Magisters expands to Belarus through merger; Britain’s Parkridge plans to build five malls; EBRD to beef up loans for Easter Europe; Horizon Capital invests $15 million into ‘Fresh’; Pay up 21-23 percent during year, survey says; Poland hires Ukraine group to fix shipyard; Troubled bank sale fails, nationalization likely; Top executives caught by surprise in crisis
Magisters expands to Belarus through merger
Magisters, a leading Ukrainian law firm, announced that it has entered the Belarus market through a merger agreement with a local legal firm called BelJurBureau.
In a statement this month, Magisters, which has expanded its presence in recent years from Ukraine to Russia and other CIS markets, described the agreement as the “first cross-border merger of law firms in Belarus.”
The newly combined firm will be made up of over 230 employees, including 130 lawyers, and will operate under the Magisters brand. All internal merger procedures are to be completed by the end of January 2009, the firm said.
The deal follows Magisters’ two previous mergers in 2006 with Ukrainian law firm Pravis: Reznikov, Vlasenko and Partners and Russian law firm Legas Legal Solutions. The firms’ complementary services allowed Magisters to strengthen its client service offering in Kyiv and advise on larger projects in the region.
“We intend to replicate in Belarus the success of our mergers in 2006 as we continue to expand our presence in capitals across the CIS,” said Oleg Riabokon, Managing Partner of Magisters.
“The merger will strengthen enormously our position as a leading law firm in post-Soviet countries and responds to a growing demand by Magisters’ clients for CIS-wide presence. It also underscores our forward commitment to a high level of client service on the ground in all major CIS markets.”
BelJurBureau partners Anna Rusetskaya and Denis Turovets will lead as the Belarus-based partners of Magisters, bringing the firm’s total number of partners to 13.
Britains’s Parkridge plans to build five malls
Parkridge Holdings, a private real estate investment group headquartered in the United Kingdom, has announced plans to build five shopping centers in Ukraine by 2013.
Dmytro Sennichenko, acting director of the group’s subsidiary in Kyiv called Parkridge Retail Ukraine, told journalists this month that 300 million euros had been set aside into a fund for the projects.
The shopping malls, which will include retail and recreational space, will operate under the Focus brand, he said.
“Financing of the project will in the first stage of development be driven by the shareholders of the company. So to realize the projects in Ukraine, the shareholders have established a fund of 300 million euros.
The company will [also] attract financing through debt instruments. For Ukraine, it is envisioned that the proportion of debt to our own resources will be 50/50,” Sennichenko said.
Plans envision that shopping malls of 40,000-100,000 square meters will be built in cities with populations above 300,000.
“The first cities eyed by the project include Donetsk, Kharkiv, Odesa, Lviv, Kryvy Rih and others.”
Asked if the group planned to build a mall in Kyiv, he said land prices in the capital have reached unrealistic levels, and as a result, the company would not focus on this city at the moment.
The group, which is active on the real estate markets of Europe, established a presence in Ukraine back in 2007 and claims that the Focus shopping centers it has developed in Poland are alone valued at some $1.4 billion.
EBRD to beef up loans to Eastern Europe
The European Bank for Reconstruction and Development’s board of directors announced this month that it would increase its volume of funds to be made available in 2009 by about 20 per cent to 7 billion euros. Half of the ˆ1 billion euros in extra spending are earmarked for central and Eastern Europe, including Ukraine, the bank said, adding that the increase in funding comes as part a response to the impact of the global financial crisis on banks.
The Bank’s response will be especially to support the banking sectors in the countries where the EBRD invests and to ensure that financing flows continue, in particular to small and medium-sized enterprises. The EBRD will also extend its support to the broader corporate sector.
“Next year will be extremely tough for many businesses in our region but no matter what happens, the EBRD is open for business,” said Thomas Mirow, the bank’s president.
“We have sufficient capital, unanimous support of our owners and we intend to invest more than we have ever done before.”
Under the package, the EBRD will maintain its core operating principles and respond to individual requests on a case-by-case basis to ensure maximum impact of its interventions. The package is not limited to one specific sector of the economy but applicable to all sectors and all countries of operations according to needs and urgency.
Since the global crisis started spreading, the EBRD has intensified its engagement with its existing clients. It is working closely together with governments in the countries where it invests to address key policy issues.
The EBRD, owned by 61 countries and two intergovernmental institutions, was established to support the development of market economies and democracies in countries from central Europe to Central Asia. The bank claims to be the biggest financial investor in Ukraine, having committed more than 3.74 billion euros into 172 projects as of August 2008.
Horizon Capital invests $15 million into ‘Fresh’ Horizon Capital, a private equity manager focused on mid-cap investments in Ukraine, announced that it had signed an equity investment agreement to invest $15 million in equity in Evrotek Group PLC, the holding company for a recently formed Ukrainian food retail chain operating under the trade name Fresh, alongside the International Finance Corporation. The investment is expected to enable the company to further expand its retail chain.
“This investment will help us expand the chain geographically and build our market share,” said Mikhailo Veselsky, Evrotek’s founder and chief executive officer. “While the sector is growing rapidly, it is still fragmented and segments of the population and geography are very underserved by modern retail formats like Fresh.”
