Business in Ukraine

(AP) - Ukraine’s efforts to receive an emergency loan from the International Monetary Fund were stalled Tuesday as a political standoff among ruling politicians blocked legislation to accept the rescue.

Ukraine is hoping the $16.5 billion loan will help it overcome a severe financial crisis, as it battles a drastic fall in exports, a weakened national currency and a shaken banking sector.

But a fierce standoff between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko over a planned election is threatening to stall the deal. Tymoshenko is fighting Yushchenko’s order to hold early parliamentary elections, in which she risks losing her job.

Parliament was to consider Tuesday a series of competing bills aimed at overcoming the financial crisis, but the pro-Tymoshenko lawmakers blocked parliament’s presidium in protest, stalling a vote on the IMF plan.

The IMF hasn’t made its conditions public, but provisions in draft legislation indicate they might include reducing social spending and raising taxes to adopt a balanced budget and stem 16-percent inflation.

Ukraine is one of hardest-hit by the financial crisis among emerging markets. Output in the steel industry, which accounts for 6 percent of the GDP and 40 percent of the country’s exports, is down by 30 percent on a fall of global demand.

That has widened the trade deficit to $12.5 billion so far this year. In the absence of foreign currency flowing into the country, the hryvna plunged to a historic low of $6.01 last week as a run on banks stripped the banking sector of $3.4 billion.

Lawmakers were to resume deliberations in the afternoon and there was hope they would muster the necessary votes. A Tymoshenko ally said his faction was ready to approve a bill submitted by the president.

Tags: Politics by Vitaliy Tretyakov
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Serhiy Taruta, the billionaire who co-owns Ukraine’s leading steel group, Industrial Union of Donbass, is ready to invest some 85 million euros in the construction of a brand new soccer stadium in Lviv, city officials announced late in October.

Serhiy Taruta

Lviv is one of several Ukrainian cities earmarked to host the Union of European Football Associations games during the championship matches that will be co-hosted with Poland. The construction and reconstruction of stadiums at the other cities is well under way and backed by Ukraine’s billionaires. Soccer-crazed Ukrainian businessmen are backing stadium projects in other host cities, including Donetsk, Kharkiv and Dnipropetrovsk. In Kyiv, reconstruction efforts at the city’s main stadium have commenced.

But Lviv has struggled to find backing for a new stadium. News of possible backing from Taruta comes weeks after an Austrian construction group, Alpine Bau, announced it had backed out of the project to build a stadium in Lviv. City officials also recently announced that two foreign companies had agreed to take part in developing the new stadium: Italy’s Codest and Spain’s Horwath Art Consulting.

Tags: Euro 2012 in Ukraine by Vitaliy Tretyakov
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The PFTS started the week up on fairly active trading, Tiger Asset Management reports.

As of 12:00 on Monday, 31 deals were concluded, including those conducted in pre-trading period. Total trading volume at noon was $12 million, with $11.5 million in Ukrsotsbank corporate bonds and governmental bonds.

Leaders of the trades are Ukrnafta up over eight percent, Krukivsky Carriage AWorks up nearly five percent, Azovstal up over seven percent and Alchevsk Metallurgical Plant at nearly 12 percent.

The market followed the global upward trend and was aide3d by the stabilization of the hryvnia.

The PFTS’ year-high peak of 1198.22 came on Jan. 17 and followed a 130 percent rise in 2007. However, since the beginning of 2008, the PFTS index has fallen by more than 75 percent from the Jan. 1 start at 1160.34.

Tags: Finance news by Vitaliy Tretyakov
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An International Monetary Fund mission held consultations last week with the Ukrainian authorities on a possible stand-by lending facility. These were the first consultations between the two sides in years that focused specifically on lending. They were reportedly initiated by Ukraine, which may have good reason to request IMF assistance as the financial crisis rages across the world.

Until recently, the Ukrainian economy seemed somewhat isolated from the troubles many developed economies had been experiencing as a result of the global credit crunch. Such impressions were enhanced by the country’s observed relative currency stability–despite the sharp one-off currency revaluation conducted by the central bank (NBU) last May–and indicators of continued robust, roughly steady and, at times, even accelerating growth.

