Cautious optimism is returning to the global investment profession, with “cautious” being the operative word.
Stocks, long shunned in favor of more secure instruments, are coming back into favor, opening the door on potential intial public offerings by Ukrainian companies.
Industry experts have pointed to around a dozen potential candidates.
The renewed appetite for risk is notably visible from the rates on U.S. junk bonds, debt issues considered to be below investment grade, which in early January fell to 6 percent on average for the first time ever. With returns on top public bonds – U.S. and German – negative after counting inflation, junk bonds are one option for investors who are seeking a bit more bang for their buck.
The big question is whether this will translate into sustained interest in equity markets, and if so, whether the key markets for Ukraine will be able to benefit.
Looking at Ukraine’s main trading platform, the UX, pessimism may be warranted. The index is down close to 10 percent since the beginning of the year, despite the global rises, and liquidity remains low.
This has reportedly driven international investment bank Renaissance Capital to close its Kyiv office. While the company denies this, it would not be the first to succumb or trim down their workforce in light of the local market’s poor prospects.
Nonetheless, the Warsaw Stock Exchange – the primary destination for Ukrainian IPOs – is seeing some revival. Driving the moderately bullish mood are ambitious plans by the Polish state to privatize assets worth $1.6 billion. The biggest of these is the sale of a 100 percent stake in state-owned real estate holding PHN for $830 million in the first quarter of the year.
And as appetite for risk returns, so does interest in Ukrainian companies. The key issues that will determine their status in 2013, analysts note, are the expected devaluation of the hyrvnia and the outlook for Europe, which has yet to emerge from the stagnation brought on by the ongoing debt crisis.
This view was recently confirmed by Blazej Karwowski, spokesperson for the Warsaw exchange.
“A lot depends on the situation on the world stock markets. There are several projects, several Ukrainian companies are ready and waiting for an improvement in the stock market, from the agrarian and other sectors,” he recently told news agency Interfax-Ukraine. “The most important factor is the expected devaluation of the hryvnia. Polish investors are afraid of devaluation.”
Warsaw is currently home to 12 publicly traded companies, a figure that could double if markets pick up. Indeed, many Ukrainian companies have long begun the IPO process, which typically lasts from 3 months to a year and involves a wide range of duties from building investor interest to preparing – in the case of the WSE – three years of audited accounts according to international financial reporting standards. Thus, it’s best to prepare in advance than scramble later.
That is the case of Galnaftogaz, among others. Asked if previously announced plans are still valid, the communications head Oleg Dorozhovets said the preparations had long been made but “conditions for an IPO today are unfavorable, due to the general economic situation and the investors perception of Ukraine as being high risks.”
Arguably the most enthusiastic of all perspective companies is Unigran, a construction materials producer operating on the Ukrainian and Russian markets.
Unlike most companies that stick to secrecy for as long as possible, Unigran has the required three years of audited results, compiled according to international financial reporting standards, readily available on its website.
With the football World Cup to be held in Russia in 2018 and various large-scale construction projects in the region, the company president Igor Naumets is bullish about the firm’s prospects and is eagerly watching the markets. Unigran has already picked its underwritter, auditor and legal counsel.
“If investors had bought into the company in April (2012), they would have seen returns of 25 percent (by October),” he proudly told the Kyiv Post.
UPDATE: Speaking at the World Economic Forum in Davos, Switzerland on Jan 24, Victor Pinchuk, the billionaire owner of Ukraine’s largest steel pipe producer Interpipe, said the company may be ready to go public some time in 2014, most likely on the London Stock Exchange. In order to be interesting, he said the IPO would have to bring in upwards of $500 million, which analysts at Dragon Capital investment bank estimate at a third of the company’s value. Interpipe earlier planned a public offering in 2008, but pulled back in light of deteriorating market conditions.
Kyiv Post editor Jakub Parusinski can be reached at [email protected]
