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  • US LPG To Odesa
  • UK-Ukraine FTA?
  • Private Freight Trains by Year-End

Ukraine imported its first cargo of American liquefied petroleum gas, or LPG, this week, according to traders and Refinitiv Eikon, Reuters reports. The Ladybower, a small gas carrier, docked Monday with about 6,000 tons of LPG, originally from Houston. In June, the Kremlin banned transshipment of Kazakh LPG to Ukraine and restricted Russian exports to a permit-only basis. Last year, Ukraine was Russia’s second-largest LPG market after Poland, importing 800,000 tons of fuel. Also known as butane or propane, LPG is used for cooking, heating and powering vehicles.

Chinese investment is welcome in Zakarpattia in airports, roads, construction, sports facilities, and tourism, Ivan Duran, acting regional head, told Du Wei, Chinese Ambassador to Ukraine, who visited Uzhgorod on Tuesday. According to Xinhua, Duran said: “Our region is unique because it borders with four countries of the European Union.” Duran invited Chinese businesses to participate next month in the Uzhgorod investment forum: “Transcarpathia – Business in the Center of Europe.”

With Brexit hovering over Britain’s future, a UK-Ukraine free trade pact was discussed Thursday by President Zelenskiy and Melinda Simmons, Britain’s new ambassador to Ukraine. The UK is Europe’s largest food importer. Ukraine is Europe’s largest food exporter. The importance of continuing negotiations on a new agreement between Ukraine and the United Kingdom, which will determine the political and economic relations between the two countries after the United Kingdom leaves the EU was…discussed,” reports the presidential press service. Zelenskiy may visit London in the first week in December for the annual Ukrainian Week in London, organized by the British Ukrainian Chamber of Commerce.

Fitch Ratings has upgraded the credit rating of Ukrzaliznytsia (UZ) from B- to B, the same upgrade Fitch gave the sovereign last Friday. Fitch cited the state railroad’s growth in freight traffic and hikes in freight rates, saying the company’s revenue could top $4 billion next year. New York-based Fitch predicts the railroad’s debt-to-EBITDA ratio will drop next year to 1:1, from 4:1 in 2014. In the last two months, the railroad has placed $600 million worth of 5-year Eurobonds, with annual yields ranging from 8.25% in July to 7.29% last week. UZ CEO Evhen Kravtsov, says: “We give a positive signal to investors, especially in the context of the possibility of attracting additional financing for the modernization and development of the railway.”

Logistics companies are bidding up the price of a grain hopper car by 51% under a UZ ‘VIP’ system that guarantees delivery times, according to the Center for Transportation Strategies. Since auctions started last December on ProZorro, bidders are paying premiums to meet delivery contracts.

Private locomotives will start pulling private freight trains by the end of this year, Vladyslav Krykliy, the new Infrastructure Minister, told reporters Thursday. “Private traction is good, because in recent years UZ has not been able to provide traction for itself,” he said. “We have an ambitious goal – to make a pilot project on private traction before the end of the year.”

If the Rada adopts a proposed tax code change to iron mining, ArcelorMittal Kryvyi Rih, the nation’s largest steelmaker, will be forced to shut Artyom, its main iron mine. Vladimir Tkachenko, deputy general director of Arcelor told a Rada committee: “We will be forced to freeze its work. Now more than 1,000 people work there.” According to a PricewaterhouseCoopers study, the ratio of taxes to profits in iron mining is 2.5% in Russia; and 10% in Australia, Brazil, Canada, Kazakhstan, India, and China. If the Tax Code is changed, it will be 22% in Ukraine.

  • IMF Starts Work in Kyiv
  • After Government Pressure, Arcelor Plans to Ship out of Ukraine $433 Million in Dividends
  • UZ Places $100 Million Eurobond 100bps Cheaper Than July 

The IMF mission starts work in Kyiv, negotiating what the central bank hopes will be a deal to bring Ukraine as much as $10 billion through 2023. Moving to remove one obstacle, the Rada approved on first reading Wednesday a new law against illegal enrichment by government officials. “Ukraine wants to have a new IMF program by the end of the year,” Prime Minister Honcharuk told reporters Wednesday. “This task will be fulfilled. I’m sure neither the issue of Privatbank nor any other issue, will be an obstacle.”