However, as the effects of the crisis have reached further and further, some are already being felt across developing economies, too, with Ukraine no exception.

– Tumbling stock market. Traditionally attracting mostly speculative foreign capital rather than classic portfolio investors, the local stock market has always been prone to excessive volatility. If this weakness was hidden during 2007, its best-performing year, it has been fully revealed this year.

– Banking sector’s woes. The main problem that Ukrainian commercial banks face in connection with the global credit crunch lies in the sharply deteriorated conditions for their external borrowing. Over the past three or four years domestic banks have relied heavily on foreign loans to finance not only their credit operations at home but the repayment of loans already received from the same sources. Having accumulated large debts to foreign counterparts, banks may no longer service them from new external borrowing.

– Currency pressures. In the absence of sufficient external financing, the need to mobilize resources to pay debt drove a sharp increase in banks’ demand for foreign currency available domestically. In combination with such factors as reduced inflows of foreign investment, due in part to the demise of the securities market, and falling revenues from exports of metals, unusually strong pressures were exerted on the hryvnia.

Outlook. Since the global financial crisis is likely to prove enduring, Ukraine may have to grapple with its effects largely on its own. When the world economy eventually recovers, financial resources will first and foremost go into investment in high-grade assets in the developed economies, with whatever resources are left coming into emerging markets such as Ukraine later.

However, some financing cushion against the crisis appears to be readily available from the IMF. The assumed $3 billion to $10 billion credit line that could be opened under a stand-by arrangement should help Ukraine cover a widening current account deficit. However, it is not clear if and when an agreement with the IMF is going to be concluded.

Until then, much if not all in the way of crisis management will continue to depend on the central bank’s ability to maintain currency stability while supporting banking system liquidity at appropriate levels. Both look attainable, but in the current conditions their efficient achievement may require far greater policy flexibility than has been the case to date.

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Tags: Macroeconomics by Vitaliy Tretyakov
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Billionaires in Hot Water

The members of FORBES’ international billionaires list have been awash in financial challenges since the economic crisis hit this fall. Herewith, updates on billionaires we’ve profiled.

March 26, 2007 Hong Kong’s Richard Li, long one of Asia’s most eligible bachelors, may have dropped a notch in his appeal. The 42-year-old son of ports and property tycoon Li Ka-shing took an estimated hit of $300 million thanks to another botched attempt to sell a stake in Hong Kong’s biggest phone company, PCCW. Credit markets froze and investors questioned how private equity buyers could secure financing. By the time bidding closed in mid-October, PCCW’s share price had plunged 45% and the auction was canceled. Since Li, worth $1.4 billion earlier this year, bought Hong Kong’s biggest telecom in 2000, its shares have tumbled 97%. His latest reported plan: take PCCW private. –Deborah Orr

March 28, 2005 The October collapse and government seizure of Iceland’s second-largest bank, Landsbanki Island HF, put the fortunes of the nation’s only two billionaires on ice. Through their holding company Samson, Bjorgolfur Bjorgolfsson, known as Thor, and his father, Bjorgolfur Gudmundsson, own a combined 42% stake in Landsbanki, worth $3.1 billion at its peak in October 2007. That investment is now worth zero. The personal fortune of Gudmundsson, 67, was largely tied up in the bank. Son Thor, 41, was worth three times as much as his father in March. Last month Thor’s investment firm Novator sold a stake in Finnish telecom outfit Elisa for $310 million so that he could pay off debts. Thor’s other holdings, including majority stakes in Play, a Polish telecom group he started, and Actavis, an Icelandic generic drug firm, may prove valuable enough to keep him on the billionaires’ list. –Luisa Kroll

Fire Sale

The credit crunch has excised its pound of flesh from the world’s billionaires. Here are five who were hit with margin calls:

–Aubrey McClendon of Oklahoma City sold most of his shares in Chesapeake Energy for about $620 million; those shares were worth $2.3 billion in July.

