Slight optimism outshines numerous challenges As 2016 rolls to a close, the Ukrainian economy is finding stronger footing. The pace of recovery remains slow, but it looks sustainable and the chances of a meaningful acceleration in 2017 are high. Inflation is still in the high single digits, but a hike in regulated utility tariffs should boost it to near the NBU’s 12% target by year-end. The FX market is nearly balanced and the NBU is taking advantage of slight surpluses to replenish reserves. Ukraine’s external accounts look reasonably strong but they still pose a risk to the economy; any external shock could trigger market jitters. Smooth relations with the IMF and other IFIs remain a key precondition for the recovery of investor and domestic consumer confidence.

1. July 2013
spadvisors.eu
October 31, 2016
Ukraine Economy:
Slight optimism outshines numerous challenges
Economy
Key macro data and projections
Ukraine Eurobond universe
NDF and CDS
Ukrainian equity multiples
Stock market summary

2. 2
Ukraine Economic Overview | October 2016
spadvisors.eu
Monthly industrial output and retail trade, chg. yoy
Source: UkrStat
CPI and PPI, yoy
Source: UkrStat
Monthly BoP, USD bln
Source: NBU
NBU gross international reserves, USD bln
Source: NBU
As 2016 rolls to a close, the Ukrainian economy is finding stronger footing.
The pace of recovery remains slow, but it looks sustainable and the chances
of a meaningful acceleration in 2017 are high. Inflation is still in the high
single digits, but a hike in regulated utility tariffs should boost it to near the
NBU’s 12% target by year-end. The FX market is nearly balanced and the
NBU is taking advantage of slight surpluses to replenish reserves. Ukraine’s
external accounts look reasonably strong but they still pose a risk to the
economy; any external shock could trigger market jitters. Smooth relations
with the IMF and other IFIs remain a key precondition for the recovery of
investor and domestic consumer confidence.
5-year high in GDP growth supported by domestic demand
The economy is poised to deliver its fastest growth rate in the last 5 years:
1.4-1.6% yoy (our estimate). Domestic private demand has begun to
recover and we see the pace accelerating in the coming quarters, helped by
a stabilization of household incomes on the back of lower inflation.
Household consumption jumped to +4.3% yoy in 2Q16 after 8 straight
quarters in negative territory (yoy terms). Retail trade – a high frequency
proxy for household demand – has been holding above 4% yoy since March.
With purchasing power no longer dented by rapid inflation, households
have re-gained a taste for consumption. Real salaries resumed growing in
March and have accelerated notably since then, reaching 15.6% yoy in
September. However, consumer confidence and propensity to consume still
seem shaky as a cautious post-crisis mood prevails. Investment demand,
another key GDP component, should also remain on the path to recovery
as most sectors remain underinvested due to a near-complete freeze in new
capex at the height of the crisis.
Utilities hike will allow NBU to meet 12% inflation target
Inflation slowed to 7.9% yoy in September (from 8.4% in August) thanks to
food prices (+4.1% yoy). However, October will bring a material acceleration
to above 11% as a heating tariff increase approved in the spring will hit
consumer prices with the start of the heating season. This one marks the
last material revision of regulated utility tariffs as part of the move to align
domestic prices with energy import parity levels, a key requirement of
Ukraine’s cooperation with the IMF. Energy imports will no longer need to
be indirectly subsidized by the state – households will cover the cost of
utilities or receive a direct budget subsidy. With the impact of the tariff
hikes now uncovered and the long-term effects of the hryvnia depreciation
visible, Ukraine’s consumer inflation in the future will be driven largely by
fundamental factors more within the central bank’s control. This year’s CPI
target of 12% +/-3% (taking into account one-off effects) will be met. This
marks the successful launch the NBU’s inflation targeting policy approach,
announced in 2015. With inflation coming in-line with its target, the NBU
recently cut its key policy rate by 100 bps (50 bps more than the Bloomberg
consensus forecast) to 14%.
Volatile external sector balances leave room for risks
Ukraine’s current accounts have remained balanced YTD – a reasonable C/A
deficit (USD 2.3 bln in 9M16, 2.5% of 2016E GDP) was offset with financial
account inflows, with the return of FX cash into the banking sector the single
largest contributor. The FX market has been stable throughout October and
the NBU purchased small FX surpluses through regular auctions. The receipt
of an IMF loan tranche and a US guarantee (c. USD 1 bln each) have
eliminated a key risk and brought confidence to the local market. The
prospects for the near future are less certain – a fresh wave of delays with
funding from IFIs could resurrect some uncertainty and trigger FX market
volatility.
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16
Retail trade Industrial production
0%
10%
20%
30%
40%
50%
60%
70%
Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16
CPI PPI Core CPI
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16
Financial account (F/A) balance
Current account (C/A) balance
0
5
10
15
20
25
Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16
Economy: Slight optimism outshines numerous challenges