ArcelorMittal Kryvyi Rih, Ukraine’s largest foreign investor, plans to pay $433 million in dividends to its parent company. A special shareholders meeting will be held Oct. 10 in Kryviy Rih, home to its main steel mill. Since ArcelorMittal Duisburg owns 95% of the company, the outcome of the meeting is not in doubt. At its regular annual meeting, in April, the company’s plan was to reinvest profits. But, since then, the steelmaker, located in President Zelenskiy’s hometown has undergone a major tax audit and has been investigated repeatedly on pollution charges by the State Security Service, an organ now run by a childhood friend of the president.

The payment of dividends will not affect the implementation of our investment program – in the next five years we plan to allocate another $1.8 billion for the development of production,” states Sergey Plichko, Arcelor’s financial director. He said the company, Europe’s largest steel plant, had not paid dividends since 2009. Arcelor says it has invested $9 billion in the company since buying it in 2005, what is still Ukraine’s biggest privatization to date.

To comply with EU laws, Ukraine’s new Energy Minister, Oleksiy Orzhel, says the Cabinet of Ministers is preparing to approve a blueprint for ‘unbundling’ – separation of gas transportation from gas productions.  He discussed this on Monday with Šefčovič in Brussels and on Wednesday with Prime Minister Honacharuk and Finance Minister Oksana Markarova in Kyiv. “We are on the right track,” he said. “I even hope that such a decision will be made at the next Cabinet meeting.”

With European gas prices almost two thirds below the peak of one year ago, Ukraine’s household gas prices are not expected to be a debating point with the IMF. With stocks high and production strong, European gas prices could drop another 20% this fall, according to analysts quoted by Bloomberg. As of Wednesday, Ukraine has 19 billion cubic meters in storage, almost enough to get through the winter. Prime Minister Honacharuk confidently told reporters recently: “When a politician starts to interfere with the price, it leads to two things: inefficiency, corruption, and populism. It should not be.”

Priced to sell? Odesa’s downtown stadium goes up for auction on Sept. 26 through the ProZorro electronic platform. Completed in 2011, the stadium can hold 34,000 fans. After four failed auctions, the Deposit Guarantee Fund is slashing the asking price to $29 million – 20% of the initial asking price of $146 million. The organizer of the sale is First Financial Network Ukraine LLC, an offshoot of an Oklahoma firm profiled last week in The Wall Street Journal.

The EBRD is buying $100 million worth of five-year Eurobonds issued by Ukraine Railways (UZ) with an annual yield of 7.29%, reports the new Infrastructure Minister, Vladyslav Krykliy. The placement comes two months after the railroad sold $500 million worth of five-year bonds to commercial investors at 8.25%. Evhen Kravtsov, the railroad’s CEO, says the money will go primarily to upgrade the main lines of the Trans-European Transport System: Now it’s the turn of the railroad tracks. Firstly, it’s safety, secondly, we’ll increase the throughput, and thirdly, it’s the ability to increase speed in separate sections for both freight and passenger trains.”

With rail traffic to the EU booming, the Infrastructure Ministry plans to install an international passport control area in Lviv rail station, the largest station for western Ukraine. In the first two years of visa-free travel, Ukrzaliznytsia has carried 1.6 million passengers to the EU. The railroad now has 21 trains running between Ukraine and the EU.

  • Ruling Strengthens Ukraine at Gas Talks
  • Rivers of Grain Flow from Black Earth
  • China to Replace Russia as Ukraine’s Top Trading Partner
  • Bond Yields Drop
  • Hryvnia at 3-Year High Against Dollar
  • New Flights to Central Asia, Central Europe

The US Department of Energy is sending an expert delegation to Ukraine “to help develop a winter action plan to address critical needs during the 2019-2020 winter season,” the US Embassy reports. “The delegation will work with Ukrainian experts to assess the interdependence in the production, transmission, and distribution of energy in all sectors, and will also create the basis for improving the coordinated response to energy shortages.”

