Ukraine

SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S October 27, 2008

important your attention is drawn to the statement on the back cover of this report which affects your rights.
Analyst: Jenny Nordgren. Tel: +46 8 763 96 05. E-mail : jenny.nordgren@seb.se

Political chaos, rapidly growing macroeconomic imbalances and the recent sharp slowdown in the
economy risk triggering a currency crises and further financial instability. However, hopes are that
the planned IMF loan of USD 16.5 billion will restore confidence and economic and financial stability.

Country Risk Analysis

aÉÉéÉåáåÖ=éçäáíáÅ~ä=ÅêáëáëK=On Oclober 8, Iresidenl YusclenIo dissoIved lle
IarIiamenl and caIIed for nev eIeclions pIanned lo be leId on December 14 - lle
llird parIiamenlary eIeclion in as many years. Tle move foIIoved lle coIIapse of lle
former ruIing coaIilion on Seplember 3, 2008 resuIling from a vorsening spIil
belveen UIraine's lvo lop Ieaders, Iresidenl YuslclenIo and Irime Minisler YuIia
TymoslenIo, former Orange RevoIulion aIIies vlo lave become biller rivaIs vill
differing visions of lov UIraine slouId landIe reIalions vill Russia and Wesl.
TymoslenIo ÷ lle former fronl figure of lle Orange revoIulion ÷ las recenlIy lurned
lo lle Lasl as indicaled by ler neulraI slance on Russia in lle var vill Georgia. Tlis
las raised some issues concerning ler poIilicaI slance and ler posilioning alead of
lle upcoming presidenliaI eIeclion in earIy 2010. NeverlleIess, Russia is an
imporlanl slralegic parlner for UIraine, especiaIIy in viev of lle forllcoming
negolialions of nexl year's gas prices, and ler lurnaround couId probabIy parlIy be
expIained by
economic
consideralions.
Currenl poIilicaI
claos risI
compIicaling and
deIaying lle
recenlIy announced
IMI-program
incIuding a USD
16.5 biIIion Ioan
since il requires
impIemenlalion of a
comprelensive
poIicy pacIage,
incIuding lle
adoplion of emergency IegisIalion supporling lle banIing syslem.
Industrial Production
Source: Reuters EcoWin
Jan Apr Jul Oct Jan Apr Jul
07 08
I
n
d
e
x
80
85
90
95
100
105
110
115
120
Overall
Basic Metals and
Fabricated Metal Products

mäìããÉíáåÖ=ÉÅçåçãáÅ=~Åíáîáíó. Afler many years of slrong performance supporled
by slrong domeslic demand and ligl exporl prices, economic aclivily is nov in a
sleep decIine, driven in parl by slarp faII in gIobaI sleeI prices lurling lle melaI
SEB Merchant Banking Country Risk Analysis October 27, 2008
seclor accounling for 40 ° of lolaI exporls and 6 ° of GDI. Tle infIalion remains
ligl al more llan 20 °, aIbeil dovn from ils peaI al 31 ° in May llis year.
=
pìÄëí~åíá~ä=~åÇ=ÖêçïáåÖ=ã~ÅêçÉÅçåçãáÅ=áãÄ~ä~åÅÉë. Tle currenl accounl deficil
las conlinued lo viden due lo very slrong domeslic demand grovll and, more
recenlIy, lle eroding compeliliveness of UIraine's manufacluring induslry. Tle
exlernaI lrade deficil videned slarpIy during lle firsl laIf of llis year lo USD 8.7
biIIion compared lo USD 3.4 biIIion during lle same period Iasl year indicaling a
significanl videning of Iasl year's currenl accounl deficil of 4.2 ° of GDI lo around
7 ° llis year. Slrong capilaI infIovs, especiaIIy IDI bul aIso slepped up privale
seclor borroving, lave more llan fuIIy covered lle deficil aIIoving a buiId-up of
inlernalionaI reserves lo USD 38 biIIion in Augusl from USD 32 biIIion end of 2007.
Since Augusl, capilaI infIovs lave sIoved bringing lle reserves dovn lo USD 34
biIIion in Oclober.

