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  • Central Bank Cuts Prime
  • Ukraine Climbs in World Bank’s Ease of Doing Business
  • Russia’s MTS May Sell Vodaphone Ukraine to Azerbaijan’s Bakcell
  • Bill Restricts All Gambling to Hotels
  • New Flights: Kyiv-Cuba, Kherson-Vienna

Ukraine cuts its prime interest rate by one percentage point, to 15.5%, from 16.5%.  The fourth cut in six months comes as the central bank expects inflation to dip below 7% this month for the first time since 2016. The bank forecasts that inflation this year will end this year at 6.3%, and will end next year at 5%. “A more rapid decline in underlying inflationary pressure than anticipated coupled with no change in the balance of risks have made it possible to ease monetary policy somewhat more quickly this year than envisaged,” said the National Bank of Ukraine.

Despite the cuts, Ukraine still has the highest prime rate in Eastern Europe. Drawn by these high-interest rates, foreign investors have invested a net $3.5 billion in Ukrainian government hryvnia bonds since this start of this year. This influx of money has boosted the hryvnia against the dollar by 12.5%, making it the best performing currency against the dollar this year.

Almost half of Ukrainians believe the economy will improve over the next year, according to a survey of 2,500 people polled from Saturday to Tuesday. Of respondents, 45% believe the economy will improve over the next 12 months, 26% believe there will be no change, 15% say it will get worse, and 15% can’t say. “Against the backdrop of growing optimistic sentiments in the country after the presidential election, positive expectations about the future have also grown,” concludes the pollster, the Rating sociological group.

Real salaries will grow by 10% next year, predicts the Ministry of Economic Development, Trade, and Agriculture.  Exports of goods and services will climb by 7-8% next year. The central bank has raised its GDP growth forecasts to 3.5% for this year and 2020; and to 4% for 2021.

Worked into the central bank’s growth forecasts is the prediction that Ukraine will sign an agreement with the IMF and receive a tranche by the end of 2019.The macro forecast we made public provides for the signing of an agreement with the IMF this year and the tranche this year,” Yakiv Smoliy, governor of the National Bank of Ukraine told reporters Thursday.  The bank also stated: “The volume of international reserves, despite significant payments on external debt, will fluctuate around $23-24 billion in this and subsequent years, which is enough to finance future imports for three months.”

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Ukraine climbed seven spots this year in the World Bank’s Ease of Doing Business rankings, nearing a spot in the top one-third of 190 countries surveyed.  Ukraine’s rise to 64th place was attributed to improvements in protecting minority investors, dealing with construction permits, getting electricity, trading across borders, registering property and getting credit. Noting the data collection ended last spring, former president Poroshenko wrote on Facebook: “We are grateful to our team for the worthy result. In five years, we have risen 48 positions in this rating. I sincerely wish our successors to do better.”

Looking ahead, Prime Minister Honcharuk promised on his website: “This is just the beginning: three days ago the Ukrainian Code of Bankruptcy came into force, a couple of weeks ago the Parliament adopted a law on increasing investment attractiveness of Ukraine…I am sure: at such a pace, through successful reforms, our state will become a magnet for investment in the near future.”

Russia’s MTS may sell control of Vodaphone Ukraine, the nation’s second-largest cellphone company, to Bakcell, Azerbaijan’s second-largest cellphone company. On Thursday, Ukraine’s anti-monopoly committee said on Facebook that it had granted Bakcell permission to buy more than 50% of Preludium B.V., the Dutch vehicle that MTS uses to own Vodaphone Ukraine. With 3 million subscribers, Bakcell network has 7,500 thousand base stations, reaching 99% of Azerbaijan’s 10 million people.

Green bonds would be launched in Ukraine, according to a bill introduced this week in the Rada, reports State Agency for Energy Efficiency and Energy Savings. Experts say such bonds could draw up to $73 billion in investments in the 2020s for environmentally friendly projects in Ukraine. GIZ, Germany’s development agency, worked with the Energy Efficiency Agency last summer to draw up market rules for green bonds in Ukraine.

