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  • Central Bank Slashes Prime 200 bps
  • IMF Deal: March Approval
  • Solar and Wind Investors Freeze, Waiting for Green Tariff Clarity
  • E-Commerce Boom: Nova Poshta Handles 1 Million Packages at Black Friday Peak
  • Ukraine’s Ports Handle 150 Million Tons, Biggest Volume in a Decade

 The central bank cuts its prime interest rate by a whopping 200 bps, to 13.5% from 15.5% – twice deeper than forecast by a Bloomberg poll of economists. The cut, the fourth this year, was prompted in part by November’s 5.1% annual inflation figure, almost half the level of one year ago. Prime now recedes to the level of two years ago. By this time next year, the National Bank of Ukraine aims to cut this key index to 8%.

Foreign investors chasing high yields have invested a net $4.2 billion in Ukraine’s local currency government bonds this year. This wall of money and strong harvest receipts strengthened the hryvnia by 17% this year, making it the world’s strongest performing currency against the dollar.

With the exchange rate now at 23.48 to the dollar, central bank governor Yakov Smoliy told reporters Thursday that the bank will speed up purchases of foreign exchange. Reserves are currently $22 billion.

A final deal with the IMF will be signed by March, predicted Smoliy in Kyiv. “Minor technical issues remain,” Smoliy said Thursday. A key one: “The adoption of the law on the impossibility of banks returning to the market if they are at the liquidation stage in the Federal Property Fund.” This bill is designed to prevent the return of PrivatBank to its former owners, notably Igor Kolomoisky. This Thursday, a Kyiv court is to rule on the Finance Ministry’s appeal of a court decision last spring to declare the Dec. 016 nationalization ‘illegal.

In Washington, IMF spokesman Gerry Rice told reporters Thursday that final approval of the $5.5 billion Extended Fund Facility depends on Ukraine implementing free-market changes adopted this fall.The agreement on the IMF program for Ukraine is preliminary,” he cautioned. “The decision on final approval has not yet been submitted for consideration by the IMF board.” He said keys are not returning nationalized banks to previous owners and pursuing stolen money.

The Cabinet of Ministers has submitted to the Rada a bill that would make impossible, by legislative or judicial means, the return of a bank recognized as insolvent to its former owners. Any compensation for assets would depend on a study of asset quality by an internationally recognized auditor. Only the Supreme Court would handle insolvent bank claims.

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Concorde Capital’s Alexander Paraschiy writes: The bill’s adoption is among the preconditions for Ukraine to sign a new deal with the IMF. The timing of the bill’s approval is not clear yet. Taking into account that Ukraine’s parliament is going to work all week, it’s likely this bill will be approved by the end of 2019.”

“IMF Agreement Would Be Positive for Ukraine Funding, Reforms,” headlines Fitch Ratings in a new report: What Investors Want to Know: Ukraine – Sovereign, Banks, and Corporates. “Continued IMF engagement was a key assumption when we upgraded Ukraine’s sovereign rating to ‘B’/Positive in September,” writes Fitch. “It will facilitate access to external funding (official and market) ahead of $2.4 billion of external bond repayments in 2020-2021.”

To draw foreign investors, the State Property Fund has posted, in English, a preliminary list of small’ state-owned properties that are to be auctioned off next year. With each valued under $10 million, the 729 properties include: Skadovsk and Ust-Dunaisk seaports, Kristal Vinnytsia factory, Lviv jewelry factory, Kherson-Avia airline, Ukrinterenergo, Electronma , Dnipro Electric Power Plant, and peat mines and breeding farms. Almost one quarter of the properties are scheduled for auction next month on ProZorro.

Scatec Solar is the latest foreign company to freeze construction of a solar plant, pending clarity on green tariffs for the 2020s. Construction of a 65-megawatt solar plant in Kherson Oblast is on hold, according to Alina Sviderska, the Norwegian company’s head of business development in Ukraine. Norway’s NBT and Canada’s TIU are also slowing investments. Attracted by Europe’s highest green tariffs, European and American renewable energy companies flocked to Ukraine in the last two years, making solar and wind the most active areas for foreign investment.