mêÉëëáåÖ=ÉñíÉêå~ä=Ñáå~åÅáåÖ=ëíêÉëëÉë=åÉÉÇ=Ñçê=~å=fjcJäç~å. GeneraI governmenl
debl (domeslic and exlernaI) lo GDI remains Iov al 10 ° of GDI end-2007.
Hovever, ligler privale seclor borroving from abroad increased gross exlernaI debl
lo USD 100 biIIion mid-2008 from USD 30 biIIion end-2004, incIuding a slarp rise in
foreign borroving by banIs lo USD 38 biIIion from USD 1 biIIion IargeIy due lo
financing by foreign parenls (see grapl on page 4). Tlis Ieaves lle economy
increasingIy vuInerabIe lo baIance-of-paymenl risIs and delerioraling gIobaI
Iiquidily condilions. In viev of llis, lle recenlIy agreed IMI-program supporled by
a USD 16.5 biIIion Ioan under a 24-monll Sland-By Arrangemenl vouId leIp ease
lle pressing exlernaI financing needs and couId leIp reslore economic and financiaI
slabiIily. Hovever,
lle Ioan vouId onIy
come if UIraine's
parIiamenl approves
a pacIage of
emergency
IegisIalion aimed al
supporling
confidence and
Iiquidily.

mêÉëëìêÉ=çå=íÜÉ=
ÉñÅÜ~åÖÉ=ê~íÉ=äáâÉäó=
íç=Åçåíáåìe. Tle
CenlraI BanI, vlicl
Iepl lle exclange
rale of lle lryvnia
IillIe clanged
againsl lle doIIar
llrougloul 2007 and 2006, aIIoved il lo lrade more freeIy llis year. In May, lle
officiaI UAH/USD rale vas revaIued lo 4.85 from lle 5.05 IeveI prevaiIing since
ApriI 2005 and in Oclober lle officiaI rale vas devaIued lo 4.95 and fIuclualions
margins videned lo +/- 8 ° from lle previous 4 °. Hovever, lle exclange rale
deprecialed by 20 ° in Oclober forcing lle CenlraI BanI lo inlervene reporledIy
spending around USD 3 biIIion from ils foreign currency reserves. Dovnvard
pressure on lle exclange rale is IiIeIy lo persisl in viev of vorsening lerms-of lrade
and poor gIobaI financiaI condilions even if lle recenlIy announced IMI-Ioan couId
leIp avoid a currency crisis.
Exchange rate
Source: Reuters EcoWin
Jan
08
Mar May Jul Sep
U
S
D
/
U
A
H
4.50
4.75
5.00
5.25
5.50
5.75
6.00
Reference rate
4.95 +/- 8 %
2

SEB Merchant Banking Country Risk Analysis October 27, 2008

_~åâáåÖ=ëÉÅíçê=íìêÄìäÉåÅÉK=UIraine's banIing syslem experienced some deposil
villdravaIs foIIoving lle faiIure of lle counlry's sixll‐biggesl banI, Irominvesl,
amid a Iiquidily squeeze. Tle CenlraI BanI las announced severaI supporl measures
for lle banIing syslem, incIuding a ban on earIy villdravaI of lerm deposils and
exlra Iiquidily supporl from lle cenlraI banI. Tle banIing syslem is liglIy
doIIarised vill 51 ° of Ioans denominaled in foreign currency. If approved soon, lle
IMI-pacIage vouId go a Iong vay in prevenling a meIldovn of lle banIing syslem.
NeverlleIess, in viev of lle Iarge unledged foreign exclange borroving, especiaIIy
by louseloIds, a slarp dovnvard correclion of lle exclange rale vouId lave cIear
negalive impacl on assel quaIily in lle banIing syslem. Tlal couId risI insoIvency of
veaIer banIs.