Glovo, the Barcelona-based courier service, plans to almost double by year-end the number of Ukrainian cities where it makes deliveries. From 11 cities today, Globo plans to expand to 18-20 cities, Dmitry Rasnovsky, Glovo general manager in Ukraine, told reporters Thursday. While expanding into cities in the 200,000-500,000 population range, there is room to grow. He said in Ukraine, there are 0.2 food deliveries per month person. In Ukraine’s European neighbors, the rate is 1.2. In China, there are now 9 deliveries per person per month.

Bolt, the taxi service, is launching a delivery courier service in Kyiv. Packages no bigger than 65x55x40 cm will be carried in the luggage compartments of Bolt cars.

The governments gambling bill submitted last week to the Rada will restrict gambling to hotels: casinos to 5-star hotels; and gambling rooms with slot machines to 3-5 star hotels. A limited number of gambling licenses would be sold by electronic auction. Gambling equipment and software would have to meet international standards. The Cabinet of Ministers would oversee a state gaming authority that would use an online monitoring system to watch gambling organizers by reviewing data from gaming equipment and software.

In one indicator of business health, purchases of company cars are up 12% through September, y-o-y. During the first nine month of the year, companies bought 20,300 cars, 94% of them new, reports Ukrautoprom, the car industry association. Overall, Ukraine has recorded 383,300 first time car registrations this year, 84% of them for used cars imported from abroad.

AIRLINE NEWS: 

Azur Air Ukraine launches direct charter flights today from Kyiv Boryspil to Varadero, Cuba. “We have been working on the opening of direct flights from Ukraine for a long time,” said Natacha Diaz Aguilera, Cuba’s acting ambassador. “Finally, all efforts were united, and this idea became a reality.”

Flydubai is doubling its Ukraine flights this month. It now flies twice a day to Kyiv Boryspil and three times a week to Odesa.

Starting Sunday, UIA stops flying between Kyiv Boryspil and Nur-Sultan (Astana), Kazakhstan. UIA passengers will be able to fly to Almaty and Nur-Sultan under a code-sharing agreement with Air Astana. Russia’s closing of its airspace to Ukrainian airlines forced UIA to make costly detours, adding 1h15 minutes to each flight. Infrastructure Minister Vladislav Krikliy said last month that the government will not compensate airlines for losses due to Russia’s overflight ban.

Lauda, now owned by Ryanair, starts a Stuttgart-Kyiv Boryspil flight Nov. 6.

Brussels Airlines, part of the Lufthansa Group, ends flights to Ukraine on Nov. 17. Brussels started service to Kyiv one year ago.

Ryanair’s Lauda will start flights from Kherson to Vienna on March 30. On Dec. 17, Ryanair starts flights from Kherson to Krakow. Kherson increasingly draws passengers from Crimea who wants to fly to Europe. 

  • Ze’s Office Sees no Reason to Return PrivatBank to Kolomoisky
  • DTEK to Launch Green Bonds
  • EIB Prepares €600 Million in Road and Rail Loans to Ukraine
  • Swissotel Plans Aparthotel Near Kreschatyk 

President Zelenskiy’s office says there is no reason to hand PrivatBank to its former shareholders, no matter what the court decisions. Having made a decision on nationalization, the state invested UAH 155.3 billion [$6 billion] in PrivatBank, which allowed to save the funds of Ukrainians reads the statement on the president’s website. “We believe that regardless of the decisions of the courts, there is no reason to return the state-owned PrivatBank to its former shareholders.”

In another legal setback for Ihor Kolomoisky and Gennady Bogolyubov, former owners of PrivatBank, the London Court of Appeal has ordered them to pay PrivatBank £10.9 million [$14 million] by Nov. 12. The money is to cover the costs of last year’s hearing in London and the legal work leading up to the Oct. 15 decision by the Court of Appeals. This Court denied the defendant’s permission to appeal further and ordered them to file their line of legal defense by the end of November.