Last Monday, the peak package delivery day for the ‘Black Friday’ shopping weekend, Nova Poshta handled more than 1 million parcels, a 33% increase over last year, reports Alexander Bulba, director of the privately-owned delivery service. Over the five years of the shopping discounts, Nova Poshta handled 36% more packages this year.  The most popular stores last week were: Amazon, eBay, 6 pm, Victoria’s Secret, and Carter’s. The most popular product categories are electronics, clothing, cosmetics, and children’s products.

As of Wednesday, Ukraine’s seaports have handled 150 million tons this year – the highest level in a decade. The nation’s largest port, Pivdennii, accounted for one third, or 50 million tons. With national cargo up 7%, the breakdown is: exports – 75%; imports – 16%; and transit – 7%. According to the Infrastructure Ministry, the two largest categories are: food – 41%; and metals – 23%. Containers are up 8%, on track to hit 1 million for the year.  As water borne tourism returns to the Black Sea coast, the number of passengers was up 64% through November, to 537,785 people.

Although German and the Czech Republic are opening their doors wider to Ukrainian workers, the outflow of labor from Ukraine may have hit a plateau, argues Dmitry Sologub, deputy governor of the National Bank of Ukraine. With wage remittances hitting $9.7 billion for the first 10 months, the forecast the final figure for 2019 will be $11.5 billion. This is 6% higher than last year’s figure of $10.9 billion.

Ukrzaliznytsia joins the Germany travel boom, launching on Sunday a Lviv-Przemyśl-Berlin connecting train. Scheduled in conjunction with Polish State Railways, the 18-hour ride includes a 90-minute transfer in Przemyśl where passengers will switch from a Ukrainian train to a Polish one. During the first 10 months of this year, 802,500 passengers traveled to or from the EU on Ukrzaliznytsia. This represents a 17% rise y-o-y. In the air, Wizz Air has built a network of 10 German cities served by direct flights from Kyiv Sikorsky.

  • New Building Completions up 44%
  • Grain Crop up 7%, Money Pours into Silos
  • Big Purge at Customs
  • Ze Abolishes State Alcohol Monopoly
  • US to Spend $1 Billion to Open E. Europe to US LNG?

Through September, Ukrainians have commissioned 7.7 million square meters of new buildings– 48% more than during the first three quarters of last year. According to the State Statistics Service, the leading regions are Kyiv -1.2 million square meters, up 24%; Lviv – 1 million square meters, up 62%; Odesa – 674,000 square meters, up 58%. Kyiv city saw 934,500 new square meters, up 52%.

With 99% of crops harvested, Ukrainian farmers have threshed a record 75.2 million tons of grain, 7% more than last year, reports the Ministry of Economic Development, Trade and Agriculture. Since July 1, the nation has exported 26.3 million tons of grain, 31.5% more than during the same period last year.

Epicenter K is negotiating a €100 million loan from the European Investment Bank to build more silos and to buy more farm machinery and grain hopper rail wagons report the Kyiv-based company. Epicenter K is in the process of expanding its grain storage capacity to one million tons. One month ago, the Bank approved the loan. “The company has not yet made a final decision on obtaining it,” Epicenter K said.

EVT grain terminal in Olbia is starting to build 20 new silos to double its one-time grain and oilseeds storage capacity to 350,000 tons by Oct. 1, reports the Center for Transportation Strategies. Formerly known as Evrovneshtorg, the company plans to increase annual shipping volumes by about 50% – to 2-3 million tons in the 2020/2021 marketing year.

For the next 10 days, computer users can view free of charge the total volumes of grain stored in all elevators linked to the State Register of Ukraine. The state company reports: “You can see the total amount of grain stored in Ukraine, the crops and classes of grain, and the volumes stored on each specific elevator that is connected to the registry.” Designed to cut fraud, the service expected to be of use to grain traders and logistics operators. Starting Dec. 23, there will be a fee to use the service.

In creating ‘New Customs,’ Maxim Nefyodov, head of the service, purged 80% of customs officials in Kyiv and 40% of officials at border posts – about 500 people. By abolishing the old customs agency earlier this year, the government freed Nefyodov from civil service restrictions on hiring and firing. Prime Minister Honcharuk hailed Sunday’s opening of ‘New Customs’, saying: “I personally warn every bribe-taker or smuggler, the time of the schemes you made a fortune has passed.”

