Weekly Review of Financial Markets Week # 15

Ukraine: Weekly review of financial markets Week # 15: 11th – 17th April 2005 Ukrainian economy meets the spring with accelerating growth of GDP – real Macroeconomics GDP in March grew 5.2% Y/Y after growth of 4.5%Y/Y in February Ukraine GDP index, % Denominated in US$ Ukraine GDP in March posted a new record gain – it 15 GDP Index (1990 = 100), right scale 100 increased by 32.7% Y/Y thanks to hryvnia appreciation versus US$ against a background of double-digit inflation GDP growth, % Y/Y 10 90 Unemployment rate was unchanged in March at the highest level in 2005 – 3.6% 5 80

01/04/05 01/03/05 Change In 2005 0 NBU reserves, $ mln 11952.6 10 944.3 1008.3 2427.7 70 M3, bn. UAH 140.123 130.942 9.181 14.322 -5 M0, bn. UAH 43.063 41.779 1.284 0.718 60 Balances at banks' -10 correspondent 50 accounts, bn UAH 13.969 9.674 4.295 5.951 -15

-20 40

-25 30 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 eb-05 Jan-05 F Mar-05

Hryvnia official exchange rate versus US$ heading to specified in budget Financial markets average annual rate – US Dollar lost almost 2 kop against hryvnia last week. Hryvnia official exchange rate Even more impressive was its Monday (18 April) slump (-2.1 kop) USDUAH 5.33 EURUAH, right scale Interbank overnight credits became a bit more expensive last week. We do 7.2 not see any room for further decline of rates as well as prerequisites for their 5.32 noticeable increase… Ukrainian stock market outperformed the Russian one again as quotations of 5.31 7 all stocks included in PFTS index basket rose 5.3 2 Average housing price in Kiev confidently makes its way to $1000/m , to be 6.8 reached in May on out assumption 5.29 15/04/05 08/04/05 Change 5.28 6.6 NBU re-financing rate 9.0% 9.0% - “Overnight rate”, NBU 12.0/15.0% 12.0/15.0% - 5.27 USDUAH (NBU) 5.2560 5.2747 -19 points KIEBID / OR, % 0.15/1.15 0.14/1.06 +0.01/+0.09 6.4 5.26 PFTS 298.54 285.69 +4.50% 5.25 6.2 l 04 y 04 v 04 c 04 g 04 p 04 b 04 b 05 n 04 n 04 n 05 u e e e Ju Apr 04 Apr 05 Oct 04 Ja Ju Ja F Mar 04 F Mar 05 A S No De Ma

Demand for OVDP resumed after switching to weekly held auctions – Ministry Bond market of Finance placed 994-days OVDPs for UAH720.28 mln and 4-years OVDPs VAT bonds' effective yield for UAH72.083 mln Series 1, ask 29% VAT bonds' spread has narrowed to 1.5% as bid yield moved lower to 5.68% Series 1, bid 27% Series 2, ask Ukraine 10Y Eurobonds yield spread widened 20 b.p. due to strong demand 25% Series 2, bid for US Treasuries 23% 15/04/05 08/04/05 Change 21% UA Eurobond, % 6.597% 6.552% +45 b.p. 19% 2013 spread 227.8 206.8 +21 b.p. 17% OVDP-16206, yield ask 4.01% 4.01% 0 b.p. 15% OVDP-20406, yield ask 4.01% 4.01% 0 b.p. 13% 11%

9% 7% 5% JSCB “Ukrsotsbank” 3% Financial Instruments Department 4 eb 05 Jul 04 Apr 05 Apr 04 Oct 0 Jan 05 Jun 04 F Mar 05

Tel/fax. +38 044 230 32 31 Aug 04 Sep 04 Nov 04 Dec 04 May 04 www.usb.com.ua 1 / 7  Financial Instruments Department

MACROECONOMICS Ukraine GDP index Ukrainian economy meets the spring with accelerating growth of 15 GDP Index (1990 = 100), right 100 GDP – real GDP in March grew 5.2% Y/Y after growth of 4.5%Y/Y scale in February, although it growth pace slowed comparing to that in GDP growth, % Y/Y January (+6.5%). 10 90 Nominal GDP in March totalled UAH29.292 bn ($5.54 bn) and 5 80 UAH79.356 bn in 1Q2005 (UAH64.115 bn a year earlier). st 0 Real GDP in 1 quarter grew 5.4% Y/Y while nominal grew 23.8% 70 Y/Y. -5 60 -10

50 -15

-20 40

-25 30 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 eb-05 Jan-05 F Mar-05 Source: State statistic committee. Calculations: JSCB "Ukrsotsbank"

Denominated in US$ Ukraine GDP, mln Denominated in US$ Ukraine GDP in March posted a new record 70 000 40% gain – GDP increased by 32.7% Y/Y due to hryvnia appreciation Change of GDP (US$), % Y/Y, right scale versus US$ against a background of double-digit inflation.