Ukraine’s harvest proceeds well across the nation. As of Monday, farmers have harvested 40 million tons of grain and leguminous crops from 10 million hectares. This is two-thirds of the forecast. In Ukraine, the major legumes are soybeans, beans, peas, and alfalfa. The corn harvest is now underway in 15 of the nation’s 24 regions. This year’s harvest of all crops is to surpass last year’s bumper harvest of 70 million tons.

China has approved the first three Ukrainian companies for providing frozen beef, reports Ukraine’s Food Safety Service. Last year, Ukraine displaced the United States as the top supplier of corn to China.

As China’s imports more and more food from Ukraine, China is on track to displace Russia next year as Ukraine’s largest single nation trading partner. During the first half of this year, China displaced Russia to become the largest source of imports for Ukraine, accounting for 13.9%. During the half-year, China ranked a close third as a destination for Ukraine’s exports. The ranking was: Poland – 6.9%; Russia – 6.5%; and China – 6.4%.

Bolstered by an improved bond rating and a lowered prime interest rate, the Finance Ministry pushed down yields for dollar and hryvnia bonds Tuesday. In the first auctions of dollar bonds in almost two months, the ministry pushed down yields on 23-month securities to 5.5% per annum, from 7%. The ministry sold $547 million in dollar bonds. For the hryvnia bonds, the biggest drop was for 1-year bonds, where yields fell by 43 bps, to 15.52%, from 15.95%. The Ministry sold the $113 million equivalent of hryvnia bonds, 48% more than last week. Last week, the central bank cut the prime rate to 16.5%, from 17%, and Fitch raised Ukraine’s bond rating by one notch, to B with a positive outlook.

The hryvnia is at its strongest level against the dollar in three years, with the National Bank of Ukraine setting today’s official rate at UAH 24.8822 per dollar. The last time the national currency was stronger than 25 to the dollar was in the first half of August 2016. The hryvnia is also stronger against the Euro, with today’s official rate at UAH 27.47. One of the world’s best-performing currencies, the hryvnia has appreciated 9% against the dollar this year.

Cigarettes could double and triple in price on Jan. 1, if a tax bill is approved by the Rada, warns Natalia Bondarenko, spokeswoman for Philip Morris Ukraine. If cigarettes cost as much as $4 a pack, counterfeits and smuggled cigarettes could rise above 1 billion packs, more than half of the national market, she predicts. She says the bill would quadruple the tax rate on tobacco-containing products for heating, a technology deemed less harmful to users than smoking. Such a price hike would push many of the half a million Ukrainians who using heating devices back to conventional smoking.

Uzbekistan and Ukraine, two liberalizing economies that are catching the eyes of investors, will be linked again by direct flights. After a five-year hiatus, Uzbekistan Airways resumes its weekly Tashkent-Kyiv-Tashkent flight. The direct flight will take 5 hours. UIA says flights to Central Asia are not profitable because Russia does not allow Ukrainian airlines to fly over its air space.

Central Europe’s ties with Ukraine will grow as Wizz Air announces flights from three Ukrainian cities to Budapest and SkyUp starts flights to Prague.  On Oct. 17, SkyUp, Ukraine’s discount airline, starts flights from Kharkiv and Lviv to Prague. On Nov. 1, Wizz Air starts flights from Budapest, its main hub, to Odesa. In June, Wizz Air starts flights from Budapest to Kharkiv and Lviv.

With Yalta European Strategy, Ukraine’s leading conference in Kyiv, two organizations turned to the Ukraine Business News for views on where Ukraine is heading. The Atlantic Council posted Ukraine’s Libertarian Revolution by James Brooke. UATV’s Kari Odermann interviewed Brooke for its English language interview program, ‘Head to Head.

