Ukraine Markets Daily (December 25, 2014)

Market news

  • S&P revised Privatbank outlook to negative
  • S&P lowered the ratings of UkrLandFarming, MHP to “CCC-” from “CCC”

Market comment

The UX Index was down by 0.1% in UAH terms on Wednesday, and down by 0.5% in the USD terms. At the same time, the PFTS index was down by 0.8% in UAH terms. Only three out of ten companies in the UX index were down in the UAH terms: Kryukiv carriage (-2.9%), Enakievo MP (-2.0%) and DonbassEnergo (-1.2%), while Avdiivka coke (+3.5%) and Alchevsk MP (+2.1%) were among the top gainers. 


On the interbank exchange market, the USD/UAH spot rate was up by 0.4% with the closing price of 16.17 (mid price), according to, while the average exchange rate reported by the NBU was 15.77.

Ukraine 5-year credit default swaps were flat on Wednesday.


S&P revised Privatbank outlook to negative

Standard & Poor's Ratings Services affirmed long-and short-term credit ratings of Privatbank to the “CCC/C” and revised its outlook to negative from stable. S&P affirmed the ratings on Privatbank because the bank's creditworthiness is sufficient to withstand a foreign currency sovereign default, based on the results of simulated liquidity and capital stress tests. At the same time S&P revised the outlook on Privatbank to negative, since the outlook on Ukraine is negative.

Privatbank's willingness and ability to service its foreign currency debt is superior to that of the sovereign, as indicated by S&P’s of its stand-alone credit profile at “b-”. Therefore, if there were a sovereign foreign currency default, it is likely that Privatbank would not default on its foreign or local currency debt as a result.

Our view:

The news is neutral for the Privatbank’s Eurobonds as the markets already played it after S&P lowered the long-term foreign currency rating of Ukraine to “CCC-” from “CCC”. At the same time Privatbank remains one of the strongest banks in Ukraine, #1 in assets and can rely on the NBU’s support in case of necessity.


S&P lowered the ratings of UkrLandFarming, MHP to “CCC-” from “CCC”

According to the statement on the website of Standard & Poor’s, the credit rating agency lowered its long-term foreign currency credit ratings on Creativ Group, MHP S.A. [MHPC LI], Ukrainian Agrarian Investments S.A. and UkrLandFarming plc to “CCC-” from “CCC”. As was stated in the press-release, the downgrades of the aforementioned Ukrainian agribusiness companies follow S&P’s downgrade of Ukraine on Dec. 19, 2014 to “CCC-”. 

S&P also noted that at present, the rating agency does not expect to rate these companies above the sovereign, as the company considers their liquidity positions unlikely to become sufficiently solid to withstand the restrictions on foreign currency cross-border transfer and conversion, if the sovereign were to default. Therefore, S&P’s long-term “CCC-” rating on Ukraine therefore caps the ratings on the affected Ukrainian agribusiness companies. 

The rating agency stated that its “CCC-” local and foreign currency corporate ratings on UkrLandFarming (ULF) reflect the “CCC-” foreign currency rating on Ukraine and its stand-alone credit profile (SACP) of “b-”. S&P bases the company's SACP on its vulnerable business risk profile due to the very high risk of doing business in Ukraine, as well as ULF’s significant financial risk profile, based on S&P’s view that leverage will be about 3x and that EBITDA interest coverage will be in the range of 3x to 6x. 

S&P noted that their “CCC-” local and foreign currency corporate ratings on MHP also reflect the long-term “CCC-” foreign currency sovereign rating on Ukraine and the company's SACP of “b”. S&P bases the company's SACP on its vulnerable business risk profile and intermediate financial risk profile, as the rating agency considers that leverage will be less than 3x the adjusted debt-to-EBITDA. S&P also noted that MHP's aggressive expansionist financial policy weighs on its SACP, while the rating agency views MHP’s liquidity as being "less than adequate".

Our view:

The news is NEUTRAL for the companies, as the rating agency’s move follows the decrease of the sovereign credit rating to “CCC-”. Thus, we believe that the ratings of MHP and ULF could be reviewed once the macroeconomic environment improves.



Although the information in this report has been obtained from sources which Empire State Capital Partners believes to be reliable and was collected in good faith, we do not represent or warrant its accuracy, except with respect to information concerning Empire State Capital Partners, its subsidiaries and affiliates, either expressly or implied, and such information may be incomplete or condensed. Nor has the information and/or data been independently verified, and so is provided without further caveat regarding its reliability, suitability for commerce or specific purpose. 

This report does not constitute a prospectus and is not intended to provide the sole basis for an evaluation of the securities discussed herein. All estimates and opinions included in this report constitute our judgment as of the date of the report and may be subject to change without notice. Empire State Capital Partners or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this report, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, or other services (including acting as advisor, manager) for any company referred to in this report and may, to the extent permitted by law, have used the information herein contained, or the research or analysis upon which it is based, before its publication. Empire State Capital Partners will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. This report is confidential and is being submitted to select recipients only. It may not be reproduced (in whole or in part) without the prior written permission of Empire State Capital Partners.

Any recommendations, opinions, forecasts, estimates or views herein constitute a judgment as at the date of this report. This document has been produced independently of Empire State Capital Partners and the recommendations, forecasts, opinions, estimates, expectations, and views contained herein are entirely those of the research analyst(s). While all reasonable care has been taken to ensure that the facts presented herein are accurate and that the respective recommendations, forecasts, opinions, estimates, expectations, and views are fair and well considered, none of the research analyst(s), Empire State Capital Partners or any of its directors, managers or employees has verified the contents of this document and, accordingly, no research analyst, Empire State Capital Partners or any of its respective directors, managers or employees shall be in any way responsible for its contents.