Strong foreign investor demand for 3-year hryvnia T-bills allowed the Finance Ministry to slash yields to 15.06%, down from 15.42% two weeks earlier. At Tuesday’s weekly auction, demand for three-year local currency bonds was double the supply – $80 million. Overall, the government sold the dollar equivalent of $120 million in bonds, almost triple the amount sold last year. Concorde Capital’s Evgeniya Akhtyrko writes: “Apparently, the offer of 3Y bonds drew non-resident investors back to Ukraine’s primary local bond market despite a significant cut in interest rates.”

DTEK Renewables plans to issue ‘green‘ bonds to help pay for its ambition solar and wind projects in southern Ukraine, reports Interfax-Ukraine. A US and Europe roadshow started to market the 5-year, euro-denominated Eurobonds. Organizers are Raiffeisen Bank International AG and Renaissance Capital. On Tuesday, Fitch gave the bonds a ‘B’ rating. DTEK Renewables plans to expand its Ukraine solar and wind capacity to 1.9 gigawatts, almost double its present capacity.

The European Investment Bank, or EIB, has approved loaning €450 million to cover almost half of a €1 billion project to build a northern highway bypass around Lviv and to upgrade the Kyiv-Odesa highway. On the 450 km long M-05, most of the work will be south of Kyiv region, Cherkasy, Kirovohrad, Mykolaiv and Odesa regions. The Bank did not specify the other sources of co-financing.

The EIB plans to loan almost €150 million to buy eight suburban commuter trains for Dnipro and Zaporizhia, two key industrial regions bordering the Donetsk region. The loans would be conditioned to the modernization of service – introducing electronic tickets, speeding up trains, and cutting the regional networks by about 15%. On the Zaporizhia rail network, which carries 7.5 million passengers a year, the average train is 30 years old.

Prime Minister Oleksiy Honcharuk predicts the hryvnia will trade next year in a band of 25 to 27 to the dollar. Currently, the hryvnia trades at 25 to the dollar, a 12.5% appreciation since the start of the year. On Tuesday, Economy Minister Milovanov predicted Ukraine’s GDP will rise by 3.5-3.7% in 2020, up from the 3% growth forecast for this year. He also said inflation could fall to 5.5% at the end of next year.

French hotel operator Accor has signed a management contract for a Swissotel Living hotel at 13 Liuteranska Street, one block off Kyiv’s central Kreshchatyk Street. Scheduled to open in two years, the aparthotel is to have 58 rooms in a renovated historic building. 

  • Food Sales Jump, Now Account for 42% of All Exports
  • China-EU Freight Trains Cross Ukraine
  • China Has Edge on Locomotive Sales
  • Private Freight Trains Coming Down the Tracks
  • Zaporizhia-Vienna: Low-Cost Air Revolution Spreads to SE Ukraine 

Ukraine’s food exports jumped 22% through September y-o-y, to $15.6 billion, reports the Club of Agricultural Business Associations. With this jump, food now accounts for 42% of all of Ukraine’s exports, up from 37% last year. In 2018, Ukraine exported a record $18.8 billion worth of food. The year, exports are boosted by a 61% jump in sales of corn, most of it from last year’s harvest.

As of Monday, the nation’s farmers have threshed 59 million tons of grain from ​​13.1 million hectares. The Agriculture Ministry predicts the final harvest will be 71.1 million tons or 1.5% more than last year’s record harvest of 70.1 million tons.

Ukraine’s Kernel, the world’s largest sunflower oil producer and exporter, reports its sunflower seed crushing volume was up 49% July-September y-o-y, to 623,700 tons. Concorde Capital’s Andriy Perederey writes:Kernel boosted its crushing volumes in 1QFY20 due to higher availability of sunflower seeds on the market, caused by a higher harvest this season. The Ukraine average sunflower seed yield was 2.4 t/ha, or 8.5% yoy higher.”

China has authorized the import of Ukrainian frozen beef, reports Ukraine’s State Service for Food Safety and Consumer Protection. Coincidentally next month, Belarusian Railways plans to start a regular train with refrigerated containers filled with meat from Minsk’s Kolyadichi freight terminal to China. Starting last year, Belarusian Railways sends a monthly dairy train to China, largely to Chongqing, Wuhan, and Zhengzhou.