Indicating a surge of Ukrainians driving to the EU, the number of Green Card international insurance contracts signed by Ukrainian drivers jumped by 46% in January-July 2019, compared to the first seven months of last year. This year, 618,969 international insurance contracts were signed by the member companies of Ukraine’s Motor Transport Insurance Bureau. Defying a stereotype of Ukrainians as bad drivers, paid claims rose by only 3% y-o-y, to 3,047.

  • With 103 Days Left in 10-Year Gas Pact, Russia, EU, and Ukraine to Start Talking
  • Neighbors Know Best: Poles Say Invest in Ukraine
  • South Korea’s Grain Terminal to Open in Mykolaiv
  • UIA President Falls after 15 Years

Gas experts of Russia, Ukraine, and the EU will meet Sept. 19 in Brussels to negotiate to renew Gazprom’s 10-year, trans-Ukraine transit contract, which expires on Jan. 1, tweets Maroš Šefčovič, the European Commission’s vice president for Energy. “I am convinced that progress would send a strong positive signal to the market as well as consumers ahead of the winter season,” Šefčovič, a Slovak politician, said, echoing EU concern about the reliability of gas supplies from Russia.

With Gazprom’s Russia-Germany Nord Stream 2 pipeline running behind schedule, Russian Energy Minister Alexander Novak offered this summer to renew the expiring contract with Ukraine for one year. In retort, Naftogaz wants a 10-year contract with minimum annual volumes of 60 billion cubic meters. Last year, Russia shipped 87 billion cubic meters through Ukraine, a volume that should be matched this year. On Monday, Šefčovič held discussions in Brussels with Ukraine’s new Energy Minister, Oleksiy Orzhel.

Bracing for tough talks, Naftogaz has raised its gas storage stocks to the highest level in seven years – 18.7 billion cubic meters. The goal is 20 billion cubic meters – enough to get through the winter without needing Russian gas. Without buying gas directly from Gazprom, Ukraine in recent years has used some gas pumped by Russia to the EU for its own needs in eastern and central Ukraine. In a swap, it compensates for this with deliveries from gas storage reservoirs in western Ukraine.

Ukraine’s revenue from electricity exports hit $240 million through August up 12.4% compared to the first eight months of 2018. The top buyers were: Hungary – $147 million; Poland – $54 million; and Moldova – $30 million.

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With the advent of the Zelenskiy Administration, Polish investors should take a second look at Ukraine, Jacek Piechota, president of the Polish-Ukrainian Chamber of Commerce, tells readers of Rzeczpospolita, Poland’s national business news site. “This is the first president who talked in such an open, direct and substantive manner with entrepreneurs,” Piechota, president of the Chamber for 12 years, said of his recent meeting in Warsaw with the new Ukrainian president. “The president also introduced several young ministers – there was determination and energy to act for rapid change.”

“We urge companies operating in the agri-food sector to think about operating on the Ukrainian market,” Piechota, a former Economy Minister, said in an interview headlined: “After freeing the land market, it’s worth thinking about investments on the Dnipro.” Asked about corruption, Piechota responded: “Ukraine is consistently creating anti-corruption structures, deregulating economic turnover, introducing standards known to us from the [European] Union.”

The Rada is reviewing draft bills to allow private locomotives and to modernize river traffic, Vladislav Krikliy, the new Infrastructure Minister, writes on Facebook. “The bills introduce a European model for rail and inland waterway markets, lay the foundations for fair competition,” the Minister writes. “These transport reforms will have a significant impact on the national economy of Ukraine. An expert estimate on the economic effect is about 3% of GDP growth annually.”

South Korea’s Posco International will inaugurate on Sept. 24 in Mykolaiv a grain export terminal with a one-time storage capacity of 140,000 tons. Last February, Posco bought 75% of the project from Ukraine’s Orexim Group. With the new terminal, Posco plans to triple its grain exports from Ukraine, to 3 million tons a year. Posco also plans to create its own rail hopper wagon fleet.

