Weekly stock market from IC Kinto

September 15 - 19, 2003

GDP Is Fixed at the Rate of 5.9% in August

Recently, it was informed that in August, 2003, the GDP increased by 5.9% in comparison with August 2002, and constituted UAH 25.48 bln./USD 4.78 billion. For the January - August period, GDP rose by 5.3%, compared with the same period of 2002, and amounted to UAH 151.12 bln./USD 28.35 billion. The growth of GDP in January-August took place mainly owning to the rise of gross added value in such sectors as construction by 24.6%, manufacturing industry - 16.5%, wholesale and retail trade - 10.8%, transport - 10.1% and production and distribution of electric power, gas and water - 8.8%.

It should be mentioned, that in July 2003, GDP reduced by 5.6%, compared with July of the last year, to UAH 20.76 bln./USD 3.9 billion. According to the Ministry of Economy, such a slump in July 2003, was caused by tangible reduction of production in the agriculture sector. Earlier the Ministry of Economy as well as State Statistics Committee forecasted the growth of GDP in 2003 at the rate of 4.7-6%. At the same time, the prime minister Victor Yanukovich, while opening the meeting of heads of the states in Yalta, Ukraine, declared about rising of his previous forecast from 5.5% to 6.5%, emphasizing, that the trade and economic cooperation between the countries CIS members is developing roughly and successfully, so that Ukraines turnover gain with these countries reached 29%.

Revising the current situation in the agriculture sector, that can negatively affect Ukraine's economy, we can assume that the GDP growth till the end of 2003 could reach the level of 5-5.5%.

Common Economic Area Establishment Comes to the End

Last week we informed about intention to establish the Common Economic Area (CEA) between Russia, Ukraine, Byelorussia and Kazakhstan. So, on 19th of September, the intention grew into action and the Agreement was singed.

However, nothing did without reservations and stipulations. Thus, the most important provisions of a contract signing were the amendments that CEA activity should not contradict the Ukrainian Constitution and that the countries CEA members are allowed to decide for themselves the exact level of integration that they will attain. The first stage of the process will be the establishment of a free trade zone. Nevertheless, some form of a customs union is also included in the first stage, which probably may pose some problems for Ukraine-EU integration negotiations.

As a whole, the CEA agreement provides for conforming to WTO norms and regulations. As it is also mentioned in the agreement, the countries CEA members should assist each other in achieving WTO membership.

According to the treaty, each country can reject the union membership after giving notice about its intentions one year in advance with the country has settled any obligations assumed in the course of the integration process.

The CEA will come into force after the authorities of each country have ratified it. The presidents of the four countries hope this is to happen by the end of the year.

Metallurgy

Shareholder's Meeting at Nikopol Ferroalloy Plant Fails

The annual shareholder's meeting at OJSC Nikopol Ferroalloy Plant appointed on Friday 19, 2003, failed.

This happen as the Company's registrar earlier received a number of different courts' decisions. According to the last, the registrar is banned to render nor shareholders' register, nor documents of register system, neither register information to Nikopol Ferroalloy Plant. Thus, currently the Company's registrar has no legal grounds to register shareholders and the meeting can't be hold.

Nikopol Ferroalloy Plant is the largest Europe's producer of ferroalloys (annual capacity - 1.2 mln. tons), specializing in the production of silicomanganese and ferromanganese. Main advantage of the plant - local sources of raw materials - determine the company's domination in the CIS ferroalloy market. Over 70% of output is exported throughout the world. It holds the market share of about 57% in CIS, 48% in Eastern Europe, 39% in the Middle East, and 15% of European Union's markets.

For the last 3 years, Company's Net Profit decreased almost in 5.3 times to UAH 18.5 mln./USD 3.5 millions.

The Company is controlled by INTERPIPE's affiliated structures (>60.0%). A 15% stake is owned by PrivatBank's affiliates, which control both raw materials suppliers of manganese ore: Ordzhonikidze and Marganets Mining & Concentrating Mills.