- ´ -
qÜÉ=râê~áåá~å=ÉÅçåçãó=áë=ëìÑÑÉêáåÖ=Ñêçã=ä~êÖÉ=ã~ÅêçÉÅçåçãáÅ=áãÄ~ä~åÅÉëI=
áåÅäìÇáåÖ=ÜáÖÜ=áåÑä~íáçåI=~=ïáÇÉåáåÖ=ÅìêêÉåí=~ÅÅçìåí=ÇÉÑáÅáí=~åÇ=ÜáÖÜÉê=ÉñíÉêå~ä=
Ñáå~åÅáåÖ=åÉÉÇëK=fí=áë=åçï=ëäçïáåÖ=~Äêìéíäó=ÇìÉ=íç=ëÜ~êéäó=Ñ~ääáåÖ=ëíÉÉä=éêáÅÉë=
ÜìêíáåÖ=íÜÉ=ä~êÖÉëí=Éñéçêí=ëÉÅíçêK=qÜÉ=ÅçãÄáå~íáçå=çÑ=ÖäçÄ~ä=Ñáå~åÅá~ä=ã~êâÉí=
íìêãçáäI=ïçêëÉåáåÖ=ã~ÅêçÉÅçåçãáÅ=ÑìåÇ~ãÉåí~äë=~åÇ=éçäáíáÅ~ä=ìåÅÉêí~áåíó=Ü~îÉ=
êÉëìäíÉÇ=áå=ÇÉéçëáí=ïáíÜÇê~ï~äI=ÜáÖÜÉê=ÇçãÉëíáÅ=ãçåÉó=ã~êâÉí=ê~íÉë=~åÇ=Ççïåï~êÇ=
éêÉëëìêÉ=çå=íÜÉ=ÉñÅÜ~åÖÉ=ê~íÉ=ÜìêíáåÖ=íÜÉ=~äêÉ~Çó=ïÉ~â=Ä~åâáåÖ=ëÉÅíçêK=râê~áåÉÛë=
áåÅêÉ~ëáåÖ=êÉäá~åÅÉ=çå=ÉñíÉêå~ä=Ñáå~åÅÉ=ã~âÉë=áí=é~êíáÅìä~êäó=îìäåÉê~ÄäÉ=íç=íÜÉ=
ÅìêêÉåí=ÖäçÄ~ä=ÉÅçåçãáÅ=~åÇ=ÅêÉÇáí=ëáíì~íáçåK=qÜáë=Ü~ë=íêáÖÖÉêÉÇ=ëÉîÉê~ä=ÇçïåÖê~ÇÉë=
Äó=íÜÉ=ê~íáåÖ=~ÖÉåÅáÉëK==râê~áåÉ=Ü~ë=~ëâÉÇ=Ñçê=Ñáå~åÅá~ä=~ëëáëí~åÅÉ=Ñêçã=íÜÉ=fjcK=qÜÉ=
êÉÅÉåíäó=~ååçìåÅÉÇ=fjcJéêçÖê~ã=áåÅäìÇáåÖ=~=rpa=NSKR=Äáääáçå=äç~å=ÅçìäÇ=ÜÉäé=
êÉëíçêÉ=ÉÅçåçãáÅ=~åÇ=Ñáå~åÅá~ä=ëí~ÄáäáíóK=eçïÉîÉêI=íÜ~í=ÇÉéÉåÇë=çå=íÜÉ=râê~áåá~å=
é~êäá~ãÉåí=~ÇçéíáåÖ=ÉãÉêÖÉåÅó=äÉÖáëä~íáçå=íç=ëìééçêí=íÜÉ=Ä~åâáåÖ=ëóëíÉãI=
Ä~ä~åÅáåÖ=íÜÉ=ÄìÇÖÉí=~åÇ=~ÇÇêÉëë=íÜÉ=ÅìêêÉåíJ~ÅÅçìåí=ÇÉÑáÅáí=éêçÄäÉã=~ë=êÉèìáêÉÇ=Äó=
íÜÉ=fjcK==
=