In a statement, Horizon Capital described Evrotek’s Fresh as one of Ukraine’s newest retail store chains with two standard formats: 1,300 square meter supermarkets and 2,400 square meter mini-hypermarkets. Fresh has opened eight stores to-date, operating in Yevpatoria, Kerch, Kryvy Rih, Kherson and Rivne Oblasts. Expansion plans foresee a total of 58 stores and 3 logistics centers by 2010, according to Horizon Capital.
Mark Iwashko, co-managing partner of Horizon Capital said: “This investment is an excellent opportunity not only to back an entrepreneur with a solid track record of success, but also to invest in one of the most interesting and fast growing sectors in Ukraine. Ukraine has consistently been ranked at the top of the AT Kearney Global Retail Development Index due to the size and potential of the market and the low level of modern retail penetration.”
Horizon Capital is a private equity fund manager that originates and manages investments in mid-cap companies with outstanding growth and profit potential in Ukraine and the region.
Currently, Horizon Capital has three funds with over $600 million under management.
Pay up 21-23 percent during year, survey says
Salaries in Ukraine during 2008 increased on average 21-23 percent against planned 15 percent hikes, according to a compensation and benefits survey released this month by the Kyiv offices of Ernst & Young.
But companies are now in the wake of the global financial crisis and an imminent recession imposing cuts and freezes on further increases, the surveys suggests.
“According to the recent November research on the downturn impact on businesses in Ukraine, 34-38 percent of companies plan to postpone the further planned salary growth in view of unstable economic situation,” said Olga Gorbanovskaya, head of the human capital group with Ernst & Young Ukraine.
“A further 9-14 percent of companies are going to decrease the level of salary growth planned for the next year, on average by 13-14 percent. Besides that, 6 percent of participants in our November research will cut salaries within the next 6 months, on average by 20 percent. Other companies – almost half of the participants – confirmed that they do not plan to cut salaries and will keep the further planned salary increases unchanged,” she added.
According to Gorbanovskaya, the market was in 2008 significantly influenced by high inflation rate, an unstable currency exchange rate and unfavorable conditions on global commodity markets.
The survey data shows that the majority of companies determining compensation policies in 2008 were guided by the level of inflation (64 percent of all companies compared to 56 percent in 2007).
Poland grants subsidy to Donetsk business group
The Polish government announced this month that it will grant Industrial Union of Donbas, a Donetsk-based steel conglomerate, $50 million in state subsidies to help renovate the historic Gdansk shipyard, where the Solidarity movement started.
According to a report by Concorde Capital, the subsidy is conditional on settling aid from the European Union and on preserving the plant’s workforce and production levels. Industrial Union of Donbas acquired an 86 percent stake in Gdansk shipyard in November 2007 and hopes to supply the shipyard with steel.
The Ukrainian industrial group owns two steel mills in Ukraine and has expanded aggressively in recent years acquiring steel production facilities abroad, namely in Hungary and Poland. The group was founded by Ukrainian billionaires Serhiy Taruta and Vitaliy Hayduk.
Troubled bank sale fails, nationalization likely
Prominvestbank, the troubled Ukrainian bank suffering from a run on deposits, could be nationalized by the National Bank of Ukraine after domestic businessmen Andriy and Serhiy Kluyev failed to come up with cash to recapitalize the bank through an additional share issue, Concorde Capital said in a report this month.
In the report, Concorde suggested that “before beginning the nationalization procedures, the NBU council will again explore options for attraction of a new strategic investor.”
In November, the NBU reached a deal with the Kluyev brothers in which they agreed to acquire a 68 percent stake in the troubled bank if they meet certain conditions, including recapitalization.
But the group of investors stepped aside, read a report by Investment Capital Ukraine.
Prominvestbank, the sixth-largest Ukrainian bank by assets, suffered from a run on deposits this autumn which the bank’s current owners claim was triggered by a deliberate smear campaign.
Solving the bank’s problems is considered to be one of the conditions set by the International Monetary Fund, which granted Ukraine a $16.4 billion emergency standby loan to minimize the aftermath of the global financial crisis.
Top executives caught by surprise in crisis
Only 14 percent of respondents in a survey of top executives at nearly 40 global banks indicated they have a consolidated view of risk across their organizations, according to Ernst & Young’s second annual study on risk governance entitled Navigating the Crisis.
Ernst & Young said the current economic crisis has exposed inherent weaknesses in risk management, forcing banks to improve their risk governance processes, increase the collaboration between risk and finance functions, and make instilling a risk culture a true priority.
While the vulnerability of Ukraine’s banking system has been exposed in the wake of the crisis, there is a newly emerging and healthy effort by top managers at the country’s banks to minimize risks that exist, and avoid further escalation, which is very positive, according to Roman Tatarsky, Business Risks Services Leader with Ernst & Young Ukraine.
“Risk management functions in Ukrainian banks are receiving ever increasing levels of attention and executive management support, especially as the Ukrainian market goes through various stages of challenge and evolution. This trend had been evolving prior to the global financial crisis, however it has gained momentum recently as attention has turned to comprehensive risk management on all fronts,” Tatarsky said.
“Shareholders, executive management and all stakeholders are demanding more comprehensive, timely, collaborative and forward-looking risk management information and analysis of all parts of the business. Timely risk analysis is absolutely critical to the effective management of any organization, and especially banks during times of rapid change – only with complete, accurate and timely information at their disposal can management effectively manage risk exposure and maximize the organization’s ability to deliver on its goals and objectives.”
“The evolution of enterprise-wide risk management as a strategic management tool is particularly relevant during these times of financial turmoil,” Tatarsky added.