With a $20 million budget for capital improvements next year, Nefyodov plans to rebuild 12 border checkpoints and install 11 mobile scanners and 15 weighing complexes. Seized goods are to be auctioned off online using ProZorro. New Customs is based on four elements: modern EU-standard infrastructure, uniform and clear game rules for all, fast and convenient service, and personnel policy of higher pay and zero tolerance of corruption.

The hryvnia at 20 in 2020?Fantasy,” Economy Minister Timothy Milovanov tells Deutsche Welle about a possible dollar exchange. Then, he concedes: “If $10-20 billion [in foreign investment] comes to us, then perhaps there would be such an exchange rate.”

Today, the official exchange is 23.60, up 16% since Jan. 11. No prominent economist predicted this year’s strengthening. Undeterred, they are trying again. Alexander Martynenko, ICU’s research head, predicts the hryvnia will peak at 22-23 by the middle of next year, then fall to 25-25.5 by the end of the year.

Traditionally, the hryvnia weakens in the fall. But this year, low gas prices, a bumper grain crop, migrant worker remittances of $1 billion a month, and a net $4 billion of foreign purchases of Ukraine government treasuries combined to demolish last summer’s predictions of a weakening hryvnia.

President Zelenskiy signed into law Wednesday a $50 billion budget for next year. The budget allows for a maximum $4 billion deficit or 2% of GDP.

In the latest free-market move, President Zelenskiy signed a law abolishing the state monopoly on hard alcohol production. Effective Jan. 1, the law is designed to end illicit production of alcohol and to open the door for privatization of Ukrspyrt, the state alcohol production company. Although half the company’s 80 distilleries are not functioning, the government believes it will raise $200 million through privatization.

To promote “energy independence and diversification in Eastern Europe,” the US Senate Foreign Relations Committee is considering a bill to authorize as much as $1 billion to facilitate US public and private investment in projects in the region, Bloomberg from Washington. Designed to wean the region off Russian gas, the money could be spent on such projects as doubling gas pipelines between Poland and Russia. The US House passed a similar bill in March.

Through November, Ukraine’s pipelines carried West 3% more Russian gas than last year. Uktransgaz reports that Ukraine carried 81.5 billion cubic meters to the EU and Moldova. Negotiations are underway to replace the 10-year-old gas transit pact.

Wexler Group, Ukraine’s largest importer of petroleum products, has resumed importing diesel from Russia, ending a 4-month suspension, the group reports. Imports stopped Aug. 1 after Russia imposed a 3% duty on diesel deliveries to Ukraine. The group takes the diesel from Belarus into Ukraine’s 822 km Prykarpatzahidtrans oil pipeline for distribution in Zhytomyr, Rivne, Khmelnytsky, Lviv, Ternopil and Zakarpattia regions.

  • Bond Auction Yields Drop
  • China Drives Exports from Ukraine’s Busiest Port

With the 4-year bonds almost four times oversubscribed, the Ministry cut the average yield to 11.67%. Two weeks ago, comparable 45-month securities sold for 12.64%. Similarly, demand for three-year bonds was double supply yesterday. The cut-off yield was 12.05%, compared to 13.12% four weeks ago. In contrast, demand for 5- and 10-month bonds was weak.

Last week, the Finance Ministry broke the 4% yield barrier, selling some two-year dollar bonds for rates as low as 3.49%. The average weighted yield was 4.08% per annum.

Foreign investors own 13% of Ukraine’s domestic government bonds – not a level to threaten the financial system, Finance Minister Oksana Markarova said Friday during question time at the Rada. She said: “Considering that the debt is mainly concentrated in long-term securities – for three, four and five years, it does not pose a threat to the internal financial system of Ukraine and is a very modest share compared to any country.” Comparable rates are: Czech Republic – 42%; Romania – 20%; Hungary – 19%; and Turkey – 12%.

