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State to bail out three banks; Government meets IMF budget deficit target; Government to inject capital in Naftogaz Ukraine; New car sales slump 73 percent in January-May; May industrial output down 31.8 percent.

State to bail out three banks

The government approved a decision to nationalize Ukrgazbank (#17 by assets worth $1.6 billion as of end-March), Rodovid Bank (#20; $1.4 billion) and Kyiv Bank (#40; $0.6 billion). Prime Minister Yulia Tymoshenko said the government would invest Hr 3.2 billion ($420 million) in Ukrgazbank in exchange for an 84.21 percent stake, Hr 2.809 billion ($369 million) in Rodovid Bank, making it 99.97 percent state-owned and Hr 3.63 billion ($468 million) in Kyiv Bank, in exchange for a 99.93 percent stake. She added all the three banks would be auctioned off once their financial situation improves and business returns to normal. The three banks are expected to receive capital injections in the form of domestic Treasuries to be issued by the government shortly. The Treasuries will then either be sold to the National Bank of Ukraine or put up as collateral for refinancing loans. In related news, a National Bank representative confirmed Ukrgazbank was put into receivership, which is a precondition for its recapitalization with government funds. Rodovid Bank and Kyiv Bank have been in NBU receivership since March and February, respectively.


Government meets IMF budget deficit target

Ukraine’s deficit stood at Hr 17 billion in January-May, below the maximum allowed level of Hr 22.5 billion set by the International Monetary Fund, acting Finance Minister Ihor Umansky said. The figure includes deficits of the consolidated state budget, the Pension Fund and oil and gas company Naftogaz Ukraine. Most of the deficit was generated by the Pension Fund and Naftogaz, according to estimates. The news signals that Ukraine has met the last of performance criteria that the IMF will monitor during its mission’s next visit to Kyiv later this month. Other criteria concern money stock and central bank reserves. To qualify for the disbursement of the next loan tranche of $3.2 billion (on top of $2.8 billion received in May and $4.5 billion in November 2008), Ukraine’s government still needs to complete an independent review of the National Bank’s refinancing and foreign exchange interventions, and implement changes to banking legislation, in particular laws that ensure the disclosure of ultimate bank owners and strengthen NBU’s independence.


Government to inject capital in Naftogaz Ukraine

The government approved a preliminary decision to boost the share capital of state oil and gas monopoly Naftogaz Ukraine by Hr 18.6 billion to help the company service its debts and accumulate additional gas in storage facilities ahead of the upcoming heating season. The government earlier allowed domestic industrial consumers to buy gas from Naftogaz at a fixed price range of $250-$265 per thousand cubic meters throughout the year so as not to expose them to quarterly price fluctuations. However, the price which Naftogaz pays Russia’s Gazprom for imported gas is recalculated every quarter in accordance with an oil price-linked formula (for example, Gazprom charged Naftogaz $360/tcm in January-March and is charging $271/tcm in April-June). Naftogaz has so far covered the difference between the price for industrial consumers the price paid to Gazprom by short-term loans provided by state-owned banks. However, according to NBU Governor Volodymyr Stelmakh, Naftogaz’s ability to repay these loans on time is limited and the company requires additional capitalization and restructuring of its debts.


New car sales slump 73 percent in January-May

Sales of new cars in Ukraine were flat month-on-month in May at 12,700 vehicles (down 75 percent year-on-year), bringing January-May sales to 71,200 cars (down 73 percent year-on-year). With bank lending in Ukraine is virtually frozen and household incomes declining, industry experts do not expect any improvement in new car sales dynamics for the rest of 2009, with full-year sales estimated at 140,000 cars.


May industrial output down 31.8 percent

Ukraine’s industrial output rose by 1.3 percent month-on-month in May, but the annual decline in industrial production reached 31.8 percent. Major industries showed mixed results over the period. Metallurgical and non-energy mining enterprises increased their output by 7.2 percent and 7.8 percent month-on-month, respectively, while production of chemicals and machinery dropped by 6.5 percent and 3.1 percent. Yet, the overall industrial performance in May was generally in line with the April production figures and expectations. The full-year forecast of industrial dynamics remains at minus 17.5 percent.