A pilot China-Slovakia freight train through Ukraine is to become weekly in November, reports Ukrzaliznytsia. In late September, Metrans Rail, a private Czech company, ran a 44-container train from Xi’an, China to Danube-Streda, Slovakia. By crossing Ukraine, the train cut 520 km off the standard Belarus-Poland route, says Ukraine’s railroad.

China-EU rail freight traffic across Ukraine would jump in the 2020s if Austria builds a 450 km extension to an existing Soviet-era wide gauge track that runs from Chop, Zakarpattia to Košice, Slovakia. The goal is to create an 11,000 km rail corridor capable of moving containers from Vladivostok to Vienna in 15 days. For trains from China, only one gauge change would be needed – either on the China-Kazakhstan border or on the China-Mongolia border.

Austria’s Transport Ministry and Austrian Federal Railways, or ÖBB, are applying for permits to build the east-west extension, reports  Zaliznychnye Postachannya news site. The construction cost, including the construction of a rail bridge over the Danube, would be  €6.7 billion, estimates the Center for Transportation Strategies.  The 1520 mm gauge rail extension is designed to carry 16 million tons a year, relieving overloading on EU lines. But the European Commission refuses to fund it. Some analysts say that extending Russia-gauge track into the heart of Central Europe is a security risk.

Rebranding a standard electric locomotive the ‘Cossack, China’s CRRC Datong seems to have an edge in a multi-billion dollar competition to supply Ukrzalinytsia with up to 500 new electric locomotives in the 2020s.Chinese partners offer modern locomotives that can significantly improve the situation with the locomotive fleet and bring Ukrzaliznytsia to a higher level of competitiveness,” UZ CEO Yevhen Kravtsov said after a meeting in Kyiv last week with executives of CRRC Corporation Limited.

Financing and locomotive production in Ukraine are keys, Infrastructure Minister Vladislav Krikliy stressed at the meeting.We are interested in creating a joint venture with foreign partners, which will be localized in Ukraine,” he said.

CRRC Zhuzhou Locomotive Co., is negotiating the sale of locomotives to Lemtrans, owner of Ukraine’s largest private fleet of freight cars. In the coming weeks, Lemtrans executives are to visit CRRC’s electric locomotive plant in central China’s Hunan Province. In Kyiv last week for Rail Expo 2019, Fu Yanping, CRRC’s deputy director for international relations of CRRC, says he also discussed locomotive supply and production with the Association of Ukrainian Rail Carriers, a group of private companies.

Lemtrans, DTEK, Ferrexpo, and Kernel are preparing to run private freight trains as soon as enabling legislation is passed, according to the Center for Transportation Strategies. Dmitry Demidovich, Lemtrans director for the development, says company-owned locomotives would cut in half – to four days – the turn around time for coal trains running 250 km from Aromatna, Dnipropetrovsk Region to Enerhodar power plant in Zaporizhia. DTEK also wants to ship coal to the same power plant. Ferrexpo wants to ship iron pellets to Pivdenii, the Black Sea Port. Kernel wants to ship grain to ports.

Ukrzaliznytsia wants to see the first private freight trains by the end of this year, says Andrei Ryazantsev, the railroad’s business development director. “Today the question is no longer: private traction – to be or not to be?,” he says. Instead, he tells the Center for Transportation Strategies, the challenge is to adopt and implement effective regulations.

Strengthening Zaporizhia’s claim to be the future airport for southeast Ukraine, Wizz Air plans to start service in March from the airport to six EU cities: Budapest, Gdansk, Krakow, Vienna, Vilnius, and Wroclaw. Johan Eidhagen, the discount airline’s chief marketing officer, made the announcement in Kyiv last Tuesday, the day the airport’s new runway opened. In December, the airport’s new terminal is to open, completing a $40 million upgrade.

