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Ukraine Markets Daily (September 24, 2015)

Market news

  • Industrial output decline slowed to 5.8% y/y in August 2015
  • Standard and Poor’s cuts Privatbank’s ratings to ‘SD’

Market comment

The UX Index was up by 0.7% in UAH terms on Wednesday, and up by 3.2% in the US dollar. The PFTS index was down by 2.4% in UAH terms. Seven out of ten companies in the UX index were up in UAH terms, with the largest increase recorded for Kryukiv carriage (4.2%), Alchevsk MP (4.0%) and DonbassEnergo (2.1%).


On the interbank exchange market, the USD/UAH was down by 2.4% to 21.20 (mid price) on Wednesday, according to Bloomberg. The official exchange rate reported by the NBU was UAH 21.58.

Ukraine 5-year CDS were unchanged on Wednesday.


Industrial output decline slowed to 5.8% y/y in August 2015

Industrial production declined by 5.8% y/y in August 2015, redressing from 13.4% y/y and 18.1% y/y decline respectively in July and June, according to the State Statistics Service of Ukraine.  Mining output grew by 0.9% y/y breaking an eighteen-month consecutive contraction. Manufacturing fell by 8.3% y/y, after declining by 12% y/y in July, and by 17.6% y/y in June. Energy generation decreased by 7.5% y/y, rebounding from 13.9% plunge in July and 15.5% y/y in June. Overall, industrial production fell by 18% y/y in eight months of 2015, slowing from a 19.5% y/y contraction in seven months, and 20.5% y/y downswing in 1H2015.

Production decline in the seven core economic sectors of Ukraine slowed to 6.9% y/y in August, according to an index calculated by the National Bank of Ukraine, compared with 8.4% y/y contraction in July, and 17.8% y/y in June. Ukraine’s core economic sectors fell by 13.4% y/y in eight months of 2015, according to NBU.

Our view: 

The industrial result mostly reflects the effect of a low comparative base of the corresponding period of the previous year. A near collapse of industrial production was recorded in September 2014 as a full-fledged war unfolded in the industrial stronghold of the country – the Donetsk and the Luhansk regions. A gradual resumption of production in the region mostly contributed to the industrial rebounding, thanks to increasing deliveries of coal (+1% y/y in August 2015) and iron ore (+6.7% y/y) from the war-torn zone, contributing to positive development in the coke and metal industries. In our view, the low comparative base of 4Q2014 and 1Q2015 will continue positively affecting the industrial index in the forthcoming months. Additionally, we see industrial output to benefit from the relative stabilization of the national currency and further strengthening of the country’s economic ties with Europe.


Standard and Poor’s cuts Privatbank’s ratings to ‘SD’

On September 23, 2015, Standard & Poor's Ratings Services lowered its long- and short-term counterparty credit ratings on Ukraine-based PrivatBank to 'SD' from 'CC/C'. The downgrade follows PrivatBank's signing of a supplemental loan agreement on September 8, 2015 regarding the 

USD 200 mn bonds due September 2015. The agency regards the agreed extension of the 2015 bonds as a distressed exchange, which is tantamount to a selective default, according to the criteria of S&P.  The agency expects that the extension of the 2015 bonds will be a selective default – as opposed to a general default - and so far is aware of no other debt obligations currently in default.

After the payment of a coupon on September 23, 2015, following the completion of the consent solicitation process, S&P plans to remove PrivatBank from 'SD' and raise the issuer credit rating. However, before that, the agency will also complete a forward-looking review taking into account the benefits realized from the restructuring as well as any other interim developments. In particular, S&P intends to take into account the bank's plans to undertake restructuring of bonds due February 2016.  

PrivatBank's stand-alone credit profile (SACP) was left unchanged at 'ccc', reflecting the bank's "adequate" business position, "weak" capital and earnings, "adequate" risk position, and "weak" funding and liquidity profile, according to S&P. 

Our view: 

Though the rating cut was in line with the overall practice in relation to debt restructuring actions, we see S&P assessment of the financial state of the bank to be rather negative. However, in the difference of the case of other corporate debt restructuring in Ukraine, we do not see an expedient recovery of the rating of Privatbank, given that the debt restructuring process may last longer, being distributed in two stages between the preliminary restructuring of the 2015 notes, and the subsequent negotiations on restructuring of the 2016 notes. The diverging signals to the market coming from the successful short-term restructuring of the 2015 notes and still unclear restructuring prospect for the 2016 notes will most likely put bond price on hold for a while, in our opinion.



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Ukraine Markets Daily

Market news

  • MHP is to refinance its 2020 Eurobonds with the new issue

Market comment

The UX index remained unchanged on Friday as well as the PFTS index due to holidays. The WIG-Ukraine index increased by 0.6%. On the interbank exchange market, the UAH/USD remained unchanged too at UAH 26.10 (mid price), according to Thomson Reuters. The official exchange rate reported by the NBU was UAH 26.35.

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