Ukraine Markets Daily (February 26, 2018)

Market news

  • Kernel enters a USD 100 mn pre-export credit facility
  • Ukrainian Railway signed a USD 1 bn locomotive supply deal with General Electric
  • Production of industrial products increased by 1.0% m/m in December 2017

Market comment

The UX index increased by 0.9% yesterday and the PFTS index was up by 0.2% (in UAH terms). The WIG-Ukraine index decreased by 0.7%. On the interbank exchange market, the UAH/USD was down by 0.2% to UAH 26.99 (mid price), according to Thomson Reuters. The official exchange rate reported by the NBU was UAH 27.07

 

Kernel enters a USD 100 mn pre-export credit facility

Kernel finalized the execution of a USD 100 mn pre-export credit facility with a syndicate of European banks. The 2.5-year secured revolving facility will be used by the Company to fund the working capital needs of its grain export business in Ukraine.

Our view:

It is the second pre-export credit facility for Kernel since the beginning of FY2018 on July 1, 2018, while the first one with a USD 200 mn limit was agreed in October 2017 for the sunflower oil production. Considering the fact that as of September 30, 2017, the Company had USD 117 mn of cash on its accounts, it looks like Kernel decided to use its own cash for investing activities, while the Company’s operations are financed with the credit funds.

Ukrainian Railway signed a USD 1 bn locomotive supply deal with General Electric

On Friday, February 23, 2018, Ukrainian Railway signed a 15-year, USD 1 bn locomotive supply deal with General Electric (GE) Transportation. During the contract, GE will produce up to 225 new locomotives and upgrade 75 older models, while during 2018 GE is expected to supply 30 locomotives for USD 140 mn each. The degree of localization in Ukraine is supposed to grow to 40% during the contract. Diesel locomotives will be purchased through the Ukreximbank, which will lease them to Ukrainian Railway for a 7-year period. In addition, Ukreximbank received the USD 100 mn guarantee, extended by Citibank, which will cover losses if GE will not deliver the expected amount of locomotives during this year.

Our view:

This deal will have a positive impact on Ukrainian Railway as well as on Ukraine’s economy. This contract allows not only to update and modernize current locomotive stock of the Company, which effective service life had expired a long time ago but to reactivate a locomotive building industry in Ukraine, after the loss of the facilities in the East of Ukraine.

Production of industrial products increased by 1.0% m/m in December 2017

As was reported by the State Statistics Service of Ukraine (SSSU), the production level of industrial products increased by 3.6% y/y in January 2018. Particularly, the extracting industry dropped by 0.2% y/y, while the production level in the processing industry grew up by 9.7% y/y. Electricity and gas supply decreased by 8.1% y/y, compared to the same month of the previous year. In January 2018 the industrial production index dropped by 13.9% m/m. The extracting industry lost 1.5% m/m in comparison with December 2017, mostly due to a 12.4% m/m decrease of a coal extraction. Production level within the processing industry decreased by 22.8% m/m, due to a meaningful drop in all industries. Particularly, production of rubber and plastic decreased by 27.6% m/m, of food products – by 26.6% m/m, of machines – by 26.1% m/m, of chemical products – by 12.4% m/m, of metal products – by 5.1% m/m and of coke and refined products – by 0.8% m/m. In January 2018 electricity and gas supply was up by 6.5% m/m.

Our view:

In 2017 Ukraine’s banking system improved its financial performance mostly due to a low comparison base in 2016, which is a result of PrivatBank nationalization and recapitalization in December 2016. But still, a net loss of USD 919 mn is quite large and was gained mostly during December 2017 as a result of the significant amount of deductions for the reserve creation (USD 590 mn) and of other expenses (USD 445 mn). Among main loss generators were PrivatBank and banks with Russian capital.