Ukraine Markets Daily (January 20, 2017)

Market news

  • Ukrzaliznytsia became independent from Transport and Infrastructure Ministry

Market comment

The UX index increased by 0.4% Yesterday, while the PFTS index was up by 0.3% (in UAH term). The WIG-Ukraine index decreased by 0.5%. On the interbank exchange market, the USD/UAH was down by 0.7% to UAH 27.42 (mid price), according to Bloomberg. The official exchange rate reported by the NBU was UAH 27.44.

 

Ukrzaliznytsia became independent from Transport and Infrastructure Ministry

The Cabinet of Ministers of Ukraine has transferred the management of the public joint-stock company Ukrzaliznytsia from the Infrastructure Ministry to the government in order to increase the efficiency of the corporate management in the company, the Secretary of the Infrastructure Ministry Andriy Haluschak related to news agencies. The amendments to the company’s charter should allow providing the prerequisites for management reforms in the company, the official said. The change came as a result of changes to the charter of the company adopted at an emergency meeting of the Government on January 18, 2017, bringing the company’s regulating documents in line with the Law on public joint-stock company of railway transport of general use. According to the law, the Cabinet of Ministers is the founder and the sole shareholder of Ukrainian Railway, to whom the management of the company is subordinated and accountable. The Government decision transfers the authority to form the management and the supervisory boards of the company from the infrastructure ministry to the Cabinet of Ministers. The role of the company’s supervisory board in the management body of Ukrzaliznytsia is expanded. "Now the government as shareholder will be able to quickly make effective decisions required for the functioning of the company and reforms… Meanwhile, the Infrastructure Ministry should focus on its key function – devising public policy in the railway transport, and refraining from diverting its attention towards handling of management issues”, Haluschak said. A previous similar practice of reforming corporate governance at the Naftogaz Ukraine has already demonstrated its efficiency. And another example should came from Ukrzaliznytsa”, the official claims. The CEO of Ukrzaliznytsa Wojciech Balczun welcomed the decision in a post on Facebook.

Our view:

The Government’s decision is POSITIVE bringing an end to several months of standoff between the company’s management and the infrastructure minister Volodymyr Omelyan, who has harshly criticized Mr Balczun, accusing him of failure to present a strategic plan of the company, and threatening to introduce a crisis management team into Urzaliznytsa to handle complaints from the company’s major client groups. The decision is a witness of decisive support to the company’s management from the side of the Prime Minister, and allows more confidently running the complex investment and development plan of Ukrzaliznytsa, due to be launched right from the beginning of the year. The news is therefore supportive to the quotations of the company’s Eurobonds, which currently are still priced below the corresponding sovereign Eurobond.