For Capital-Starved Ukraine, Fresh IPOs Remain Distant Aim

  • Investors seek judicial overhaul, greater political stability
  • Country pivots toward EU as access to Russian markets barred

Interpipe Ukraine, one of the world’s biggest supplier of tubes and railway wheels, has waited eight years to sell shares. As 2016 rolls around, the Ukrainian company that has served the likes of Royal Dutch Shell Plc and Bombardier Inc. has already given up the effort for another year.

It’s no small matter. Interpipe, based in Dnipropetrovsk, Ukraine, near territories controlled by pro-Russian fighters, lacks the financing to boost output destined for the European Union and beyond. Yet there seems no end to the bad news that’s driven investors out of the former Soviet republic.

"What’s Ukraine today? A war zone and a zone of instability,” said Denis Morozov, the chief financial officer. “The only investors interested now are the ones seeking risky businesses at a great discount. It’s obvious that if one does an IPO now, the sale price will amount to peanuts.”

Ukrainian executives have found themselves increasingly unable to raise money on capital markets since a pre-2008 wave of initial public offerings from Warsaw to London yielded as much as $1.1 billion in financing. Plans to revitalize the market in Ukrainian equities have died since the last IPO in 2012 as the fate of the war-ruined eastern regions remains uncertain, the hryvnia is almost 80 percent weaker than in 2007 and Prime Minister Arseniy Yatsenyuk’s government has failed to pass enough reform measures to reassure investors concerned about rampant corruption.

Investors want proof that the government can weed out the bureaucracy and graft partly inherited from past regimes.

“We are not planning to invest in Ukraine for the time being,” said Sebastian Kahlfeld, a senior portfolio manager at Deutsche Asset Management. “We basically require seeing more stability in terms of political development. Also we want to see how the reforms are going to be enacted. There is a lot of potential, but I’d like to see some action first.”

Many local companies, including London-listed poultry maker MHP SA, had already tried to reduce their reliance on Russian markets before protests began in Kiev in late 2013. While a trade pact has brought the promise of deepening integration with the European Union, that may only partly make up for the loss of exports after Russia blocked traffic from Ukraine and imposed a ban on the country’s agricultural goods from Jan. 1.

Deutsche Asset Management, which had about 750 billion euros ($815 billion) under management as of September, invested in Ukraine before 2008 in retail, banking and real estate, but eliminated its investment exposure over time.

That has proven prescient as the UX index fell 34 percent in 2015, the worst performance among major indexes worldwide, according to data compiled by Bloomberg. PFTS, another local index, has fallen by 50 percent since a peak in July 2014. The UX slid 0.3 percent by 10:46 a.m. in Kiev, while the hryvnia weakened 2.7 percent to 23.9845 per dollar, according to data compiled by Bloomberg.

Legal System

Ukrainian stocks had seen better days. More than 20 Ukrainian companies held IPOs in Warsaw, Frankfurt or London, raising more than $2 billion between 2006 and 2011, according to a PricewaterhouseCoopers report.

Astarta Holding NV, a farming company whose 2006 IPO was among the first in that period, has been affected by the political situation. In 2014, the year when thousands were killed in the armed conflict with Russia-backed separatists, Astarta shares fell 70 percent in Warsaw.

“The market is waiting for reforms and nothing else,” said Oleg Tkachenko, the head of the stock exchange. “In 2015, expectations were not realized.”

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