Ukraine’s inflation rate fell in August – the third month in a row. Prices in August were 8.8% higher than in August 2018, reports the State Statistics Service. For visitors with dollars, prices seemed higher because the hryvnia has appreciated against the dollar by 10% this year. The National Bank of Ukraine forecasts that the inflation rate at the end of the year will be 6.3%.

Ukraine will comply with the US FATCA, or Foreign Account Tax Compliance Act, according to a decision by Cabinet of Ministers. Started in 2014 in a government effort to combat US tax evasion, the onerous paperwork prompted many foreign financial institutions to drop American clients.

In the latest foreign exchange liberalizations, Ukraine’s central bank drops a monthly €5 million limit on repatriation of funds from the sale of securities, corporate rights, and withdrawal from business companies by foreign investors. The National Bank of Ukraine also liberalized restrictions on non-resident individuals are transferring overseas hryvnia dividends, interest income on securities and other income on property rights objects in Ukraine.

The central bank is switching its electronic payment system, or BOT, to around-the-clock mode. Helping banks and their customers make time-sensitive payments, the bank will move the BOT next spring to working 23 hours a day, seven days a week. Currently, the BOT accepts interbank payments from 8:30 am to 7:00 pm on business days. It does not function on holidays and weekends.

After losing $100 million last year, Ukraine International Airlines, the nation’s flag carrier, is replacing its president of 15 years with the deputy director of Boryspil Airport. Yevgeny Dykhne, who has helped to run Boryspil, UIA’s main hub, for the last five years, replaces Yuriy Miroshnikov this week. UIA Board Chairman Aaron Mayberg blamed UIA’s poor performance on aviation fuel taxes, VAT taxes on domestic flights, and Russia’s ban on overflights by Ukrainian airlines. Talking to reporters Monday, he predicted UIA will return to profitability next year.

  • Bonds
  • Gov’t to Open Debt Agency
  • Ukraine’s GDP Warrants: ‘World’s Best Performing Debt Instrument’
  • US Bond Broker BCP Opens Ukraine Office
  • With Grain Exports Surging, Cargill Opens $100 Million Grain Terminal
  • SAS To Return to Ukraine with Oslo-Kyiv Flights 

With an IMF team arriving in Kyiv, Fitch has upgraded its rating of Ukraine’s foreign- and local-currency debt to B from B-, with a positive outlook. The New York-based ratings agency praised the new cabinet of “technocratic, pro-Western, and reform-minded ministers.” “Fitch expects further improvements in creditworthiness,” the agency says, citing a series of macroeconomic indicators, many inherited from the Poroshenko government.

Fitch forecasts:
  • The government debt to GDP ratio should decline to 48% at the end of this year, and to 44% in 2021. In 2016, this was at record high for Ukraine – 69%.
  • International reserves should rise by $1 billion this year to $21.8 billion, and rise further, to $22.4 billion, in 2021.
  • Inflation should fall to 8.5% in 2019, and hit 5.7% in 2021. 

Although Fitch predicts Ukraine will reach a multi-year agreement with the IMF this fall, it warns: Risks to the program stem from Ukraine’s weak track record in completing previous programs, potentially negative judicial rulings that lead to reform reversals, for example in relation to PrivatBank, execution risks after reforms are approved in parliament due to capacity constraints, and potential fragmentation of the President’s Rada representation in the event of policy differences over policy priorities or influence of still powerful vested interests.”

Ukraine’s new Prime Minister, Oleksiy Honcharuk, greeted the upgrade, writing on Facebook: “Political will to implement difficult and necessary reforms is one of the reasons for improving Ukraine’s position in the ranking…We will also continue our cooperation with international organizations and partners. Increasing investment attractiveness is one of the top priorities of our government’s team. Technocratic, pro-European and reform-oriented.”

In an effort to depoliticize foreign debt, the Finance Ministry plans to follow European practices and create a Debt Agency. A bill is to be submitted to the Rada to create this special status executive agency, answerable to the Finance Ministry.

