Despite war and recession, the European Bank of Reconstruction and Development sees value in Ukrainian assets and continues to invest. The EBRD, a multinational investment agency, is Ukraine’s single largest investor with a portfolio of €5.1 billion and involvement in 344 projects, ranging from agriculture to energy and high technology.
The bank has pumped in an average of €988 million in investments over the last six years.
A major sector is agriculture, well on target to reach last year’s figure of €250 million, EBRD director in Ukraine Sevki Acuner said.
Agriculture accounted for 20 percent of EBRD’s 2014 portfolio last year.
Nibulon, a producer and trader of grain and oilseeds, became the latest borrower last month when the London-based lender arranged a $130 million syndicated loan for the Ukrainian grower, contributing $45 million from its own account.
“I expect a very strong performance this year,” Acuner said.
EBRD is also looking to close a deal with two information technology firms. Acuner said one deal may involve equity and that the company “sells a very competitive service over the Internet…to industrial users” globally. He noted that it would be the “biggest IT deal in the history of EBRD in Ukraine…we want to capitalize and demonstrate to investors that we support such investments.”
Ukraine’s state-owned Naftogaz will get a $300 million loan soon, according to Acuner, to purchase natural gas on the European market as winter nears.
Four to five municipal infrastructure projects should also conclude this year. “We’re doing roads and trams in Lviv, trolleybuses in Odesa,” and a heating project in Chernivtsi, the Turkish banker added.
When Ukraine decides to auction the 300 state-owned enterprises for sale, EBRD will be involved. “We’re looking at post- or acquisition privatization-related financing…we could look at a few of these assets together with a strategic investor to support it,” Acuner said.
Ukraine had planned to fill state coffers with Hr 17 billion in proceeds from privatization this year. That target has since been reduced to Hr 1 billion, according to State Property Fund manager Ihor Bilous.
European Bank and Reconstruction Development director in Ukraine Sevki Acuner.
Ukraine postponed privatization to let parliament in September cancel the requirement to sell 5-10 percent stakes before the state can offer a controlling stake in an asset. The change is necesary to prevent minority stakeholders from “thwarting other potential bidders” and capturing the asset at a much lower price, Acuner said. “From that perspective alone the new approach is much better.”
Some prized assets Ukraine is looking to sell next year includes the Odesa Portside Plant, a huge fertilizer producer that exports up to 90 percent of its output. Another one is Centrenergo, the nation’s second largest thermal energy company.
“Privatization has the potential that it would represent the spark that is needed for economic recovery,” Acuner added.
Renewed lending to producers of goods and services would help, he said. But that will only come once banks strengthen – currently the minimum capital adequacy ratio is set at 10 percent, with further equity injections needed. That will come only once Ukrainians “clean out” the banking sector and weed out the legacy of third-party lending at so-called “pocket banks,” the banker said.
Although the central bank has liquidated 44 banks since 2014, Ukraine still has too many banks. “You cannot have hundreds of banks,” Acuner said. “You gotta have a much more consolidated…banking system.”
Entrepreneurs are still waiting for macroeconomic conditions to improve, the rule of law to prevail and the cost of financing to be reasonable, he said. “It’s difficult to imagine the cost of borrowing at 25-30 percent; it is an irrational proposal to borrow money unless you’re desperate to run your business,” Acuner said.
He sees positive trends that could eventually restore trust in the hryvnia – which declined by more than 60 percent versus the dollar since the start of 2014 – after Ukraine secured a 20 percent write-down on $18 billion of its bonds in late August.
If Russia’s war in the east is contained and the “present trend of macro-reforms and privatization that we talked about can be properly executed…then it is by definition that people will start investing,” the banker said.
Corrupt practices “must not be tolerated,” he added. Acuner said the government is trying to combat graft structurally and aligning the country with Western, competitive democratic values.
“When you’ve taken over a complete wreck and mess literally … people should give a little benefit of time to get this coherence in place,” Acuner said.
The Kyiv Post’s legal affairs reporter Mariana Antonovych can be reached at [email protected]. Editor Mark Rachkevych contributed to this report.