3. 3
Ukraine Economic Overview | October 2016
spadvisors.eu
Sources: NBU, UkrStat, Ministry of Finance, Bloomberg, SP Advisors
Appendix A. Key macro data and projections
2008 2009 2010 2011 2012 2013 2014 2015 2016E
Business cycle indicators
Real GDP, chg yoy 2.3% -14.8% 4.1% 5.2% 0.2% 0.2% -6.8% -9.9% 1.5%
Household consumption, chg yoy 11.8% -14.9% 7.1% 15.7% 11.7% 7.7% -9.6% -20.2% 4.5%
Investments in fixed capital, chg yoy 1.6% -50.5% 3.9% 7.1% 0.9% -6.7% -23.0% -9.3% 6.0%
Industrial output, chg yoy -5.2% -21.9% 11.2% 8.0% -0.7% -4.3% -10.1% -13.0% 2.0%
Nominal GDP, UAH bln 948 913 1,079 1,300 1,405 1,465 1,567 1,979 2,351
Nominal GDP, USD bln 180 117 136 163 176 183 132 91 90
GDP per capita, USD 3,891 2,550 2,972 3,580 3,865 4,030 2,904 1,996 1,991
CPI (eop) 22.3% 12.3% 9.1% 4.6% -0.2% 0.5% 24.9% 43.3% 10.1%
CPI average 25.2% 15.9% 9.4% 8.0% 0.6% -0.3% 12.1% 48.7% 13.9%
Unemployment (ILO methodology, avg) 6.9% 9.6% 8.9% 8.7% 8.2% 7.8% 9.7% 9.1% 8.6%
Balance of payments
Current account balance, USD bln -12.8 -1.7 -3.0 -10.2 -14.3 -16.5 -5.3 -0.2 -2.8
% GDP -7.1% -1.5% -2.2% -6.3% -8.1% -9.0% -4.0% -0.2% -3.1%
Financial account balance, USD bln 9.7 -12.0 8.0 7.8 10.1 18.5 -8.0 0.1 1.8
% GDP 5.4% -10.2% 5.9% 4.8% 5.8% 10.1% -6.1% 0.1% 2.0%
FDI net, USD bln 9.9 4.7 5.8 7.0 6.6 3.4 0.3 2.5 2.5
% of GDP 5.5% 4.0% 4.2% 4.3% 3.8% 1.8% 0.2% 2.8% 2.8%
Gross NBU reserves (eop), USD bln 31.5 26.5 34.6 31.8 24.5 20.4 7.5 13.3 17.8
Monetary and banking indicators
Monetary base, UAH bln 187 195 226 240 255 307 333 336 346
Monetary base, chg. yoy 32% 4% 16% 6% 6% 20% 8% 1% 3%
Money supply (M3), UAH bln 515 487 598 683 773 909 957 994 1,044
Money supply, chg. yoy 30% -5% 23% 14% 13% 18% 5% 3% 5%
Monetary multiplier (eop M3/MB) 2.8 2.5 2.6 2.8 3.0 3.0 2.9 3.0 3.0
Bank loans, chg. yoy 72% -2% 1% 10% 2% 12% 13% 3% 4%
Bank deposits, chg. yoy 28% -8% 26% 18% 16% 18% 0% 4% 17%
Loan-to-deposit ratio 205% 219% 175% 162% 143% 135% 152% 137% 122%
Exchange rate
Official UAH/USD (eop) 7.70 7.99 7.96 7.99 7.99 7.99 15.77 24.00 26.00
Official UAH/USD (avg) 5.27 7.79 7.94 7.97 7.99 7.99 11.89 21.84 26.00
Budget and debt indicators
State budget revenues, UAH bln 231.7 209.7 240.6 314.6 346.0 339.2 357.0 534.6 611.0
% of GDP 24.4% 23.0% 22.3% 24.2% 24.6% 23.2% 22.8% 27.0% 26.0%
State budget expenditures, UAH bln 244.2 245.2 304.9 338.1 399.4 403.9 435.0 579.8 679.0
% of GDP 25.8% 26.8% 28.3% 26.0% 28.4% 27.6% 27.8% 29.3% 28.9%
State budget balance, UAH bln -12.5 -35.5 -64.3 -23.6 -53.4 -64.7 -78.0 -45.2 -68.0
% of GDP -1.3% -3.9% -6.0% -1.8% -3.8% -4.4% -5.0% -2.3% -2.9%
Public debt, UAH bln 189 318 432 473 516 584 1,101 1,572 1,939
% GDP 20.0% 34.8% 40.1% 36.4% 36.7% 39.9% 70.3% 79.4% 82.5%

