: Weekly review of financial markets Week # 19: 16th – 22d May 2005 Regardless the decline of GDP growth rate foreign investors increase volumes Macroeconomics of direct investments into Ukrainian economy Foreign direct investments, bn. US$ The major share in trade balance surplus last year and in 1Q of the current 10 30% year is contributed by goods' trade that took the palm from services Foreign direct investments, $.bn. FDI growth rate, % Y/Y, right scale 28% Retail sales growth rate in the beginning of 2005 depreciated to +18.6% (Y/Y) 9 26% Ukraine hosted 50th anniversary 8 24%

22% 01/05/05 01/04/05 Change In 2005 7 NBU reserves, $ mln 20% 13 003.9 11 952.6 1 051.3 3 479 6 M3, bn. UAH 146 559 140 123 6 452 20 774 18% M0, bn. UAH 47 630 43 063 4 568 5 284 16% Balances at banks' 5 correspondent accounts, bn 14% UAH 11 898 13 969 -2 071 3 880 4 12%

3 10% 01 02 03 04 05 01 02 03 04 Jul Jul Jul Jul Jan Jan Jan Jan Jan

Official exchange rate of hryvnia against euro last week appreciated by 6.5 Financial markets kop ones again led by appreciation of hryvnia's anchorage – US Dollar, on Hryvnia official exchange rate Forex USDUAH EURUAH, right scale Interbank overnight credit rates grew a bit last week 5.3 7.2 Declining blue chips dreg PFTS index down 2.58% 5.25 House price's expectations index this year became less volatile than 7 previously – now the market droningly grows 5.2 6.8

5.15 20/05/05 13/05/05 Change 6.6 NBU re-financing rate 9.0% 9.0% - 5.1 “Overnight rate”, NBU 12.0/15.0% 12.0/15.0% - USDUAH (NBU) 5.0500 5.0500 - 6.4 KIEBID / OR, % 0.18/1.09 0.11/1.06 +0.07/+0.03 5.05 PFTS 305.44 313.53 -2.58% 5 6.2 l 04 y 04 y 05 v 04 p 04 n 04 n 05 e Ju Ja Ja Mar 04 Mar 05 S No Ma Ma

VAT-bonds' yield spread has narrowed last week as bid yield grew in spite of Bond market ask yield decline VAT bonds' effective yield

JPMorgan EMBI for Ukraine and Russia declined last week Series 1, ask 29% Series 1, bid 27% Series 2, ask 25% Series 2, bid 23%

21% 19% 17% 20/05/05 13/05/05 Change 15% JPMorgan Ukraine 205 208 -3 points 13% EMBI Russia 181 186 -5 points OVDP-16206, yield ask 5.39% 5.33% +6 b.p. 11% OVDP-20406, yield ask 4.62% 4.57% +5 b.p. 9% 7% 5% JSCB “Ukrsotsbank” 3% 4 4 5 4 5 04 05 r 0 y 0 y 0 Financial Instruments Department v 0 c 0 Jul 04 Apr Oct 04 Apr Jun 04 Jan 05 Ma Feb 05 No De Aug 04 Sep 04 Ma Tel/fax. +38 044 230 32 31 Ma www.usb.com.ua

1 / 8  Financial Instruments Department

MACROECONOMICS Foreign direct investments, bn. US$ Regardless the decline of GDP growth rate foreign investors 10 30% increase volumes of direct investments into Ukrainian economy – Foreign direct investments, $.bn. within 1 quarter of 2005 foreign direct investments (FDI) grew FDI growth rate, % Y/Y, right scale 28% 26.7% (Y/Y). 9 26% At the same time its not wonder taking into consideration remarkable 8 24% US$ denominated GDP performance (growth rate above 30%).

22% Overall volume of attracted FDI in current year increased by $235 mln 7 and reached $8797.4 mln or $186 per capita by the 1st of April. 20% 6 The largest portion of capital came from British Virgin Isles (BVI) - 18% $128.4 mln, USA - $31.5 mln, Cyprus - $25.7 mln, UK - $18.5 mln, 5 16% Hungary - $17.2 mln and Russia - $16.7 mln. 14% Since the lion's share of investments came from offshore zones like 4 BVI and Cyprus we presume that what we see is the return of 12% domestic capital withdrawn from Ukraine previously. It gives a positive 3 10% signal to foreign investors because it shows that business climate in 01 02 03 04 05 01 02 03 04 Ukraine is improving. Jul Jul Jul Jul Jan Jan Jan Jan Jan Source: State statistic committee, Calculations: JSCB "Ukrsotsbank"

Trade balance surplus, mln. US$ In Jan-Mar 2005 Ukraine trade surplus has diminished by 8.34% to $791.4 mln comparing to the first quarter of 2004 when it topped 8000 Services trade surplus, mln. US$ 120% Goods trade surplus, mln. US$ $863.4 mln. Share of services trade, % (right scale) 7000 The largest share of Ukrainian export structure hold transport 100% services (78.7%). Other business, professional and technical 6000 services give 8.9%of export and repair services – 5.1%. 8 . 80% In structure of import prevail state services – 25.2% and transport

5000 3299 services – 23%. Major contribution into external trade surplus last year was 4000 60% made by goods while before 2004 services prevailed. This

6 became possible due to growing demand for Ukrainian goods 3000 7 4847. (mainly metallurgy) abroad. 3 40% 6 3 2863. 2000 2396. 2859. 1 . 3676.