65 000 GDP (US$), 12 months 30%

60 000 20%

55 000 10% 50 000 0% 45 000 -10% 40 000

-20% 35 000

30 000 -30%

25 000 -40% 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: State statistic committee, Calculations: JSCB "Ukrsotsbank"

Unemployment rate, % Unemployment rate, likely reached its maximum in current year 4.2 – as a rule, unemployment peaks in March. Unemployment rate was unchanged in March 2005 at 3.6%. We expect the rate to decline to 3-3.1%% by October. 4 The number of unemployed reduced in March by 600 to 1.019 mln persons as demand for labour noticeably increased – by 21.8 3.8 thousands to 188.9 thousands. At the same time 92.8 thousands of people were employed in 3.6 February by State unemployment office.

3.4

3.2

3 3 4 03 04 0 0 - - - - r-03 r-04 r-05 v v a a a ep-03 ep-04 an-03 an-04 an-05 Jul-03 Jul-04 J J J M M M S No S No May May Source: State statistic committee

#15_05 UA_weekly 11’April’2005 – 17’April’2005 Financial Instruments Department

FINANCIAL MARKETS

Hryvnia official exchange rate Hryvnia official exchange rate versus US$ heading to specified in budget average annual rate – US Dollar lost 5.34 USDUAH almost 2 kop against hryvnia last week. 5.33 EURUAH, right scale 7.2 Hryvnia fluctuated within a range of 8 kop around 6.79 against 5.32 euro. Week result – minus 8 kop for EUR1. 5.31 7 On our opinion an additional pressure on exchange rates is 5.3 made by weekly held auctions for OVDP because main buyers of OVDP are non-residents who have to buy hryvnia 5.29 6.8 to pay for bonds. 5.28

5.27 6.6

5.26

5.25 6.4

5.24

5.23 6.2 5 4 04 04 05 04 05 04 04 04 t 04 r 0 r 0 r 05 r 04 Jul 04 Oc Ap Ap Jun Jan Jan Ma Ma Feb Feb Aug Sep Nov 04 Dec 04 May Source: NBU

Interbank overnight credit rates, % Interbank overnight credits became a bit more expensive. 16 KIEBID Since the rates stay at minimal levels ever seen in Ukraine, we do not see any room for further decline of the rates as KIEBOR 14 well as prerequisites for their noticeable increase Bid rates increased by 1 b.p. to 0.15% and offer rates – to 12 1.15%. 10

0 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1. 1. 1. 1. 1. 2. 2. 2. 2. 3. 3. 3. 3. 4. 4. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ...... 03 10 17 24 31 07 14 21 28 07 14 21 28 04 11 Source: Reuters

Quotations of shares included in PFTS Index basket Quotations of all shares included into PFTS Index basket rose (except GLNG) last week. Centrenergo (CEEN, +11.61%), Ukrtelecom (UTEL, Price, $ % change % change +8.75%) and Stirol (+8.2%) have posted the biggest gain among Issuer Code 01/04/05 in 2005 Last week "blue chips". PFTS Index 298.54 15.71% 5.33% Price of shares of Donbasenergo (DOEN, +0.36%) in hryvnia Zaporizhstal ZPST 1.11 8.59% 6.34% were unchanged but price denominated in US$ increased due to considerable hryvnia appreciation. Ukrnafta UNAF 28.35 18.28% 2.78% Stirol STIR 15.70 14.02% 8.20% NPRW NITR 4.66 110.34% 6.86% Ukrtetecom UTEL 0.14 3.78% 8.75% Zakhidenergo ZAEN 27.68 9.93% 3.92% Centrenergo CEEN 0.88 9.18% 11.61% Dniproenergo DNEN 65.16 13.24% 3.37% Kyivenergo KIEN 1.56 40.09% 2.87% Donbasenergo DOEN 4.19 18.59% 0.36% Galnaftogaz (for 1000) GLNG 8.30 -5.90% 0.00% Source: PFTS

#15_05 UA_weekly 11’April’2005 – 17’April’2005 Financial Instruments Department

PFTS Index vs. RTS Index (31-Dec-04 = 100) Ukrainian stock market outperformed the Russian one (RTS

135 Index) – PFTS Index rose 5.33%. PFTS Index (in US$) Black clouds named Tax administration pressures Russian 130 RTS Index stock market down – huge sum of tax penalties demanded from Anglo-Russian TNK-BP born fears that company may follow 125 Yukos.