–Sumner Redstone, Beverly Hills media tycoon, sold $230 million worth of shares in Viacom and CBS; those shares were worth $420 million in early October.

–Oleg Deripaska, Russian aluminum magnate, sold $1.5 billion of holdings in Canadian auto parts maker Magna International and Hochtief, a German construction company; those holdings were worth $2.1 billion in February.

–Alisher Usmanov, Russian mining and telecom oligarch, is being forced to give back a stake now worth $700 million in energy producer Gazprom; that stake was worth $2.8 billion in February.

–Kostyantin Zhevago, Ukrainian banking and mining billionaire, sold 21% of Ferrexpo for $160 million; those assets were worth $675 million in February. – Tatiana Serafin

Tags: Uncategorized by Vitaliy Tretyakov
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KIEV, Ukraine -  Ukraine’s parliament on Wednesday approved legislation that the International Monetary Fund set as a condition for an emergency loan, raising hopes that this ex-Soviet republic, hit hard by the global crisis, will avoid a meltdown.

But chances for a quick recovery were hit by a dramatic fall in the national currency and signs of a rapid economic slowdown, caused largely by falling global demand for steel, the country’s main export.

Lawmakers gave overall backing to a series of bills necessary to secure the $16.5 billion loan that will be spent on shoring up a banking sector, shaken by the global credit crunch and confidence crisis, and the hryvna, which has lost more than a quarter of its value.

The legislation is essentially a set of stabilization bills that force the government to tighten its purse strings and prop up the banks. The IMF considers these moves critical before it can hand over the loan.

Central Bank chairman Volodymyr Stelmakh warned Wednesday that the aid, which still needs to be approved by the IMF board, is vital to help avert a default on foreign lending by the nation’s banks and large corporations.

Stelmakh warned that any failure to secure the IMF loan will undermine public confidence in the government and lead to a default.

“It will concern every Ukrainian,” Stelmakh said at a news conference.

Experts hailed the parliament vote, saying it will help Ukrainian companies to service their foreign debt and shore up the banking sector, but warned that it would not save the export-oriented economy if the global crisis were to deepen.

Iryna Piontkivska, an analyst with Troika Dialog Ukraine, said the country will overcome the crisis if the loan manages to restore confidence in the domestic banking sector among Ukrainians and if the world economy begins a recovery. “If not, it will be tough.”

Ukraine has been one of hardest-hit emerging markets and there were more signs the country was in trouble Wednesday.

President Viktor Yushchenko’s top aide Oleksandr Shlapak said the nation would plunge into a recession next year with the economy contracting by 2 percent. Ukraine’s economy has been growing at an average 7.4 percent over the past few years.

Earlier this month, the IMF forecast growth to slow to 2.5 percent next year from this year’s 6.3 percent. Dragon Capital Investment bank also slashed its growth forecast for next year from some 2 percent to no growth or an up to 5 percent decline, if the global crisis continues.

The hryvna continued its fall, reaching a new low of 7.2 to the dollar on the foreign-currency exchange Wednesday, according to the agency Inter Business Consulting, shedding over 25 percent of its value since the start of the year.

The main stock market, the PFTS, which has lost over 75 percent of its value this year, ignored the positive news of the IMF loan and closed with a 0.52 percent loss Wednesday, despite rising Asian and European stocks.

Lawmakers in the 450-member Verkhovna Rada, which has been paralyzed for nearly two weeks due to a political standoff, voted 248-2 to pass the bills in the first of two required readings. Other lawmakers didn’t vote.

In line with the IMF recommendations, the package envisages adopting a balanced budget by cutting social spending, boosting the banking sector by selling the country’s troubled sixth-largest bank, Prominvest, to a state bank, providing liquidity to other banks in need, increasing retail deposits insurance and other measures.

“They understand the challenges and the need to act,” IMF mission head Ceyla Pazarbasioglu told reporters Wednesday.

