January 16, 2013

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UBL TOP STORY

1. Ukraine repays record sum of $3.7bn to IMF in 2012, payments to grow to $5.8bn
in 2013
2. Cabinet decides to pump $1bn into Naftogaz equity
3. Renaissance Group to close office in Ukraine
4. Ukraine's harvest drops by 18.6% y/y in 2012
UBL NEWS
5. Marketc comment: Local market drops on global worries
6. Goods trade deficit narrows on grain exports
7. MHP gains USD 50 mln loan tranche from IFC
8. Ukraine raises beer exports by 12.7% in 2012, imports by 9.2%
UBL On the site today
9. Reality bites in Serbia
UBL DEBT
10. UAH and Rates - A smooth start to the year
11. Ukreximbank to place $500m bond
UBL COMPANY RESULTS
12. Coal Energy mining falls 4% mom in December
13. Sadovaya monthly sales hit record low in December, mines idle

UBL TOP STORY

1. Ukraine repays record sum of $3.7bn to IMF in 2012, payments to grow
to $5.8bn in 2013
bne
January 15, 2013

Ukraine's payments to the IMF in 2012 amounted to SDR2.43bn, including SDR

198m in interest – a record in the entire history of relations between Ukraine and the
fund since 1994, Interfax-Ukraine reported citing IMF's materials.

A year ago Ukraine did not receive any money from the fund, but its payments were
smaller – SDR 230m.

The fund noted that in 2008-2010 Kyiv had been a net recipient of funds: in 2008 –
SDR 2.78bn, in 2009 – SDR 3.86bn, and in 2010 – SDR 2.09bn.

In 1999-2007, Ukraine's payments to the IMF exceeded the funds received from the
fund. At that time, net payments averaged SDR 240m, while the maximum figure
was SDR 546m in 2000.

Over 19 years of cooperation, the IMF had issued SDR 12.26bn to Ukraine and has
been repaid SDR 6.6bn, including SDR 1.36bn in interest.
According to the fund, the record high figure of payments in 2012, which was related
to the maturity of short-term credits issued after the 2008 crisis, could be surpassed
in 2013: Ukraine will have to repay SDR 3.77bn ($5.8bn), including SDR 110m in
interest.

2. Cabinet decides to pump $1bn into Naftogaz equity

Concorde Capital
January 16, 2013

The Cabinet of Ministers of Ukraine decided on Jan. 9 to issue local bonds to raise the
share capital of Naftogaz (NAFTO) by UAH 8 bln (USD 1 bln), according to a
government decree which was made public on Jan. 14. The government will
contribute local bonds with par value of UAH 8 bln. The five-year bonds will have a
coupon rate of no more than 14.3%, according to the decree. The January
contribution equals the total amount that the government planned to invest into
Naftogaz equity in 2013. Last year, the government contributed UAH 12 bln to
Naftogaz in the same way.

Alexander Paraschiy: While raising Naftogaz share capital in the beginning of the
year has become routine for the government, this time it does not look timely. It
shouts out loud that the Ukrainian government has no plan to deal with Naftogaz’s
cash deficit in the way demanded by the IMF, which is by raising retail natural gas
tariffs. The Cabinet’s decision looks particularly confusing against the background of
yesterday’s messages from first deputy PM Arbuzov on the government’s readiness
to find common ground with the IMF.

3. Renaissance Group to close office in Ukraine

bne
January 16, 2013

The Renaissance Group, an international investment group, plans to close its

Ukrainian division, Forbes Ukraine reported citing two former employees of
Renaissance Capital LLC.

The report says that Ihor Bilous, who until recently was director of the investment
and banking department of the Ukrainian company, said that "this is not so."
According to information of the former employees in Renaissance Capital, Bilous and
co-director Roman Nasirov will be freelance advisors at the Renaissance Group.

According to Interfax-Ukraine, in September 2012, Renaissance Capital LLC, a

division of the Renaissance Group, submitted documents to the National Commission
for Securities and the Stock Market of Ukraine to cancel its license to act as a trader
and keeper of securities, referring to the low attractiveness of the Ukrainian stock
market.

Renaissance Capital then said that it will retain its office in Ukraine and it continues
actively trading with the shares of Ukrainian issuers listed abroad.

4. Ukraine's harvest drops by 18.6% y/y in 2012

Foyil Securities
January 16, 2013
Crop harvest in Ukraine fell by 18.6% y/y to 46.2m tons in 2012, according to the
State Statistics Committee. Wheat harvest contracted by 29.4% y/y to 15.8m tons,
barley by 23.8% to 6.9m tons and corn by 8.4% to 20.9m tons.