The new Zaporizhia flights come as SkyUp prepares to start flights to Sharjah on Sunday, to Kyiv-Boryspil on Monday, and to Tel Aviv on Dec. 5. With weekly charter flights scheduled for six destinations next spring, SkyUp plans to base a Boeing at Zaporizhia next summer. Italy’s Ernest Airlines is mulling flying to Zaporizhia.

Wizz Air plans to carry 2.4 million passengers on its Ukraine routes – 60% more than in 2018, Eidhagen told reporters. Through September, it has carried 1.8 million passengers – double the number for the first nine months of last year. This year, the Budapest-based carrier flies from four Ukrainian cities – Kyiv Boryspil, Kharkiv, Lviv, and Odesa.

The largest carrier in Central and Eastern Europe, Wizz Air has grown to become the second-largest carrier in Ukraine, sandwiched between two airlines controlled by Ihor Kolomoisky, Ukraine International Airlines and Wind Rose. In Georgia, Wizz Air jumped from third place last year, to first place this year. Overall, the airline is increasing its payroll by 20% this year, to 12,000 employees, and aims to carry 100 million passengers a year by the end of the 2020s, Eidhagen said.

  • Retail Sales Grow 3X Faster Than GDP
  • Agro-Business Food Output Jumps
  • Kernel, Metinvest Get Low-Interest Bonds
  • IMF Deal Seen Doable by Year-End
  • Solar/Wind Investors Fight x Retroactive Rule Changes 

Retail sales are up by 9.8% through September in real, inflation-adjusted terms, compared to the first nine months of last year. The State Statistics Service lists the hottest regions: Vinnytsia +17.6%; Ternopil +16.9%; Kyiv Oblast +15.7%; and Kyiv City +14.7%. Growing three times faster than the overall economy, retail sales are fueled by increased salaries and remittance from workers in the EU, currently clocked at $1 billion a month. In 2018, retail sales were up 6.1% over 2017.

To get a clearer picture of retail sales and to collect more taxes, President Zelenskiy signed into law Friday a bill to require all small businesses to use cash registers. Businesses that do not give sales receipts will be required to give customers the sold merchandise for free. After small businesses protested and smash cash registers in front of the Rada, Zelenskiy added a 1-2 year phase-in period. The State Tax Service is giving out free digital devices containing the government’s E-Receipt app.

Food production by farm businesses increased by 12.9% through September, compared to the first nine months of the year. Food production by households was down 1.4%. The State Statistics Service calculated that overall growth at 5.9%. Last year’s overall farm growth y-o-y was 7.8%.

Livestock production of farm businesses was up 6.9% through September, while household production was down 2.9%. Looking ahead, household milk production is expected to drop by 31% during the 2020s. In contrast, dairy farm milk production is to increase by 38%, according to Olga Kozak, a researcher at the Institute of Agricultural Economics.

With US, UK and EU interest rates languishing near zero, Ukraine’s blue-chip corporates are doing well on the Eurobond market.

Kernel has placed $300 million worth of five-year Eurobonds with an annual coupon rate of 6.5%. By contrast, Kernel placed $500 million worth of five-year Eurobonds in Jan. 2017 with a coupon rate of 8.75%. On the eve of the mid-October roadshow, Fitch upgraded Kernel’s long term rating to BB-, two notches above the sovereign. “Demand for Eurobonds exceeded supply,” Kernel CEO Evgeny Osipov said of the roadshow organized by ING and Morgan. “We noted a high level of interest among investors from the UK, USA, and continental Europe.”

Metinvest completed last week a major refinancing deal that included placing €300 million worth of 5-year Eurobonds at 5.625% per annum, “the lowest yield ever achieved by Ukrainian issuers (including sovereign),” reports the integrated mining and smelting group. The debt reduction deal included placing $500 million worth of 10-year Eurobonds at 7.75% per annum. With Deutsche Bank, Natixis and UniCredit organizing the US, UK, and EU roadshow in the last week of September, Metinvest said: “The purpose of the offer is proactive management of debt repayment, an extension of debt repayment terms and reduction of refinancing risks.”

Prime Minister Honcharuk expects an IMF team to come to Kyiv in early November. He says in a Facebook video post: “I really hope that during their second visit we will make progress and will be able to clearly say that at the end of this year we will receive this program.”

