Ukraine Markets Daily (August 26, 2015)

Market news

  • The Ukrainian infrastructure ministry unveiled the financial plan of Ukrzaliznytsa 
  • Kernel renewed its credit line with the European banks for USD 350 mn

Market comment

The UX Index was down by 1.5% in UAH terms on Tuesday, and down by 1.7% in the US dollar. The PFTS index was down by 1.0% in UAH terms. All ten companies in the UX index were down in UAH terms, with the largest decrease recorded for Alchevsk MP (-3.8%), DonbassEnergo (-2.5%) and Kryukiv carriage (-2.2%).

On the interbank exchange market, the USD/UAH was up by 0.8% to 22.61 (mid price) on Tuesday, according to Bloomberg. The official exchange rate reported by the NBU was UAH 22.62.

Ukraine 5-year CDS were down by 1.4% on Tuesday.


The Ukrainian infrastructure ministry unveiled the financial plan of Ukrzaliznytsa

The Ukrainian Infrastructure Ministry published the consolidated financial plan of the state railway company Ukrzaliznytsia for 2015, and outlook for the years to 2019.

According to the underlying data for the company’s fiscal plan for 2015, the company’s sales revenue amounted to USD 4.2 bn in 2014, and is seen to fall to USD 2.2 bn in 2015 (-48% y/y). The company reported an EBITDA of USD 772 mn in 2014, which is expected to decline to USD 412 mn in 2015, or a contraction of 47% y/y. The company recorded a net profit of USD 41 mn in 2014, which is seen to turn to a USD 28 mn loss in 2015. Cashflow from operations amounted to USD 836 mn in 2014, and is forecasted to fall to USD 426 mn (-49% y/y) in the current year.  

Ukrzaliznytsa made capital investments worth USD 309 mn in 2014, however planning to reduce the volume to USD 103 mn (-67%) in the current year. Capex will be restricted to fixed assets, according to the financial plan.

Ukrazaliztnytsa’s total assets amounted to USD 6.4 bn in 2014, expected to decline to USD 5.9 bn in 2015 (-22% y/y), whereas total liabilities amounted to USD 2.5 bn in the previous year, seen to remaining nearly unchanged at USD 2.2 bn in the current year. The company had USD 16 mn of cash and cash equivalents in 2014, and the forecast sees the cash balance to increase to USD 59 mn by end-2015.

Our view: 

The company’s results for the previous year happened to be better than supposed. However, Ukrzaliznytsa has not made public any official financial report for 2014 yet, leaving room for concerns about the real financial state of the company. The latest financial data of the company are available only in the working documents accompanying the financial plan. Nevertheless, we see the plan for 2015 to be more or less realistic, especially taking in account the current measures of the ministry and the government to clean the company’s balance sheet and undertake needed reforms to strengthen the sustainability of the railway transport business.


Kernel renewed its credit line with the European banks for USD 350 mn

Kernel [KER PW], one of the largest Ukrainian agricultural groups, renewed its sunflower oil pre-export credit facility with a syndicate of European banks. The one-year secured revolving facility with a limit of USD 350 million is used by the company to fund the working capital needs of its sunflower oil production business in Ukraine. The company has already made use of the opportunity to extend the effect of the credit line in 2013, and 2014.

Our view: 

The news are POSITIVE for Kernel, as it indicates that the company still has access to low-cost financing from foreign banks at a time when domestic liquidity in Ukraine is extremely limited. Together with this credit line, Kernel secured a total funding of USD 645 mn, which is sufficient to ensure the smooth operation of the company’s farming and sunflower oil production business lines.



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