Our view: Harvest results outperformed our expectations by 4% and are in line with
the market consensus, as Ukraine faced harsh weather conditions both for winter
and spring crops. The total volume of agricultural production in Ukraine fell by 4.5%
y/y in 2012. On the backdrop of the lower harvest, we expect Ukraine to export up
to 20m tons in the 2012/2013 marketing year (MY, July 1 – June 30). We believe
that in the current marketing year grain traders will be more consistent in terms of
grain export volumes in order not to fuel export restrictions from the government.

Ivan Panin

UBL NEWS
5. Marketc comment: Local market drops on global worries
Foyil Securities
January 16, 2013

After trading sideways in the morning session, the Ukrainian stock market dropped
sharply later in the day, mimicking developed markets in Europe, as investors were
eyeing the debt-ceiling debate and mixed economic data in the U.S., while statistics
from Germany showed that its economy contracted in the final quarter of last year.

As a result of the day, the UX index by the end of the day dropped by as much as
2.84%, with half of the index components posting above-market losses, namely
Avdiyivka Coke (AVDK, -4.93%), metal companies Alchevsk Steel (ALMK, -4.12%)
and Azovstal (AZST, -3.07%), power-generating company Donbasenergo (DOEN, -
4.03%), and aviation engine manufacturer Motor Sich (MSICH, -3.54%). On a
broader scene, only locomotive producer Luganskteplovoz (LTPL) and mining
company Northern GOK (SGOK) demonstrated growth, adding 3.03% and 2.66%,
respectively. We can see a slight rebound on local exchanges today.
6. Goods trade deficit narrows on grain exports
Concorde Capital
January 16, 2013

Ukraine’s November goods trade deficit improved to USD 1.0 bln from USD 1.4 bln a
year ago and from USD 1.3 bln in October, according to UkrStat. November exports
declined 5.9% yoy and imports fell 10.2% yoy. Still, the 11M12 result showed an
ongoing increase in the trade deficit to USD 13.8 bln from USD 12.8 bln in 2011,
with imports growing 2.9% yoy and exports 1.9% yoy. Exports have benefited
mainly from grain supplies (+55.5% in November), fats and oils (+9.5% yoy),
processed food (+25.2% yoy) and transportation equipment (+23.0% yoy). These
four groups make up 34.7% of exports. At the same time, metal exports (24.5% of
exports) continued falling, decreasing 20.1% yoy in November. On the import side,
traditional items kept falling – machinery equipment by 21.1% yoy and
transportation equipment by 22.4% yoy. Only chemical products rose (+15.1% yoy).
Energy imports also slid (-22.4% yoy in November) on the back of declining oil
imports (-78.5% yoy), coal imports (-48.5% yoy) and gas imports (-6.1% yoy).

Alexander Paraschiy: A temporary upsurge in grain exports and slump in oil imports
are the main reasons for the strengthened November trade balance. With nearly 22
mln tons of grain scheduled for export in the 2012/13 marketing year, Ukraine has
already shipped nearly 14 mln tons (more than 60% of the state plan). Against this
backdrop, we expect a drop in grain supplies in 1H13. In 2012, we estimate the
trade deficit grew to USD 15.0 bln from USD 14.2 bln in 2011.

7. MHP gains USD 50 mln loan tranche from IFC

Concorde Capital
January 16, 2013

MHP (MHPC LI, MHPSA), Ukraine’s leading poultry producer, has gained a USD 50
mln loan tranche from International Finance Corporation, as stated in a Jan. 14 IFC
press release. The fourth tranche of IFC’s debt facility is geared towards financing its
Vinnytsia project. The debt facility, if fully utilized, will only marginally increase the
company’s leverage from to 2.08x from 1.97x Net Debt/LTM EBITDA, safely above
its Eurobond covenant of 2.5x.

8. Ukraine raises beer exports by 12.7% in 2012, imports by 9.2%

bne
January 16, 2013

Ukraine last year exported 31.5m decaliters (dal) of beer, which is 12.7% up on
2011, according to the State Customs Service of Ukraine.

In monetary terms beer exports last year grew by 6.7%, to $10.13m.

In 2012, Ukraine imported 5m dal of beer, which is 9.2% up on 2011. In monetary

terms, beer imports last year grew by 12.3%, to $38.8m, the State Customs Service
reported.

UBL On the site today

9. Reality bites in Serbia
Nicholas Watson in Prague
January 16, 2013

With even Serbia's nationalist government conceding in January that its erstwhile
province of Kosovo is all but lost, the question that has lurked in the background but
always promised to be a thornier issue with more immediate consequences is what
can be done about the Serb-dominated north of Kosovo.

In a marathon special parliamentary session on January 12 that lasted over 14

hours, the Serbian parliament voted overwhelmingly (175 in favour to 19 opposed)
to adopt a binding resolution that forms a "platform" for the country's negotiations
over the now-independent ethnic Albanian-dominated state of Kosovo. These talks
are being overseen by the EU and resumed on January 15. Some resolution to the
Kosovo issue is a condition laid down by Brussels before Serbia can make progress in
its bid to join the EU.