Concorde Capital’s Alexander Paraschiy reviews the IMF check list and concludes: “We see a high probability that the IMF and the government will be able to agree on all key issues and the new program will be signed in late 2019, soon after Ukraine adopts its 2020 budget.”

Solar and wind power investors protest that a bill moving through the Rada would relieve Ukrenergo from its obligation to pay ‘green tariffs’ for all electricity produced by renewable power plants with an installed capacity of more than 150 MW.  Threatening the business plans of a dozen major projects, the bill “would mean a retrospective change of the “green tariff” guarantees in place since 2009,” objects the European-Ukrainian Energy Agency, the main industry association. “Implementation of this rule will cause reputational losses for the image of Ukraine as an unreliable jurisdiction for foreign investors, and will completely undermine any work to attract foreign investors and investments in Ukraine.”

The foreign CEO of a major solar and wind company emails UBN: “The current initiatives by the government are worrisome because they not only affect the green energy sector but more importantly undermine the trust of investors in the rule of law in Ukraine in general. I think the government has not yet fully understood the vast implications of its actions.”

  • IMF to Return to Kyiv to Work on Deal
  • Ernest to Fly to 10 Italian Cities, Base 2 Planes in Kyiv 

An IMF mission will return to Kyiv “in the coming weeks” to continue discussions about a 3-year Extended Fund Facility, Poul Thomsen, director of the IMF’s European Department, said Friday after meeting Ukrainian officials in Washington. “Ukraine has reached a significant level of macroeconomic stability – I think it is important to keep it,” he told reporters in Washington. Without specifying the size of the fund, he said discussions were “positive.”

Finance Minister Oksana Markarova counseled patience. We are moving faster than in previous years,” she told Voice of America in Washington on Thursday. “Last year’s negotiations took a lot of time – more than one visit to the United States for annual meetings. Now we’re moving fast enough.”

Ukraine’s parliament adopted on first reading an EU-compliant ‘unbundling’ bill designed to create a state-controlled gas pipeline operator independent of Naftogaz.It is very important for us to approve it in the first reading, so that next week we will go to negotiations with Russians with a strong position,” Prime Minister Oleksiy Honcharuk said before the vote. The draft bill’s explanatory note said the bill is necessary to change Ukraine’s natural gas and electricity market to ensure its liberalization, efficiency, transparency, and compliance with EU laws.

Present gas pipeline links allow for Poland to supply Ukraine 2 billion cubic meters of gas. A tripling of the capacity, to over 6 billion bcm will require study and investments, cautions Gaz-Sytem, Poland’s state-controlled pipeline operator. Last week, on the occasion of a major upgrade of Ukrtransgaz’ Komarno compressor station in Lviv Oblast, Naftogaz CEO Andriy Kobolyev said the station now has the capacity of 6.6 bcm. That volume is 63% of Ukraine’s 2018 gas imports. Poland is investing to receive more LNG from the United States and the Persian Gulf.

Next year, Ernest plans to add five new routes between Ukraine and Italy. To serve this expanded network, the Milan-based, Swedish-financed airline plans to base two of its eight Airbus jets at Kyiv’s right bank airport. With the addition of Bari, Trieste and Venice, Kyiv residents will be able to fly to 10 Italian cities on Ernest. The company also plans to start: Lviv-Bologna, and Odesa-Milan. Overall, the company aims to carry 1 million passengers on its Ukraine routes, double this year’s forecast level.

Ernest also is setting up a Ukrainian unit to allow it to fly passengers on domestic flights. Today we are starting work on obtaining a Ukrainian license,” said Chady El Tannir, Ernest president, said at a ceremony opening the airline’s Ukraine office, in Kyiv’s Podil district. Turning to Deputy Infrastructure Minister Oleksandra Klitina, he said: “I am pleased to accept the proposal of the Deputy Minister regarding the expansion of our network and its distribution to Ukrainian open spaces.” At present, no foreign airlines have domestic units that carry passengers between Ukrainian cities.

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