4. 4
Ukraine Economic Overview | October 2016
spadvisors.eu
Appendix B. Ukraine Eurobond universe (1)
Ukraine Eurobond yield map*
*as of October 28, 2016
Source: Bloomberg
UkraineFUIB - 12/18
Avangardco - 10/18
Ukrlandfarming - 03/18
MHP - 04/20
0%
20%
40%
60%
80%
100%
120%
140%
0.0 2.0 4.0 6.0 8.0 10.0 12.0
YTM
Privatbank
Ukreximbank Oshchadbank
Years to maturity

5. 5
Ukraine Economic Overview | October 2016
spadvisors.eu
Appendix B. Ukraine Eurobond universe (2)
Key parameters of Ukrainian Eurobonds*
Amount YTM, %
Mid. YTM
Change, pp Rating
Name Currency issued, mln Maturity Mid Spread 1 M YTD Fitch Moody's S&P
Sovereign
Ukraine 12/15** USD 3,000 20/12/2015 - - - - WD Ca D
Ukraine 09/19 USD 1,744 01/09/2019 7.7 0.2 -0.4 - CCC Caa3 B-
Ukraine 09/20 USD 1,780 01/09/2020 8.0 0.2 -0.3 - CCC Caa3 B-
Ukraine 09/21 USD 1,409 01/09/2021 8.1 0.1 -0.4 - CCC Caa3 B-
Ukraine 09/22 USD 1,384 01/09/2022 8.2 0.1 -0.2 - CCC Caa3 B-
Ukraine 09/23 USD 1,355 01/09/2023 8.3 0.1 -0.1 - CCC Caa3 B-
Ukraine 09/24 USD 1,339 01/09/2024 8.4 0.1 -0.1 - CCC Caa3 B-
Ukraine 09/25 USD 1,329 01/09/2025 8.4 0.1 -0.1 - CCC Caa3 B-
Ukraine 09/26 USD 1,318 01/09/2026 8.4 0.1 -0.1 - CCC Caa3 B-
Ukraine 09/27 USD 1,307 01/09/2027 8.4 0.1 -0.1 - CCC Caa3 B-
GDP Warrants USD 3,214 31/05/2040 - - - - - - B-
Banks
Privatbank - 01/18 USD 160 23/01/2018 25.2 1.3 2.6 -3.9 CCC WR -
Privatbank - 02/18 USD 175 28/02/2018 26.3 1.1 1.5 - CCC Cau -
Privatbank - 02/21 USD 220 09/02/2021 25.3 0.8 0.3 - - - -
FUIB - 12/18 USD 198 31/12/2018 11.3 1.4 -0.7 -11.0 NR WR -
Ukreximbank - 04/22 USD 750 27/04/2022 9.8 0.2 -0.2 - CCC Caa3 -
Ukreximbank - 02/23 USD 125 09/02/2023 12.2 0.4 0.2 - C Ca -
Ukreximbank - 01/25 USD 600 22/01/2025 10.3 0.1 -0.2 - CCC Caa3 -
Oshchadbank - 03/23 USD 700 10/03/2023 9.9 0.2 -0.2 - CCC Caa3 -
Oshchadbank - 03/25 USD 500 20/03/2025 10.2 0.1 -0.2 - CCC Caa3 -
Corporate
Metinvest - 01/16** USD 90 30/11/2016 - - - - NR Caa3 -
Metinvest - 11/17 USD 306 28/11/2017 - - - - C - -
Metinvest - 02/18 USD 796 14/02/2018 - - - - C Caa3 -
Mriya - 03/16** USD 72 30/03/2016 - - -3.3 - WD - NR
Mriya - 04/18 USD 400 19/04/2018 322.5 46.6 -17.9 210.5 WD - NR
Ukrlandfarming - 03/18 USD 543 26/03/2018 121.4 7.1 -2.5 80.7 WD - NR
Avangardco - 10/18 USD 214 29/10/2018 76.4 11.6 -63.8 51.3 WD - -
DTEK - 03/18 USD 156 28/03/2018 - - - - C - -
DTEK - 04/18 USD 803 04/04/2018 - - - - C Ca -
Ukrainian Railway - 05/18 USD 0 21/05/2018 - - - - WD - NR
Ferrexpo - 04/19 USD 161 07/04/2019 10.0 0.5 -1.1 - CCC Caa3 CCC
MHP - 04/20 USD 750 02/04/2020 8.5 0.0 -0.9 -6.7 CCC - B-
*as of October 28, 2016; **Under Restructuring
Source: Bloomberg