In a convoluted fashion typical for the Balkans, the resolution appears to say one
thing while actually meaning another – a way, says Gerard Gallucci, a retired US
diplomat and UN peacekeeper who regularly contributes to the Transconflict website,
"to accommodate the diametrically opposed views of Kosovo and Serbia on final
status while also recognizing the realities on the ground in north Kosovo."

No, yes, maybe

Belgrade's resolution has five basic principles for political negotiations with Pristina,
with the first being that Serbia "does not and will never recognise" Kosovo's
unilaterally declared independence in 2008 following the Nato bombing that ended
the civil war between the Serbs and the ethnic Albanians. This is not surprising, nor
is it actually a problem for the EU: Brussels has said recognition of Kosovo's
sovereignty is not expected of Serbia; rather, it wants to see a "normalization of
relations" between the two.
But in a big shift in policy, the document calls for wide autonomy for minority Serbs
within Kosovo's borders, which analysts say indirectly recognises Kosovo's
sovereignty and territorial integrity. This view was backed by comments from
Serbia's nationalist government, a coalition led by the Serbian Progressive Party
(nationalists who split from the hardline Radicals and headed by President Tomislav
Nikolic) and the Socialists, whose leader is Prime Minister Ivica Dacic, who was the
spokesman for Slobodan Milosevic's party during the Kosovan war. Dacic conceded
during the parliamentary debate on the resolution that Serbia's sovereignty over the
province is all but lost. "Serbian sovereignty over Kosovo is practically non-existent,"
he was quoted as saying. "We have to create a strong basis to save something… If
Serbia keeps its head in the sand, it will have nothing to negotiate about."

While rejecting recognition of Kosovo as an independent state – Kosovo is recognized

by over 90 countries including the US and most EU states – the document calls for
the creation of an “Autonomous Community” of Kosovo municipalities with non-
Albanian majorities modelled on the form of Catalan autonomy within Spain.

The document has inevitably been criticised from all sides. For very different
reasons, the Serbian opposition parties the Democratic Party of Serbia (DSS) and
Liberal Democratic Party (LDP) voted against the resolution. "While the LDP is calling
for Serbia to drop its territorial claims and fully recognise Kosovan independence, the
DSS strongly accuses the government of effectively cementing the border between
the two sides," IHS Global Insight says. "In reality, the document is a bargaining
ploy which strengthens Serbia's hand in negotiations on normalising the bilateral
relationship between Kosovo and Serbia, and achieves a safe political platform at
home for the dialogue with representatives of Pristina."

The Kosovan government also slammed the resolution for being a backward step; it
has always (without a hint of irony) rejected any deal that threatens the territorial
integrity of Kosovo. Gallucci says the Kosovo Albanians still want to win everything
and reject the merest hint of compromise over the north of Kosovo, so their
response – the one used successfully in the past – is to try to scare the international
community by raising "the spectre of irredentism", where enclaves administered by
another state are annexed on the grounds of common ethnicity or prior historical
possession, actual or alleged – in the region. In other words, the "Greater Albania"
that Serbs have so often screamed about and used to justify the Kosovo war in the
first place. "The Kosovo Albanian side has often hinted that any effort to recognize
the uniqueness of the north would lead to regional instability in the form of pressure
from Albanians in southern Serbia and Macedonia," says Gallucci.

The resolution brought a bout of sabre-rattling from various nasty groups who
always seem to emerge at moments like these and give the diplomats in Brussels
conniptions. Gallucci says the so-called Albanian National Army (ANA) in Kosovo
threatened armed action, reportedly saying that it would mobilize its members to
defend against Serb threats to secede a part of Kosovo territory.

However, few expect violence on any wide scale. Rather, with no Serbian
government ready to agree to recognize Kosovo's independence, this leaves nowhere
to go to settle the Kosovo issue except by the formula that is now on the table. As
Gallucci explains: "Set aside the issue of recognition, keep the north in Kosovo but
with increased local autonomy, reach status-neutral approaches to issues such as
customs, property, telecoms and electricity. Let both Serbia and Kosovo prepare for
the EU."
 UBL DEBT
10. UAH and Rates - A smooth start to the year
VTB Capital
January 15, 2013

The latest provisional NBU data for December indicated that the situation in the local
FX market stabilised at the end of 2012, as NBU interventions declined to a mere
USD 433mn and net FX purchases on the cash market plummeted to an eight-month
low of USD 210mn. At the same time, pressure on NBU reserves from public debt
repayments remained. We also expect pressure on UAH to persist in the month to
come, while the NBU will likely continue its attempts to keep USDUAH relatively
stable (+/- 2-3%); USDUAH has already moved to 8.14-8.15, from the lows of 8.03
few weeks ago. The IMF’s visit to Ukraine scheduled for 24 January is the closest
possible positive trigger for UAH, although we have a rather cautious view as to the
possibility of a quick deal with the Fund.