Ukraine’s GDP-linked warrants “must be the world’s best performing debt instrument this year,” writes Timothy Ash, a senior sovereign analyst for Blue Bay Asset Management in London. Their price has gone from 58 cents in January to just below 95 cents, with forecasts taking them up to $1.50. The warrants kick in if Ukraine’s 2019 GDP growth goes over 3%, a highly likely event. With complicated payout formulas, the warrants are destined to prove costly to Ukraine in the 2020s. The solution will be for the Finance Ministry to start buybacks and swaps. Ash writes: “With price appreciation, the cost of buybacks is increasing all the time – indeed from $1.8 billion back in January to something close to par now, or close to $3.5 billion.”

BCP Securities, the Greenwich, Ct.-based broker of emerging market bonds, opens its Ukraine office today in Kyiv’s Leonardo Business Center. Founded 30 years ago by Randall Pike, the BCP originates bonds, trades them on the secondary market, and provides independent research until their maturities. Over the last 20 years, BCP helped raised $15 billion for corporate bonds, largely in Mexico, Brazil, and Argentina. Starting in 2014, BCP has had an annual Ukraine corporate bond conference in Kyiv. The managing director of BCP Ukraine will be James Brooke, editor of the Ukraine Business News.

Since the July 1 start of the grain marketing year, Ukraine has exported 10 million tons of grain – 47% more than in the same period last year. Ukraine has exported 6.1 million tons of wheat, 2.2 million tons of barley, and 1.7 million tons of corn, according to the State Service for Food Safety and Consumer Protection. In addition, 1.8 million tons of oilseeds have been exported – 50% more than this time last year. After good weather in June and July, the U.S. Department of Agriculture raised its forecast for Ukraine’s grain exports to 54 million tons – 8% more than last year.

Cargill and MV Cargo officially opened their new $100 million grain terminal in the nation’s busiest port, Pivdennii (Yuzhne). Built-in two years, the terminal is capable of handling 5 million tons of grain a year – 10% of Ukraine’s total exports last year. Called ‘Neptune,’ the terminal features a one-time storage volume of 290,000 tons – 14 silos with 15,000-ton capacities, and a concrete floor warehouse capable of holding 80,000 tons, reports Elevatorist.com. Capable of loading a Panamax ship in two days, the terminal has a private 420 meter long pier, with a depth of 16 meters. Capable of handling three different crops at once, the terminal can take 300 rail hopper cars a day and an equal number of trucks.

Cargo handling at Pivdennii hit a record in August, the second record month in a row, the port administration tells the Center for Transportation Technologies. Cargo hit 5.4 million tons, up 55% y-o-y. From January through August, at Pivdennii, the nation’s biggest Black Sea port, ore handling was up 53%, to 16.5 million tons, and grain shipments were up 61%, to 7 million tons.

Cargo on the Dnipro was up 29% through August, y-o-y, to 6.9 million tons. Last year, Dnipro cargo was up 22%, to 10 million tons. By Nov. 1, President Zelenskiy wants to pass an inland shipping bill that will restore the Dnipro to its past role as the Mississippi of Ukraine. In the late Soviet era, the river carried 65 million tons a year.

French airline Aigle Azur stopped all flights between Paris Orly and Kyiv Boryspil on Saturday as part of the discount airline’s bankruptcy filing. The airline only started flying here in April. It is unclear if unused tickets will be reimbursed. The 73-year-old airline is accepting take over bids from shareholders or competitor airlines. 

Scandinavian Airlines, or SAS, returns to Ukraine next month, launching direct flights between Oslo and Kyiv Boryspil on Oct. 26. By eliminating stopovers, SAS will cut the flight time in half, to 2h20min. Prior to 2014, SAS flew between the two capitals. With Ukraine’s visa-free regime extending to Norway, SAS hopes to generate enough tourist and business travelers to justify its schedule of three flights a week. UIA flies from Kyiv Boryspil to three other Nordic capitals – Copenhagen, Helsinki and Stockholm. Wizz Air flies from Kyiv Sikorsky to two Danish cities – Billund and Copenhagen.

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