6. 6
Ukraine Economic Overview | October 2016
spadvisors.eu
Appendix C. NDF and CDS
5Y CDS vs. Fitch long-term rating* Hryvnia spot and NDF rates, 6-m development
* data as of October 28, 2016
Source: Bloomberg
Source: Bloomberg
Ukraine
Russia
HungaryPoland
Romania
Turkey
Kazakhstan
0
100
200
300
400
500
600
700
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Fitch long-term rating
A BBB BB B CCC
5Y CDS
15
17
19
21
23
25
27
29
31
33
Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16
NDF, 3 months NDF, 6 months
NDF, 12 months UAH/USD

7. 7
Ukraine Economic Overview | October 2016
spadvisors.eu
Ukrainian stock multiples*
MCap, EV/EBITDA EV/Sales P/B P/E
Net Debt/
Book Value
Sector / Company Ticker USD mln 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E
Agriculture
Kernel KER PW 1,246 4.4 3.8 0.7 0.6 1.2 1.0 5.9 2.2 0.26 0.14
MHP MHPC LI 1,025 5.4 5.0 1.8 1.6 1.4 1.2 7.4 4.9 1.63 1.30
Astarta AST PW 337 3.2 2.7 1.2 1.0 - - 4.1 3.7 - -
IMC IMC PW 56 2.5 - 1.0 - - - 2.8 2.2 - -
KSG Agro KSG PW 8 - - - - - - - - - -
Median - 3.8 3.8 1.1 1.0 1.3 1.1 5.0 2.9 0.95 0.72
Food
Avangard AVGR LI 31 - - - - - - - 0.8 - -
Ovostar OVO PW 137 4.2 - 1.7 - - - 4.8 4.4 - -
Milkiland MLK PW 14 - - - - - - - - -
UkrProduct UKR LN 2 2.2 1.4 0.2 0.1 0.1 0.1 1.0 0.6 0.39 0.24
Median - 3.2 1.4 1.0 0.1 0.1 0.1 2.9 0.8 0.39 0.24
Oil & Gas
JKX Oil & Gas JKX LN 36 3.7 - 0.8 0.7 - - - - - -
Kulczyk Oil SEN PW 22 - - - - - - - - - -
Regal Petroleum RPT LN 15 - - - - - - - - - -
Cadogan Petroleum CAD LN 28 - - - - - - - - - -
Median - 3.7 - 0.8 0.7 - - - - - -
Mining
Coal Energy CLE PW 16 - - - - - - - - - -
Metals & Mining
Ferrexpo FXPO LN 744 4.8 5.5 1.5 1.4 2.2 1.6 4.9 6.5 1.89 1.20
Real Estate
TMM TR61 GR 1.4 - - - - - - - - - -
Transportation
KDM Shipping KDM PW 4 - - - - - - - - - -
* as of October 28, 2016
Source: Bloomberg
Appendix D. Ukrainian equity multiples

