Ukraine Markets Daily (December 29, 2016)

Market news

  • Ukraine’s Prime-Minister introduces the medium-term action plan of the Government to 2020
  • AEG draws down an initial US$ 2 mn to fund 35000 tonne plant in North America

Market comment

The UX index was up by 0.1% Yesterday. The PFTS index decreased by 0.1% (in UAH term). The WIG-Ukraine was up by 1.1%. On the interbank exchange market, the USD/UAH increased by 1.9% to UAH 27.13 (mid price), according to Bloomberg. The official exchange rate reported by the NBU was UAH 26.89.


Ukraine’s Prime-Minister introduces the medium-term action plan of the Government to 2020

On December, 29, 2016, the Ukrainian Prime Minister Volodymyr Groysman presented at a sitting of the Cabinet of Ministers the medium-term strategy of the Government up to the year 2020. The Government upon its appointment by the Parliament in April 2016 was required to work out the document before the end of the current year. The document is based upon the Presidential Sustainable Development Strategy ‘Ukraine-2020’ (Electoral program of the acting President), the Government’s Action Program, the Association Agreement with the EU, the Parliamentary Coalition Agreement, and Ukraine’s foreign commitments, the Prime Minister emphasizes. The action plan is based on five major priorities, encompassing 85 consequent and complex priority reform areas for the period from 2017 to 2020. The government singled out economic growth, efficient governance, human capital development, judicial equity and fight against corruption, security and defense as its major priorities over the period. The economic activities of the Government will be focused on economic growth through promotion of the investment climate. This implies a simplification of the tax administration, deregulation, promotion of the national industry and foreign investments, as well as expansion into new foreign markets, the Prime Minister claims. Groysman referred to the agricultural industrial complex as one of the most prospective drivers of economic growth, which should be reformed. Overall, the country needs to carry out the land reform up to the year 2020, Groysman emphasizes. The Government also underlined energy efficiency and the promotion of Ukrainian gas extraction as one of the priorities over the period, setting a target of switching to consumption of natural gas of predominantly own production by 2020. At the same time, the coal sector is subject to reform, while the share of renewable resources might be increased to 10% of Ukraine’s energy balance, according to Groysman. The Prime-Minister reiterated the Government’s decisiveness in developing the country’s transport infrastructure (road network, Ukrainian Railway, Port and aviation infrastructure) in order to promote Ukaine’s logistic potential. In the social area, the Government intends to launch the pension reforms over the medium-term period, stressing that the deficit of the Pension Fund has reached UAH 150 bn currently. In order to overcome corruption, the Government intends to support the independence of the anti-corruption bodies, while expanding the use of the single register of the properties of public servants. The Prime-Minister plans to involve the representatives of non-governmental anti-corruption organizations in decision making and reforms at the branches of state power. The medium-term program foresees the liberation and reintegration of the currently occupied “Donbas and Crimea”, the Prime Minister claims.

Our view:

We see the presentation of the Program by the Prime-Minister to have been intended basically at demonstrating the Government’s ability to work on schedule and sticking to its promises. Overall, however, we note the predominantly declarative character of the presentation, offering virtually no quantitative indicators or benchmarking measures to the strategic plan. Considering that the presentation is made already after the adoption of the Government plan for 2017, we expect the overall finalization and the launch of the medium-term strategy, if adopted, to be postponed up to mid-2017 and beyond.

AEG draws down an initial US$ 2 mn to fund 35000 tonne plant in North America

Active Energy plc (“AEG”), the London quoted renewable energy, forestry management and timber processing business, on November 28th announced that it has drawn down an initial US$2 million under the US$6 million five-year unsecured loan facility, provided by Linarus FZE a private Dubai based investment company, to fund the construction of the first 35,000 tonne per annum commercial reference plant ('the Plant') in North America based on the company’s innovative CoalSwitch technology. The Board expects that the development of the Plant will open up a significant revenue stream with rapid payback credentials for AEG CoalSwitch once completed later in 2017. Richard Spinks, Chief Executive Officer of Active Energy said, "With these initial funds drawn down, I am confident that 2017 will see us deliver on our stated commitment to rapidly commercialize our ground-breaking CoalSwitch technology. We look forward to commissioning our first Plant in North America in Q3 2017, for which the long lead time items procurement process has commenced. We are in discussions with a number of investors and partners for the roll out of up to four additional CoalSwitch production plants immediately on the heels after the first Plant becomes operational: two in the USA and two in Canada. This will serve to de-risk investors and allow the Company to achieve better terms for funding plants going forward. We are confident that the USA and Canada will be significant feedstock, production and resale markets for CoalSwitch, particularly given the recent endorsements our product has had from key industry players." Currently, a coal-fired power station wishing to convert to burn the ubiquitous White Pellet fuel currently available in the market would need to invest approximately US$700,000 per 1 MW of installed generating capacity. With CoalSwitch, there are no retrofit costs.

Our view:

The news is STRONGLY POSITIVE for the company stock, as this financing is a milestone in a further commercialization of the innovative CoalSwitch technology. Building of an industrial-scale CoalSwitch plant will enable testing of the CoalSwitch product at industrial-scale power plants, which will spur construction of similar or larger scale plants around the world, including in the USA, Canada, Europe and Asia. Additionally, the development of a CoalSwitch technology will significantly enhance the value of the Company’s Canadian JV on timber management of 108,000 ha of forests in Alberta, Western Canada. Thus, we reiterate our target price of USD 0.234 per share (GBp 18.7), implying a significant upside to the current market price.