The IMF Mission is coming to Kyiv on 24 January, according to new NBU head Ihor
Sorkin, Interfax reported on Friday. However, we maintain a cautious view as to the
possibility of a quick result, as there have not been any clear signs from Ukrainian
officials as to their readiness to deliver on IMF requirements (notably, on domestic
gas/utility price increases). On the other hand, we do see strong incentives for the
Ukrainian side to ultimately resume cooperation with the Fund. On 30 January,
MinFin is scheduled to repay USD 415mn to the IMF and the NBU and MinFin are due
to pay a further USD 950mn to the Fund on 7 and 12 February. Another USD 4.3bn
is scheduled to be redeemed in April-December this year.

December data signalled some stabilisation. NBU interventions fell to a mere USD
433mn in December, from USD 1.7bn in November and USD 1.8bn in October. But
even those interventions were aimed at supporting individual institutions, not the
market in general, as the NBU did not make any dollar interventions on the open
market in December and UAH strengthened vs. USD 1.7% to 8.03. The latter
happened against the backdrop of smaller cash market demand, a seasonal surge in
agri export and the recent introduction of 50% FX sales by exporters. Net FX
purchases on the cash market plummeted to an eight-month low of USD 210mn,
while personal UAH deposits surged 3.6% MoM – the fastest growth rate since
December 2010. Higher demand for UAH can be explained by the surge on UAH
deposit ST rates (closer to 20%), public discussions of the introduction of 10-15% FX
sales tax as well as households’ holiday expenditures.

Monthly advance corporate tax payment due on 18 January,for the first time. This
Friday, the monthly advanced corporate income tax payment for January is due,
which might cause a liquidity outflow of some UAH 1-1.5bn of UAH, according to our
estimates although such an amount will likely have a muted impact on rates given
banks’ abundant liquidity currently. This will be the first time that corporates pay
income tax on a monthly basis (vs. the previous quarterly payment system) and,
hence, there is a certain degree of uncertainty surrounding how things will play out.
In general, the new rules will likely make MinFin’s UAH liquidity position smoother.

11. Ukreximbank to place $500m bond

Concorde Capital
January 16, 2013
Ukreximbank will complete a placement of its five-year Eurobond for about USD 500
mln, Interfax reported on Jan. 15, citing its sources. Given that the bank’s March
2015 bond trades at a YTM of 8.0% (a 1.9 pp spread to the sovereign curve), the
yield of a new placement should be close to 8.6-8.7%.

UBL COMPANY RESULTS

12. Coal Energy mining falls 4% mom in December
Concorde Capital
January 16, 2013

Coal Energy’s coal mining dwindled 4% mom to 142.6 kt in December, according to

the company’s monthly production report published on Jan. 15. Coal production from
waste reprocessing slid 7% mom to 7.3 kt. Consequently, 1HFY13 coal mining
slowed to 920.7 kt (+17% yoy), and coal output from waste recovery to 141 kt
(+35%).

Roman Topolyuk: Coal Energy’s operating performance in December was influenced

by deteriorating coal market conditions in both its sub-segments – coking and
thermal coal – for the second consecutive month. There are scarce signs for recovery
soon. Its European peer, New World Resources (NWR PW), reported on Jan. 14 a
negative outlook for steam coal in Europe that was exacerbated by high stockpiles of
thermal coal, which are above the historical average, and declining contract prices.
This underlines limited export options for Ukrainian miners. Coupled with historically
high stockpiles of thermal coal in Ukraine as well (up 1.6x yoy to 5.7 mmt as of Dec.
1, 2012), we don’t exclude that Coal Energy may decrease its FY2013 mining plans
to better match market demand. The most recent 2013 outlook, revealed by
management in October 2012, was for 2.2 mmt, or +38% yoy.

13. Sadovaya monthly sales hit record low in December, mines idle
Concorde Capital
January 16, 2013

Sadovaya Group (SGR PW) reported on Jan. 14 a 1.9x mom decline in monthly sales
in December to 11.2 kt (down 11x yoy). Thus, the company’s 2012 coal sales
amounted to 569.6 kt, down 55% yoy. Both of its mines remained idle in December,
while the company reported some 2.4 kt in coal extracted from its Rassvet-1 mine
(flat mom, down 12x yoy). 2012 coal mining was down 14% yoy to 407.5 kt. SGR’s
waste reprocessing facility is still running in test mode.

Roman Topolyuk: Sadovaya’s December sales came in lower than we expected.

Finished product stockpiles decreased only 12% to around 80 kt, according to our
estimates. With such low sales activity, the company may continue to keep
production facilities idle in February, leading to rising pressure on its solvency and
liquidity.