Tomas Fiala: Investment climate improvement will support rapid recovery of the Ukrainian economy

KYIV, March 30, 2012 — Dragon Capital’s 8th Annual Ukraine Investor Conference held on March 22-23 brought together senior Ukrainian economic and political figures, business leaders as well as representatives of international financial organizations based in the country for discussing urgent political and macroeconomic issues.

Tomas Fiala, CEO, Dragon Capital, opened the conference with the government’s policy analysis. He was pleased to note government’s interest in creating a full-fledged stock market in Ukraine. Besides Mr. Fiala analyzed the reasons of Ukrainian stock indexes underperformance and expressed his hope for the government refreshing the reform drive, necessary for the investment climate improvement.

Please see below key points from Dragon Capital’s CEO speech.

Ukraine compared to global capital markets

Being a frontier market Ukraine usually suffers from low liquidity and underperforms during times of global uncertainty but always more than catches up when situation stabilizes.

It can be seen from dynamics of Ukrainian stock market index, the KP-Dragon, which has been calculated for many years for our clients. During last 5 years Ukraine has been an absolute leader in performance, either among the best or worst.

Ukrainian stock market’s annual performance (based on KP-Dragon index) in 2007-2011

Note: KP Dragon is a MC weighted index of top 20 most liquid Ukrainian stocks listed on LSE (50%), WSE (34%) and UX (16%). Largest sectors are agriculture (50%), Metals & Mining (22.6%), Oil & Gas (14.6%), machine building (6.2%), energy, banking.

Since 1997 KP-Dragon index has performed either above +40% or below -40% on an annual basis.

Debt markets

Last year Ukraine’s corporate and municipal issuers placed $2.6bn worth of bonds, historic record. This comes on top of $3.4bn issued by sovereign. Issuers used window in February-July to tap the market.

Given high quality of issuers, average yield decreased to pre-crisis 2007 level – 8.9%. Debt servicing remained reliable despite sharp tightening in global credit markets after August. All repayments were made on time and there were no restructurings last year.

Currently Ukraine’s key economic sectors are well represented on the debt market:

* by sales

** by assets

Ukrainian Eurobonds fully participated in the September global sell-off but the recovery has been lagging since then.

EM indices such as SOVX CEEMEA and EMBI have recovered 68% and 90% of the drop, respectively, while Ukraine has recovered only 40% of the Summer-2011 drop.

The reasons of underperformance and new Eurobond issues outlook

The main reasons for this underperformance were delays in renegotiating the gas deal with Gazprom and resuming IMF program. If macro issues start being resolved, we see clear room for yields compression and catch-up with global EM universe.

However, we should see a sovereign issue in 2Q followed by several solid corporates and quasi-sovereigns.

About 8^th Annual Investor Conference

During the eight years of its existence, Dragon Capital’s Investor Conference was a landmark event, which raises topical issues and makes public statements of the Ukrainian government. This format allows the international investment funds and banks that are willing to invest in Ukraine, to get answers to their questions from the top officials.

About Dragon Capital

For more information please contact us at [email protected].