Energy

Government Intends to Sell State Stakes in Energy-Distributing Companies Soon

According to the information of the Interfax-Ukraine agency, State Property Fund of Ukraine is to sell a 25% stake of Prikarpattyaoblenergo, a 26.98% stake of Lvivoblenergo and a 25% stake of Chernigivoblenergo in December 2003.

The sale of the above-mentioned stakes means the ultimate transition of these oblenergos to the private property. The SPF plans to finish the privatization of the remaining energy-distributing companies by the end of 2004.

The Companies finished 2002 with the following results: Prikarpattyaoblenergo reduced Net Losses by 1.9% to UAH 7.942 mln./USD 1.5 mln. as compared to 2001. Lvivoblenergo reduced Net Losses in 6.2 times to UAH 11.462 mln./USD 2.15 mln. as compared to 2001. Chernigivoblenergo obtained Net Losses in the amount of UAH 6.878 mln./USD 1.3 mln. (Net Profit 2001 - UAH 0.128 mln./USD 0.024 million).

The 27 energy-distributing companies, so called oblenergo, were created in 1995 as a result of power industry reorganization, when government divided energy complex by functions: generation, distribution and supply of energy power. Oblenergo perform two last activities. All of them are partly or fully privatized by Ukrainian and foreign companies. Among the last are the following: 1. Vychodoclovenske energeticke zavody, possesses Zhitomiroblenergo, Khersonoblenergo, Kyrovogradoblenergo and Sevastopolenergo; 2. AES Washington B.V., possesses Kyivoblenergo and Ryvneoblenergo.

Energoatom Gets Permission To Issue Bonds

The Intrefax-Ukraine agency reports that the government admitted NAEC "Energoatom" to issue 3-year bonds with 12% coupon paid quarterly for the sum of UAH 500 mln. /USD 94 million. The obtained funds will be forwarded on the completion of Chmelnitskya AES 2nd energy block and Rivnenskya AES 4th energy block. Earlier, it was expected that Ukraine will get the credit for these needs from European Bank of Reconstruction and Development, European Union on Nuclear Power Energy "Energoatom", a number of large credit-export agencies.

The Company's management wants to manage without the foreign credits. However, will be bonds of Energoatom settled? They seem to be not very attractive as there are a lot of probable risks of Energoatom default. Nevertheless, in case NBU will agree to refinance banks under security of bonds in the long-term prospect, banks are most likely to buy them.

It should be noted that the Company has accounts payable in the amount of UAH 4.9 bln./USD 0.92 bln. (the beginning of year 2003). Considering this fact, it is most probably, that creditors can initiate bankruptcy petition of Energoatom anytime.

NAEC "Energoatom" is the nuclear energy-generating company, which produces over 45% of all the power in Ukraine (in few last years).

During the last three weeks the stock market dynamics could be compared to the swing of pendulum. After a significant growth in volumes during the week before, the week under review brought negligible activity decrease to USD 7.5 mln. (a 19.4% drop).

The PFTS index grew by 5% to 63.87, basically owing to rise of Ukrtelecom's and Ukrnafta's shares transaction price.

Equity

Equity volume made up USD 1.8 mln. and generated 24% of the total volume traded. Traders concentrated mainly on Zakhidenergo and Dniproenergo , which USD 0.68 mln. and USD 0.36 mln. worth of shares changed hands, respectively, having accounted for 61% of equity trading. The week's closing price for Zahidenergo and Dniproenergo rose by 2.25% and 2.2% in compared to the week before. Among other substantial deals we can also emphasize Ukrnafta with its USD 0.34 mln. worth of shares traded and Ukrtelecom (USD 0.3 million). The transaction prices of the particular issuers went up approximately by 2-3%.

The rush demand was observed for Nyzhnodniprovsky Pipe-Rolling Plant, but its trading volume was not that significant. Probably, the traders are not making haste to sell anticipating greater price increase.

Another highlight of the week was the sale of approximately 32 thousand of Donbasenergo's shares at the PFTS auction. The selling price was USD 1.41 that is 70-80% upwards of market average quotation prices.

Bonds

Initial placement

On September 15, four issuers started to float their loans with a total combined volume of UAH 294.4 mln./ US$ 55.2 mln. (see Table 1 below).