The government plans to gradually cut Ukraine’s debt-to-GDP region from 50% to 40% in 2024, the last year of the Zelenskiy government, Markarova said. In 2015, this ratio was 80%.

Exports to China helped to drive cargo to a record 50 million tons at Pivdennii Port. Founded 41 years ago as Yuzhne, this Odesa region port is Ukraine’s deepest and busiest port. Of the cargo, exports account for 73% of the tonnage and China is the top export destination, reports The Center for Transportation Strategies.

  • Markets Welcome IMF Deal
  • New Polish-Ukrainian JV to Goose Gas from Old Field
  • Steel Production Falls to Post-Independence Low
  • IKEA Skips Bricks for Clicks
  • Shopping Malls: Building Toward Saturation

Investors welcomed Ukraine’s preliminary deal with the IMF, giving government bonds their biggest daily gain in a year. Yields on 10-year Eurobonds fell 36 basis points, to 6.99%. GDP warrants jumped the most in three months. The hryvnia strengthened to 23.70 to the dollar, the strongest since January 2016. Bloomberg reports: “Monday’s gains add to a rally in Ukraine’s dollar debt that has handed investors a 28% return this year, the most among countries in the Bloomberg Barclays Emerging Market USD Total Return Index.”

Oleksiy Blinov, Alfa-Bank Ukraine’s research head, cautions the deal is really ‘an advance statement,’ with final approval hinging on the Dec. 19 hearing on PrivatBank’s 2016 nationalization. However, he predicts: “The first tranche under the new Extended Fund Facility program should amount to $1.2-1.6 billion, to be disbursed during the next three months. It is very likely to be accompanied by € 0.5 billion in macro-financial assistance from the EU. By March 2020, Ukraine faces almost no external debt payments.”

Economy Minister Tymofiy Milovanov says government fulfillment of the IMF program will be key to high economic growth in the 2020s. Big investors, owners of large Ukrainian and international business, as well as internal experts are guided by the position of the IMF when assessing the state of the economy,” Milovanov, a US-trained economist, writes on Facebook. “The IMF is a kind of trust marker.”

Annual inflation in November dropped to 5.1%, the State Statistics Service reports Monday. Inflation hit the “very center” of the central bank’s target range, writes Alfa’s Blinov. Looking ahead to Thursday’s National Bank of Ukraine monetary board meeting, he writes a one percentage point cut is guaranteed. The new inflation figure “does significantly increase chances for a 150-200 bps cut.” Economy Minister Milovanov joins the chorus, urging: “Now there is definitely every reason for a significant reduction in the discount rate.”

New seismic surveys and analysis indicate that the Przemyśl gas field, which straddles the Polish-Ukrainian border, may have 29 billion cubic meters of recoverable gas, triple the amount previously estimated. This new estimate was released in Warsaw Monday at a signing ceremony to create an exploration and production joint venture between Poland’s dominant gas firm, state-run PGNiG, and Energy Resources of Ukraine, a Kyiv-based Ukrainian-American company.

Production from the field has dwindled to 480 million cubic meters a year, 13% of 1971 levels. But the Polish and American energy executives believe new techniques and technology will restore production. Looking beyond the cross-border venture, Dale Perry, the American managing partner of ERU Management Services LLC, says: We see this as the first of several opportunities in Ukraine’s energy sector over the coming years.”

China’s economic slowdown and dropping demand for steel, pushed Ukraine’s November steel production down 21% y-o-y, to 43,800 tons. This is the lowest level of steel output in the modern history of Ukraine’s economy,” Alfa’s Blinov writes, citing flash data from UkrMetalurgProm, Ukraine’s steel association.

Canada’s Black Iron reports it has expressions of interest from European banks and export credit agencies to provide $250 to $300 million of debt for creating a new iron ore production facility in Kryvy Rih. The first phase is designed to produce four million tons of iron pellet feed a year. The cost is $436 million – $175 million in equity and $261 million in debt.

Ukraine’s economic improvement is impacting Poland, Piotr Buyak, the chief economist for PKO Bank Polski, tells Interia.pl. While Polish exports to Ukraine are growing, Ukraine’s rising wages and the strengthening hryvnia are cutting incentives for Ukrainians to work in Poland. At the same time, Ukraine’s political and macroeconomic stability means jobs again are shifting east, from Poland. Russia’s aggressive actions largely froze this process in 2013.