120

115

110

105

100

90 5 5 5 0 0 0 05 05 05 05 r 05 r 05 r 05 r 05 r r r c 04 a a a a e an an an an Ap Ap Ap J J J J 7 4 1 8 01 08 15 0 1 2 2 04 Feb 05 11 Feb 05 18 Feb 05 25 Feb 05 04 M 11 M 18 M 25 M 31 D Sources: PFTS, RTS. Calculations: JSCB "Ukrsotsbank"

House price index in Kyiv, $/m2 Average housing price in Kiev confidently makes its way to $1000/m2, to be reached in May, on out assumption.

House price index in Kyiv

Week 18 April – 24 April 983.32$/m Change from previous week +0.98% In March 948.50$/m Change from February 2005 +4.79%

http://www.domik.net/mod/main/indexes/?pg=value&period=1y

House price expectations index in Kyiv, % House price expectations index declined by paltry 0.01% last week.

House price expectations index

Week 18 April – 24 April +0.96% Change from previous week -0.01% In March +4.31% http://www.domik.net/mod/main/indexes/?period=1y&pg=wait Change from February 2005 -1.13%

#15_05 UA_weekly 11’April’2005 – 17’April’2005 Financial Instruments Department

BOND MARKET

Quotations of Ukrainian 10Y Eurobonds Ukraine 10Y Eurobonds' yield spread has widened last week 21 b.p. due to strong demand for USTs. It is 10 450 Yield spread, right scale Yield, % widely expected that Fed will raise rate to 4% by the end 9.5 of 2005. 400 The Ukrainian bonds yield slightly grew – by just 5 b.p. 9

8.5 350

8 300 7.5

7 250

6.5 200 6

5.5 150 4 4 0 0 04 05 04 l r r v p 04 n 04 n 05 y e a a Ju J Ma J Ma S No Ma Source: Reuters. Calculations: JSCB "Ukrsotsbank"

Ukrainian corporate Eurobond’s yield, % Strong demand for Ukrainian debts is intact – "KyivStar GSM" made the third issue of Eurobonds – 11 it sold 7Y Euronotes with 7.75% interest coupons for UkrSibbank 11.5% , $175 mln. At that the company had over $1 bn in the 10 2007 order book for these bonds. The yield of all corporate Eurobonds lowered but Naftogaz 9 PrivatBank 10.875% , 2006 (+4 b.p.) and Ukreximbank (+8 b.p.).

% KyivStar GSM Naftogaz 8.125% , Eurobonds of PrivatBank are the most volatile Ukrainian

8 d, Ukraine el i 10.375% , 2009 2009

Y external debt papers – the yield of these bonds reduced Киев 8.625% , 2011 7.65% , 2013 by 141 b.p. last week. 7

Kiev 8.75% , 2008 Ukrex imbank 6 7.75% , 2009 Ukraine 6.875% , 2011 5

4 1234Duration, years 567

Source: Reuters. Calculations: JSCB "Ukrsotsbank"

Effective yield of VAT-bonds, % Demand for OVDP resumed after switching to weekly Series 1, ask held auctions – Ministry of Finance placed 994-days 29% Series 1, bid OVDPs yielded 6.29% for UAH720.28 mln and 4-years 27% Series 2, ask OVDPs yield 6.45% for UAH72.083 mln. Series 2, bid 25% VAT bonds' spread has narrowed to 1.5% as bid yield 23% moved lower to 5.68%. Offer yield of Series I on 21% Wednesday trade session dipped below 4% but retreated back up on Thursday. 19% 17% Ministry of Finance will offer OVDP on next auction today (Tuesday, 19th of April). We expect yield to 15% decline to 6--6.1% because short-term (1.5Y and 2Y) 13% bonds will be offered. 11% 9% 7% 5% 3% 5 4 4 4 4 4 5 4 4 05 04 0 0 0 0 0 0 r r l v c ug 0 ep 0 eb 0 un 04 an 05 Ju Ap Ap J Oct J Mar A S No De F May Source: PFTS. Calculations: JSCB "Ukrsotsbank" #15_05 UA_weekly 11’April’2005 – 17’April’2005 Financial Instruments Department