Pazarbasioglu said the IMF board has not set a deadline for a board meeting to give final approval for the loan and will give Ukraine time to pass the bills. She said that details of the loan were still to be finalized, but similar IMF loans are to be paid over five years with a floating interest rate, which stands at 3.7 percent.

Ukraine’s severe financial crisis has been further complicated by a fierce standoff between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko which has left the parliament in a deadlock. Tymoshenko is fighting Yushchenko’s order to hold early parliamentary elections in December, in which she risks losing her job and her faction has paralyzed parliament’s work for nearly two weeks. In a blow to Yushchenko, parliament on Wednesday rejected a bill on funding the early vote, likely further delaying the election.

Ukraine was quick to suffer from the global crisis. Output in the steel industry, which accounts for 6 percent of gross domestic product and 40 percent of the country’s exports, is down by 30 percent because of falling global demand.

That has widened the trade deficit to $12.5 billion so far this year. A run on banks has stripped the banking sector of $3.4 billion this month.

Yushchenko expressed optimism Wednesday, that the country would muddle through.

“We will cope with all challenges,” he said at a business forum in the eastern city of Donetsk. “It is hard, but it is not fatal. And we will cope with it.”

Tags: Macroeconomics by Vitaliy Tretyakov
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LONDON - As Ukrainian energy monopoly Naftogaz begged Deutsche Bank for a loan of $1.55 billion to buy gas, a Ukrainian businessman, who last May listed his family-owned business, started a European road show to convince investors to pump more money into his poultry business.

But the timing of Yuriy Kosyuk, chief executive of MHP, to start trading publicly couldn’t be worse in a market that seems to lack a clear direction. “I share the pain of investors leaving the market. But there is only one way to regain their trust and that is by outperforming expectations,” Kosyuk told Forbes.com in an interview at the Dorchester Hotel in central London.

Amid the current market turmoil and as the world’s political forces enter a new “cold war” following the Russian invasion of South Osetia, Ukraine has become the forefront of the new power play. In this context, Kosyuk, who describes himself as a nationalist, understands the mindset of businessmen with big pockets.

Forbes: What is your reaction to the current financial situation?

Kosyuk: It is a very hurtful situation for me because my firm’s performance beat analysts’ expectations ( last Wednesday MHP posted a 441.0% higher first-half net profit) but the market situation has been difficult. Investors also tend to associate Russia and the Ukraine and put them in the same boat.

What’s the feedback you are getting from investors?

They’re saying we like everything you’re doing. And if your overperformance wasn’t as good as it is, your shares would be worth nothing. The fact that they are worth something is good.

It is an awful situation at the moment.

I’m quite nervous about the situation but people put their trust in me and my country … investors know me very well and we are very open to them. And while other big players in my industry are declaring losses in their production, our profitability is going up and our sales are going up as well.

What are your long-term plans?

What I am expecting from Europe is investment and trust. By 2012, our company will start pushing Americans and Brazilians from the poultry market and supply the poultry meat to Europe as Ukraine has been traditionally the breadbasket of the continent.

Some argue business in Ukraine is undermined by a Soviet Era-like mentality.

Political populism is one of the main drivers of inflation, as politicians try to win votes by giving people extra salaries. But I would say this is not just Ukraine’s disease.

After the invasion of South Osetia by Russian troops, some argue Ukraine is next.

I think the conditions in Ukraine and Georgia are different–we don’t have any breakaway republics in the Ukraine. We are also hoping for membership in NATO.

What needs to happen for Ukraine to enter NATO?

For this to happen, the West need to see the difference between Ukraine and Russia. All we want is investors to see this difference. Ukraine has a democracy, Russia is living under a Tzar. Investors still see Ukraine as part of the old Russia, which means investment and the availability of cash in the country and the economy may be negatively affected.

In a nutshell, how would you describe yourself?

I am a convinced nationalist. I mean first I love the country in which I live and work. I love it and trust it endlessly. But I am also a businessman and I realize that all love and relationships must be seen in terms of supply and demand.

Tags: Macroeconomics by Vitaliy Tretyakov
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