8. 8
Ukraine Economic Overview | October 2016
spadvisors.eu
Ukraine index (WIG Ukraine) vs. global majors
Data as of October 28, 2016
Source: Bloomberg
Ukrainian stock price change, mom*
* as of October 28, 2016
Source: Bloomberg
WIG Ukraine, 6-month development
Source: Bloomberg
Average daily trading in Ukrainian stocks, USD ‘000*
* Only top-10 stocks are shown, data are for September 28 – October 28, 2016
Source: Bloomberg
-7%
5%
4%
5%
35%
4%
0%
-1%
4%
5%
31%
15%
85%
-5%
-3%
-2%
-1%
-1%
-1%
0%
0%
0%
1%
2%
2%
11%
-50% -25% 0% 25% 50% 75% 100%
FTSE 100
HANG SENG
S&P 500
NASDAQ 100
WIG Ukraine
Dow Jones Ind.
DAX
CAC 40
WIG
NIKKEI 225
RTS
UX
Bovespa
1M Change YTD
-1%
-30%
-12%
-11%
-7%
-6%
-4%
-4%
-2%
-1%
0%
1%
3%
8%
32%
34%
35%
36%
-50% -30% -10% 10% 30% 50%
WIG Ukraine
Avangard
JKX Oil & Gas
Agroton
Milkiland
Ovostar
KDM Shipping
KSG Agro
Astarta
Regal Petroleum
Kernel
IMC
MHP
Kulczyk Oil
UkrProduct
Cadogan Petroleum
Ferrexpo
Coal Energy
0
1
2
3
4
5
6
7
8
50%
60%
70%
80%
90%
100%
110%
120%
Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16
WIG Ukraine Index turnover, USD mln, rhs
WIG Ukraine
WIG
18
31
32
39
44
74
108
243
1,189
4,280
Milkiland
Coal Energy
Kulczyk Oil
IMC
Agroton
Astarta
Ovostar
MHP
Kernel
Ferrexpo
Appendix E. Stock market summary

9. 9
Ukraine Economic Overview | October 2016
spadvisors.eu
Contacts
CEO
Nick Piazza
npiazza@spadvisors.eu
Sales and Trading
Oleksandr Tsapin
otsapin@spadvisors.eu
Research
Danylo Spolsky
dspolsky@spadvisors.eu
Commodities Trading and Risk Management
Alexey Yeremin
ayeremin@spavisors.eu
SP Advisors
spadvisors.eu
8 Pankivska St.,
1st
floor, office 14
Kyiv 01033, Ukraine
+380 44 300 1425
research@spadvisors.eu
Bloomberg homepage
SPEU <GO>
Facebook
facebook.com/SPAdvisors
LinkedIn
linkedin.com/company/sp-advisors
Disclaimer
This report has been prepared by SP Advisors solely for information purposes and independently of the respective companies mentioned herein. It should not
be construed as an offer or solicitation of an offer to buy or sell any securities and should not be considered as a recommendation to any such actions.
SP Advisors makes no warranty, express or implied, of this report’s usefulness in predicting the future performance, or in estimating the current or future value,
of any security. This document should not be considered as a complete description of the securities or markets referred to herein. Any investment decision made
on the basis of this document shall be made at the investor’s sole discretion, and under no circumstances shall SP Advisors, any of it its employees or related
parties be liable in any way for any action, or failure to act, by any party, on the basis of this document. Nor shall SP Advisors or any of its employees or related
parties be liable in any way for any loss or damages arising from such action or failure to act. This document is confidential to clients of SP Advisors. Unauthorized
copying, distribution or publication of all or any part of this document is strictly prohibited.