Currently, it is difficult to analyze any of the theses issues, since there is no information on yield to maturity during the placement distribution.

The first two issues are quite remarkable because of unusually low coupon rate that "kills" any potential investor interest taking into account that the placement price is not below par. The identical main parameters of both issues are, perhaps, due to the fact that both have one and the same lead-manager -a Kharkiv-based "Capital-Market".

For reference: "Avtosoyuz" is an official dealer of Volkswagen in Ukraine, and "Avtoinveststroj" has a dealership for Audi. "Avtosoyuz" is founded by two individuals - V. Poljakov (Chairman of the Board of Directors of "Avtoinveststroj") and D. Svjatash (honorary President of the same company.).

Kremenchug Automobile Assembly Plant is affiliated to both companies. The issue is one of the favorites to be awared an special prize of "The Most Original"one. The point is that all the bondholders will have the right to receive 32 cars of different models for the total price equal of today's face value of the securities.

The SAM travel company's bond issue has a peculiar feature, too. This security bears coupon interest but it will only be paid at maturity or at exercising a put (on September 15 annually). Accumulated income is calculated by the simple interest method that sharply reduces affinity of these bonds.

Secondary market.

Last week the market remained relatively active, even despite of the volume decrease by 19.2%, or US$ 1.3 mln., in comparison with the previous period.

The most popular were "Boryspil Airport" (C series) bonds, which made up for 27.5% of the total trading volume.

Bonds of "Chornomornaftogas" State Stock Company became quite attractive last week on some important news. First of all, on September 10, "Credit-Rating" rating agency rated the issue "uaK2"*, that means high ability to pay back the debt instrument's principal and interest on time and in corpore. Second, the announced plans of implementation of two new gas fields by the end of the year would increase cash-flow and income of the company. These news decreased the nonpayment risks and, probably, became the main reasons of actual deals with the security.

The very first transactions were executed with the newly issued bonds of a large West-Ukrainian sugar producer "Syndycat Ltd.". The yield to the first put is comparable to that to maturity and is significantly higher to the dominating average one at the Class D bond market.

There is a stable increase in average yields to maturity (put) (this indicator calculated as average weighted yield of the most liquid bonds by issued volume) in the banks' bonds sector quotes. Thus, at a BID average yield rose by 27 b.p., as well as ASK - by 174 b.p.

The same is observed with non-bank's bonds. The only difference was that BID and ASK yields to maturity (put) for the non-bank's securities rose with the equally: 123 b.p. and 133 b.p. correspondingly.

Coupon payments.

Last week seven companies paid off their current coupon payments. They include:

"Galnaftogaz" (coupon rate - 17.0%, paid quarterly, face value - UAH 1000/US$ 187.62),

"Galaktis" (coupon rate - 17.0%, paid quarterly, face value - UAH 100/US$ 18.76),

"Boryspil Airports" - A series (coupon rate - 15.0%, paid quarterly, face value - UAH 1000/US$ 187.62),

"Microfinancial Bank"- B series (coupon rate - 14.0%, paid quarterly, face value - UAH 1000/US$ 187.62) and "South-West Railway" (coupon rate - 12.0%, paid monthly, face value - UAH 1000/US$ 187.62).

Such a payments boom should increase the demand at bond market due to the fact that many investors prefer to reinvest their income while bonds yield stays relatively high.

Prospects.

Next week we expect trading volume to stay at the same level. Average yields will keep its trend to rise, even despite the increase in demand.

At the end of the week VaBank is to pay out the last but one coupon (coupon rate is 20.0%, paid quarterly, face value UAH 1000/US$ 187.62).

* Short-term ratings are divided into two groups: investment level (uaK1, uaK2 and uaK3) and speculative level (uaK4, uaK5 and uaKD)

Market Capitalization of Companies Included in KINDEX LIQUID Index Calculation

Source: PFTS, KINTO calculations

Selected PFTS Stock Quotations, as of September 19, 2003

** - Quoted price is a half-sum of average weighted bids and asks.
Source: PFTS, KINTO calculations