Volumes of bonds traded on PFTS, mln. UAH Volumes of bonds traded on PFTS by name from 11 April 2005 to 15 April 2005 200 Corporate Municipal OVDP 180 Ticker Issuer Volume, UAH. 20909 Ministry of Finance 102 752 994.80 160 OPCBE ProCredit Bank (E series) 22 376 400.00 140 OMTLA2 Metalen (2A series) 16 471 200.00 120 OAZTA Azot (A series) 12 353 210.00 100 20406 Ministry of Finance 5 474 270.80 OUKPA Ukrainska Patoka (A series) 4 989 208.25 80 OMKSA MKS (A series) 4 309 926.50 60 16206 Ministry of Finance 2 907 800.00 40 ONKTA Novitni kraxmalni texnologii (A 498 834.00 20 series) 172 133 844.35 0 Source: PFTS 4 4 4 5 5 5 5 5 5 5 0 0 0 0 0 0 0 0 0 0 / / / / / / / / / / 12 12 12 01 01 02 02 03 03 04 01/ 15/ 29/ 12/ 26/ 09/ 23/ 09/ 23/ 06/ Source: PFTS

Corporate and municipal bonds: yield graph for 8 April 2005, % p.a.

25% Corporate bonds Bonds of banks Municipal bonds VAT bonds OVDP

20% Bank “Kyivska Rus”

15%

Energoatom (А)

Ukrtelecom Donetsk

Alfa Bank

10% Ukrtransgaz Bank "Dnestr" D, F Kiev

South-West Railways ProCredit Bank Chernomornaftogaz (D) 20909 20800 Series II 5%

Series I

0% Duration, days 0 200 400 600 800 1000 1200 1400

Sources: PFTS, NBU. Calculations: JSCB "Ukrsotsbank"

#15_05 UA_weekly 11’April’2005 – 17’April’2005 Financial Instruments Department

Ukraine economic performance was average for CIS Ukraine (+5.4%Y/Y) outperformed Russia (+3.93%Y/Y) and Kyrgyzstan (+3.7%Y/Y) by growth of GDP in Jan-Feb'05 among ten CIS countries that were investigated by the State statistic committee of Ukraine. Belarus was leading as its GDP grew in Jan-Feb 9.7%Y/Y. At the same time Ukraine has got the worth results in inflation that posted +13%Y/Y within first two months of current year – even worse than in restless Kyrgyzstan. Ukraine (+7.3%) has occupied the 4th place on industrial production giving place for Belarus (+11.6%), Georgia (+10.1%) and Kazakhstan (+7.6%). GDP and inflation growth in countries of CIS in January-February 2005, %

15 GDP growth, % Industrial production growth, % Inflation, %

0 s n n n e a a * * u a n ssi rain u sta yzsta R Belar g Uk erbaija kh Armeni Georgia * Tajikista Moldov za Az Kyr a

-5 K

-10

* - no data Source: State statistic committee JSCB “UKRSOTSBANK”: CONTACTS

Mailing address: Ukraine, 03150, Kyiv-150, Kovpaka Str., 29 Internet site: http://bonds.usb.com.ua Financial Instruments Department Tel. / fax: +38 (044) 230-32-31 Erik Naiman [email protected] Head of Department Olexandr Valchyshen [email protected] Head of Research Serhiy Shvets [email protected] Head of Fixed Income Research Oleg Gorban [email protected] Senior Economist Securities Trading Department Tel. / fax: +38 (044) 230-32-48 Olexandr Kovalenko [email protected] Head of Department Dmytro Zelenkov [email protected] Chief dealer

This analytical review and information herein are Ukrsotsbank’s exclusive property. Unauthorized copying, reproduction and distribution of this publication, partly or entirely, is prohibited.

The data in this publication was obtained from public sources, which are perceived by Ukrsotsbank to be reliable. However, we do not guarantee the accuracy of these data, which could be curtailed or incomplete. All views and assessments made herein are those of the authors only and reflect their views as of the date of publication and are subject to change without notification. Information in this review by no means is to be the only reason for making any decision on securities or companies, which were mentioned in this review. Ukrsotsbank, as a professional participant of Ukraine’s capital market, may have long or short positions in securities, which were mentioned in this review, or may have a financial interest in them. Ukrsotsbank does not bear responsibility on consequences of using the incomplete data or the views and statements expressed in the review. Additional information is available upon request.

#15_05 UA_weekly 11’April’2005 – 17’April’2005