Key ratios 2008
Population 45.9
GDP/capita ($) 4592
GDP (change) 6%
Inflation 25%
Curr.Acc. baIance/GDI -7.1%
Reserves/imports (months) 3.7
Budget balance/GDP -1.6%
Government debt/GDP 13%
25%
Graph: Ukraine shows no particular strengths but is
generally weaker than the average emerging market
country as illustrated by the red solid line falling
uniformly inside the blue broken one.
bñíÉêå~ä=ê~íáåÖëW=
Iilcl: B+/negalive
Moody's: B1, slabIe
S&I: B/negalive
mÉÉêëW
BraziI
IliIippines
TurIey
0
2
4
6
8
10
12
Resilience
Liquidity
Information
Absence of event
risk
Macro balance
Ukraine Average EM Russia
How to read the chart?
Moving out from the center
reduces risk.



3

SEB Merchant Banking Country Risk Analysis October 27, 2008
Key data: 2003 2004 2005 2006 2007 2008 2009 2010
GDP (bill.US$) 50.1 64.9 86.1 107.8 141.2 189.6 209.0 238.1
GDP/capita (US$) 1052 1372 1836 2314 3055 4134 4592 5270
GDP (real change) 9.6% 12.1% 2.5% 7.9% 7.7% 6.2% 2.5% 4.5%
Investments/GDP 20.6% 22.1% 22.4% 24.7% 28.6% 29.7% 30.2% 30.8%
Budget balance/GDP -0.2% -3.2% -1.8% -0.7% -0.9% -1.6% -2.4% -2.0%
Govt debt/GDP 25.4% 24.7% 17.7% 13.6% 12.4% 12.7% 15.8% 18.4%
CPI inflation (%) 5.2% 9.0% 13.5% 9.1% 12.8% 25.2% 14.0% 9.0%
Money demand (%) 42.4% 23.3% 40.2% 25.0% 37.8% 10.4% 3.8% 4.9%
Stock prices (%change) 60 139 321 413 932 740
Interest rates 7% 9% 10% 9% 8% 13% 12% 11%
Exch. Rate ($) 5.3 5.3 5.1 5.1 5.1 5.0 5.3 5.3
Trade/GDP (%) 113% 115% 102% 96% 96% 99% 103% 100%
Oil price (Brent $) 29 38 54 65 73 103 65 65
Billions US $
Export of goods 29.0 39.7 44.3 50.2 64.0 86.7 99.8 110.9
Imports of goods 27.7 34.8 43.6 53.3 71.9 101.5 115.5 126.6
Other: 1.6 2.0 1.8 1.5 2.0 1.3 -3.9 -5.4
Current account 2.9 6.9 2.5 -1.6 -5.9 -13.5 -19.6 -21.1
(% of GDP) 5.8% 10.6% 2.9% -1.5% -4.2% -7.1% -9.4% -8.9%
FDI 1.4 1.7 7.5 5.7 9.2 12.4 10.1 11.6
Loan repayments -2.9 -3.2 -4.3 -5.7 -7.8 -9.6 -12.5 -17.1
Net other capital flows 1.1 -2.6 3.8 4.4 14.5 15.1 29.4 33.0
Balance of payments 2.5 2.8 9.5 2.9 9.9 4.3 7.5 6.3
Reserves 6.7 9.5 19.0 21.8 31.8 36.1 43.5 49.8
Total debt 24.0 30.2 33.3 49.9 77.3 102.2 126.0 147.5
o/w short term debt 9.0 10.4 12.1 15.4 23.8 31.5 38.8 45.4
Sources: Oxford Economic forecasting and SEB estimates
Rating history
Fitch (eoy) B+ B+ BB- BB- BB-
Moody's (eoy) B1 B1 B1 B1 B1
S&P (eoy) B B+ BB- BB- BB-
Type of government: Parliamentary democracy
Next elections Snap elections likely Dec 14 2008. Presidential elections Jan. 2010
Other:
Latest PC deal 2001/active
Latest IMF arrangements 2004/SBY
S o u r c e : R e u t e r s E c o W i n
0 2 0 3 0 4 0 5 0 6 0 7 0 8
P
e
r
c
e
n
t
- 5
0
5
1 0
1 5
2 0
2 5
3 0
P
e
r
c
e
n
t
5
1 0
1 5
2 0
2 5
3 0
3 5
4 0
4 5
5 0
W a g e s ( l h s )
C P I ( r h s )
S t o c k m a r k e t ( P F T S I n d e x )
S o u r c e : R e u te rs E c o W i n
0 2 0 3 0 4 0 5 0 6 0 7 0 8
I
n
d
e
x
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
7 0 0
8 0 0
9 0 0
1 0 0 0
1 1 0 0
1 2 0 0
1 3 0 0
I n t e r e s t r a t e s
P o l i c y R a t e s , D i s c o u n t R a t e ( R e f i n a n c i n g R a t e )
In t e r b a n k R a t e s , K IE IB O R , 3 M o n t h , F i x i n g
S o u r c e : R e u te r s E c o W i n
0 4 0 5 0 6 0 7 0 8
P
e
r
c
e
n
t
5 . 0
7 . 5
1 0 . 0
1 2 . 5
1 5 . 0
1 7 . 5
2 0 . 0
2 2 . 5
2 5 . 0
2 7 . 5
3 0 . 0
Gross external debt (USD billion)
0
20
40
60
80
100
2003 2004 2005 2006 2007 2008
General Government Banks Others sectors