In a testament to Ukraine’s fast-growing e-commerce, IKEA is jumping over bricks and going straight to clicks. “The company decided to launch e-commerce first,” the Swedish-founded furniture giant said in a statement. “The expected launch date is spring 2020.” Two years ago, IKEA, now based in the Netherlands, announced plans to open its first Ukraine store, at Kyiv’s Ocean Mall. But construction delays forced postponements. The company now says it “plans to open the first physical store in Kyiv as soon as possible, after the launch of e-commerce.”

Ukraine’s shopping mall boom is moving the sector towards “saturation,” Konstantin Oleinik, head of strategic consulting at UTG, warns in an interview with Interfax-Ukraine. He predicts: “A surplus of retail space may occur…an increase in vacancies and a correction in rental rates downward, especially in obsolete objects with serious conceptual flaws.”

Ukraine’s big five cities have this retail construction picture: Kyiv – 44 projects with a total leasable area of 1.5 million square meters; Odesa – 15 projects with an area of 420,000 square meters; Kharkiv –124,000 square meters; Dnipro – 100,000 square meters; and Lviv – 80,000 square meters.

Working largely out of the public eye, the national cybersecurity system repelled 11 cyberattacks over the past month, Oleksiy Danilov, secretary of the National Security and Defense Council, tells reporters. Targets were largely banks and President Zelenskiy’s official website. Noting Zelenskiy’s program to shift government processes and files online, he said: “If we are talking about the digitalization of the state, we must understand that this figure must be protected.”

  • IMF Backs Ukraine as Zelenskiy Meets Putin
  • IMF Deal Will Unlock Foreign Investment and €500 million in EU Aid

The IMF has given preliminary agreement to a $5.5 billion, three-year loan program with Ukraine, a boost for President Zelenskiy as he meets Russian President Putin in Paris for peace and gas talks. The surprise announcement for Ukraine’s third IMF package since Russia’s 2014 annexation of Crimea, followed a telephone call between Zelenskiy and the IMF’s new Managing Director, Kristalina Georgieva.

The fruit of three months of talks, the coveted deal is an internationally recognized seal of approval for Zelenskiy’s government’s free-market economic policies. Pending approval by IMF management and Executive Board, the deal is designed to give a green light to foreign direct investment in Ukraine in the 2020s.

The IMF deal “opens the door to receiving €500 million of macro-financial assistance from the EU on very favorable terms in the coming months,” Finance Minister Markarova wrote on Facebook. Similarly, Matti Maasikas, EU Ambassador to Ukraine, tweeted: “It should open the way to EU macro-financial assistance.”

Georgieva, a Bulgarian economist and international servant who started Oct. 1 as IMF Managing Director, wrote after her “very constructive call” to Kyiv: “I commended the President for the impressive progress that he and his government have made in the past few months in advancing reforms and continuing with sound economic policies… The President and I agreed that Ukraine’s economic success depends crucially on strengthening the rule of law, enhancing the integrity of the judiciary, and reducing the role of vested interests in the economy, and that it is paramount to safeguard the gains made in cleaning up the banking system and recover the large costs to the taxpayers from bank resolutions.”

In response Zelenskiy underlined his goals for the early 2020s: “Our [legislative] turbo-mode has been praised by the IMF…The new program of cooperation with the International Monetary Fund aims to accelerate economic growth, actively eradicate corruption and improve the well-being of every Ukrainian…We are not satisfied with the current rate of economic growth. Therefore, in order to accelerate economic growth, we, together with our international partners, will continue reforms to catch up with our neighbors in terms of economic development and prosperity.”

Similarly, Prime Minister Honcharuk wrote:It is symbolic that we received the Staff-Level Agreement under the new IMF support program in exactly 100 days of government. Support from such large systemic institutions is a marker of trust in the country. So, for us, there will be cheaper resources. For all businesses and all Ukrainians, it means that the economy will grow faster, there will be more jobs, higher wages.”

The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.