Fixed Income Snapshot - Industrial Production Searches for Rock Bottom

MACRO: According to today’s State Statistics Committee data, industrial production in Ukraine grew by 8.3% in March, marking -30.4% y/y fall. All industries displayed m/m growth, but in y/y terms figures still look gloomy with the most severe drop by 40-50% in metallurgy and mechanical engineering. Steel production in 1Q09 landed at 7 mn tones, while official govt forecast for Y09 is 27-28 mn tones, down from 37 mn tones last year.

Best performers are food production and chemical production, which increased their output by 12.8% m/m and 20.6% m/m, respectively, and accelerated their rate of growth. Production of some foodstuff like chicken meat, confectionery products and sunflower oil in 1Q09 was even higher than in 1Q08.

Our view: Ukrainian industry struggled to find a rock bottom in 1Q09. The worst of contraction is already behind us, albeit weak demand for steel/machinery would continue to weigh on total industry results in the 2Q as well. We retain our positive view on moderately leveraged food industry names.

Ukrainian government has found the way out of the woods and adopted 19 decrees trying to substitute the laws that Verkhovna Rada failed to pass yesterday. The adoption of the laws was previously accorded by the main political forces and was highly demanded by the IMF in order to advance with the SBA disbursement. Ukrainian PM noted that “the decrees would be slower to implement than the laws, nevertheless such developments would be sufficient to advance in negotiations with the IMF”. In its turn, head of the IMF mission in Ukraine virtually agreed with PM and announced that the Fund “would have to make decisions considering current political atmosphere in the country”.

Our view: Such developments suggest the IMF’s positive intentions to grant a second SBA disbursement that can be expected till the end of May. Still we would not consider renewed cooperation with IMF a safe bet.

MM&FX: Liquidity remained abundant at UAH 18 bn., the rates remain unchanged – KievPrime o/n at 4.1%, 30 days at 20.6%. UAHUSD trades unchanged today at 7.98/8.06.

CORP: Myronivsky Hliboproduct has released preliminary Y08 financial results. The total company’s revenue increased 69% to USD803 mn, which means that in UAH terms the revenue has been boosted app. 150%. EBITDA margin improved from 35% to 39%, net income declined to USD15 mn, due to the non-cash foreign exchange debt revaluation losses of USD187 mn. Therefore, the net profit margin could be app. 20%, which is much higher than 10.5% a year before.

Our view: we like the company. Over the years to come MHP is likely to extend its domestic land plots, strengthen its position as core food industry player in various segments of meat production. We still see value in the bond even after recent rally that brought MHPSA from 32% to 49% of par.