assets 6 25 23 32 Fixed Assets 161 506 2209 2266 PP&E, net 123 454 2049 2179 Other Fixed Assets 38 53 159 87 Total Assets 305 571 2337 2578 Shareholders' Equity 247 531 2010 2018 Par Capital 0 0 0 0 Reserves and Other 240 527 2136 2151 Retained Earnings 7 3 -126 -134 Current Liabilities 16 21 90 250 ST Interest Bearing Debt 1 0 0 158 Trade Payables 15 1 31 39 Other Current Liabilities 0 19 59 54 LT Liabilities 42 20 237 310 LT Interest Bearing Debt 8 0 197 262 Other LT Liabilities 34 20 41 47 Total Liabilities & Equity 305 571 2337 2578 Income statement 2005 2006 2007 1H2008 Net Revenues 7 13 20 15 Growth, % yoy 31% 77% 60% Cost of Sales -3 -1 -2 -1 Gross Profit 4 12 19 13 SG&A -5 -10 -22 -14 Other Operating Income/Costs, net 1 5 49 -1 Increase in fair value of investment property 132 159 1351 -66 Profit/(loss) from operations 132 165 1396 -68 PBT 137 167 1379 75 Tax -34 30 1 2 Net income 103 197 1380 -77 Source: XXI Century, Phoenix Capital estimates 28
  • Fixed-Income Strategy Analyst certification Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that, with respect to each security or issuer that C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 the analyst covered in this report: all of the views expressed accurately reflect his or her personal views about those securities or issuers; and no part of his or her compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in the research report. Conflict of Interests Phoenix Capital, its directors and employees or clients might have or have had interests or long / short positions in the securities referred to herein and might at any time make purchases and / or sales in them as principal or an agent. Phoenix Capital might act or has acted as a market-maker in the securities discussed in this erport. The research analysts and / or corporate banking associates principally responsible for the preparation of this report receive compensation based upon various factors, including quality of research, investors / clients feedback, stock picking, competitive factors, firm revenues and investment banking revenues. Disclaimer This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of any state, country or other jurisdiction where such distribution, publication or use would be contrary to law or regulation or which would subject Phoenix Capital to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is protected by copyright to Phoenix Capital. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Phoenix Capital. The information and material presented in this report are not to be considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. Phoenix Capital may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. Phoenix Capital will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Information and opinions presented in this report were obtained or derived from sources Phoenix Capital believes are reliable, but Phoenix Capital makes no representations as to their accuracy or completeness. Additional information is available upon request. Phoenix Capital accepts no liability for loss arising from the use of the material presented in this report, except liability arises under specific statutes or regulations applicable to Phoenix Capital. This report is not to be relied upon in substitution for the exercise of independent judgment. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by Phoenix Capital and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realized. Some investments may not be readily realized and it may be difficult to sell or realize those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. 29
  • Fixed-Income Strategy Phoenix Capital t.: +380 44 254 6275 Ââèäó òîãî, ÷òî öâåòîâàÿ ñèñòåìà PMS Process (CMYK) 4 Volodymyrska Street f.: +380 44 254 6295 PMS 483C PMS 179C PMS 728C ÿâëÿåòñÿ áîëåå ýêîíîìè÷íîé, ïî ñðàâíåíèþ ñ PMS Solid, âîñïðîèçâîäèòü êîðïîðàòèâíûå öâåòà ëó÷øå êðàñêàìè C:0 M:91 Y:100 K:60 C:10 M:90 Y:100 K:0 C:10 M:30 Y:42 K:0 ñèñòåìû PMS Process (CMYK). R:122 G:31 B:16 R:213 G:53 B:27 R:230 G:188 B:151 5th Floor www.phoenix-capital.com.ua 01025 Kyiv, Ukraine research@phoenix-capital.com.ua SALES RESEARCH Head of Sales Head of Research Stanislav Shlapak Dmitriy Romanovich stanislav.shlapak@phoenix-capital.com.ua dr@phoenix-capital.com.ua International Sales Macro and Strategy Kateryna Shevchenko Andriy Nesteruk, Analyst kateryna.shevchenko@phoenix-capital.com.ua an@phoenix-capital.com.ua Iryna Gulenko Metals and Mining iryna.gulenko@phoenix-capital.com.ua Eugen Dubogryz, Analyst Evghenia Iaryna ed@phoenix-capital.com.ua evghenia.iaryna@phoenix-capital.com.ua Agriculture and Consumer Goods Sergiy Khoma sergiy.khoma@phoenix-capital.com.ua Dmytro Ushenko, Analyst du@phoenix-capital.com.ua Konstantin Kucherenko konstantin.kucherenko@phoenix-capital.com.ua Fixed Income Maria Maiboroda, Senior Analyst mm@phoenix-capital.com.ua Research Assistant Olga Kharchenko, Junior Analyst olga.kharchenko@phoenix-capital.com.ua Editor Paul Miazga pm@phoenix-capital.com.ua 30