The departure of President Viktor Yanukovich from office is good news for Ukraine as it paves the way for a political resolution, says UBP's Zsolt Papp.
The departure of President Viktor Yanukovich from office is good news for Ukraine as it paves the way for a political resolution, says UBP’s Zsolt Papp.
Social unrest and demonstrations were strongly tied to his grip on power and tarnished leadership. In addition, EU/IMF now seem prepared to provide substantial financial aid while Russia said it would look to resume its financial aid after the formation of a new government.
Yanukovich’s departure has pushed Russia to state that it is prepared to resume financing after new government is formed: Finance Minister Siluanov confirmed that Russia is willing to resume financial aid – so far USD 3bn of the USD 15bn package have been disbursed. Russia will also work together with the European Union to maintain territorial integrity of Ukraine. The EU, the IMF and the US also confirmed they are ready to provide substantial financing. All in all, the commitment of foreign aid has enabled sovereign default risk to significantly decrease – further supported by the National Bank of Ukraine which reiterated that liquidity situation in the banking system remains good – and should enable Ukraine to remain current on its obligations, which are thus not at risk.
Concerning corporates, we continue to hold DTEK, as it generates 30% of domestic electricity and Metinvest, as it produces 30% of domestic electricity. These companies are profitable and have positive cash flows, while leverage metrics compare favourably vs. CIS peers. In case of a sharp USD/UAH devaluation (-50%) and no further FX controls imposed by the government, these companies should be able to service their debt in the medium-term. Refinancing risks are limited in the next 12 months. In addition, the companies have the flexibility to reduce dividend payments and capex (mainly expansionary) in order to preserve cash.