4

SEB Merchant Banking Country Risk Analysis October 27, 2008

aáëÅä~áãÉê=

`çåÑáÇÉåíá~äáíó=kçíáÅÉ=

Tle informalion in llis documenl las been compiIed by SLB Merclanl BanIing, a
division villin SIandinavisIa LnsIiIda BanIen AB (pubI) (“SLB¨).

Opinions conlained in llis reporl represenl lle banI's presenl opinion onIy and are
subjecl lo clange villoul nolice. AII informalion conlained in llis reporl las been
compiIed in good faill from sources beIieved lo be reIiabIe. Hovever, no
represenlalion or varranly, expressed or impIied, is made vill respecl lo lle
compIeleness or accuracy of ils conlenls and lle informalion is nol lo be reIied upon
as aullorilalive. Anyone considering laIing aclions based upon lle conlenl of llis
documenl is urged lo base lis or ler inveslmenl decisions upon sucl invesligalions
as le or sle deems necessary. Tlis documenl is being provided as informalion onIy,
and no specific aclions are being soIiciled as a resuIl of il: lo lle exlenl permilled by
Iav, no IiabiIily vlalsoever is accepled for any direcl or consequenliaI Ioss arising
from use of llis documenl or ils conlenls.

SLB is a pubIic company incorporaled in SlocIloIm, Sveden, vill Iimiled IiabiIily. Il
is a parlicipanl al major Nordic and oller Luropean ReguIaled MarIels and
MuIliIaleraI Trading IaciIilies (as veII as some non-Luropean equivaIenl marIels)
for lrading in financiaI inslrumenls, sucl as marIels operaled by NASDAO OMX,
NYSL Luronexl, Iondon SlocI Lxclange, Deulscle B∏rse, Sviss Lxclanges,
Turquoise and Cli-X. SLB is aullorized and reguIaled by IinansinspeIlionen in
Sveden: il is aullorized and subjecl lo Iimiled reguIalion by lle IinanciaI Services
Aullorily for lle conducl of designaled inveslmenl business in lle UK, and is
subjecl lo lle provisions of reIevanl reguIalors in aII oller jurisdiclions vlere SLB
conducls operalions.

SLB Merclanl BanIing. AII riglls reserved.



5