5 20% 6 1000 791 616. 489. 3 4 4 59. 980. 0 859. 0% 000 001 002 003 004 2 2 2 2 2 1Q-05 Source: State statistic committee. Forecast: JSCB "Ukrsotsbank"

Growth of real volumes of retail sales, % Reach social payments made during last 9 months did not bolstered retail sales. 30 Change, % Y/Y 100 Retail sales index (1990 = 100), right scale 3 On the contrary, growth rate of 12-month retail sales index in April 4 21.2 20. 20.0

19. 90

20 18.6 18.6 depreciated to +18.6% Y/Y while it was 24.3% Y/Y in April 2004. 15.0 13.7 80 We anticipate that in May retail sales will be supported by Eurovision

10 8.1 song contest and long-lasting May holidays. 70 0 0.2 60 1 . 6 1 . -5 .

-10 -6 -7 7 .

-9 50 6 13. 13.9 - -20 - 18.0

- 40

-30 30 0 35. - -40 20 5 05 05 05 0 ' ' r p 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 an' eb' A J Mar F an- an- an- J J J Source: State statistic committee. Calculations: JSCB "Ukrsotsbank"

#20_05 UA_weekly 16’May’2005 – 22’May’2005 Financial Instruments Department

FINANCIAL MARKETS

Hryvnia official exchange rate Official exchange rate of hryvnia against euro last week USDUAH appreciated by 6.5 kop ones again led by appreciation of EURUAH, right scale hryvnia's anchorage – US Dollar, on Forex. 5.3 7.2 Dollar appreciation supported by positive expectations of strong economic growth in USA and by increasing Fed Fund rate. 5.25 7 USDUAH last week was unchanged as it had been expected.

5.2 6.8

5.15

6.6 5.1

6.4 5.05

5 6.2 04 l 04 t y 04 y 05 v 04 c 04 b 04 g 04 p 04 b 05 n 04 n 04 n 05 e u e e Ju Apr 04 Apr 05 Oc Ja Ju Ja F Mar 04 F Mar 05 A S No De Ma Ma Source: NBU

Interbank overnight credit rates, % Interbank overnight credit rates slightly grew last week – 16 KIEBID bid rates by 7 b.p. and offer rates – by 3 b.p. KIEBOR This resulted in spread tightening to less than one percent 14 (0.91%).

12

10

8

6

4

2

0 05 05 05 05 05 05 05 05 05 05 05 05 05 05 05 05 05 05 05 05 1.20 1.20 1.20 1.20 1.20 2.20 2.20 2.20 2.20 3.20 3.20 3.20 3.20 4.20 4.20 4.20 4.20 5.20 5.20 5.20 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 3 0 7 4 1 7 4 1 8 7 4 1 8 4 1 8 5 2 9 6 0 1 1 2 3 0 1 2 2 0 1 2 2 0 1 1 2 0 0 1 Data: JSCB "Ukrsotsbank"

Quotations of shares of PFTS Index basket (plus GLNG) The only share that hasn't lost its value was NPRW (NITR) – Price, $ % change % change shares grew by symbolic 0.33%. Issuer Code 01/04/05 in 2005 Last week Dniproenergo (DNEN, -8.33%) and Zaporizhstal (ZPST, -4.12%) PFTS Index 305.44 17.42% -2.58% were the worse performers last week. Zaporizhstal ZPST 1.13 10.71% -4.12% Shares of Galnaftogaz (GLNG) dropped due to one deal Ukrnafta UNAF 31.77 31.39% -0.96% concluded in PFTS last week at a price out of spread. Hence we have reasons to refer to this deal as to out-of-market deal Stirol STIR 15.05 9.23% -3.80% (technical). NPRW NITR 6.34 178.56% 0.33% Ukrtelecom UTEL 0.14 6.45% -3.05% Zakhidenergo ZAEN 27.43 8.81% -1.42% Centrenergo CEEN 0.80 -0.23% -3.01% Dniproenergo DNEN 65.94 14.24% -8.33% Kyivenergo KIEN 1.63 45.06% -2.66% Donbasenergo DOEN 4.23 19.36% 0.00% Galnaftogaz (for 1000) GLNG 7.62 4.38% -13.92% Source: PFTS

#20_05 UA_weekly 16’May’2005 – 22’May’2005 Financial Instruments Department

PFTS Index vs. RTS Index (31-Dec-04 = 100) Declining blue chips dreg PFTS index down 2.58%. 135 PFTS index (in US$) Russian RTS index ended week up 1.03%.

130 RTS index

125

120

115

110

105

100

95

90 r 05 eb 05 an 05 Apr 05 J F Ma Dec 04 Sources: PFTS, RTS. Calculations: JSCB "Ukrsotsbank"

House price index in , $/m2 From the beginning of 2005 on the house price index is growing steadily by 1% every week.

House price index in Kyiv

Week 23 May – 29 May 1040.90$/м Change from previous week +1.05% In April 989.60$/м Change from March 2005 +4.33%

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

House price expectations index in Kyiv, % House prices expectations index this year became less volatile than previously. Now the market has calmed down and expected to grow droningly.

House price expectation index

Week 23 May – 29 May +1.07% Change since previous week -0.03% In April +4.94% Change from March 2005 +0.63%

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

#20_05 UA_weekly 16’May’2005 – 22’May’2005 Financial Instruments Department

BOND MARKET

JPMorgan EMBI for Ukraine and Russia JPMorgan EMBI indexes for Ukraine and Russia have 250 declined last week to show investors' improved attitude to JPMorgan EMBI+ Ukrainian spread emerging bond markets. 240 JPMorgan EMBI+ Russian spread But as much as Russian index declined a bit further than 230 Ukrainian one, spread between them has widened by 2 points. 220

210

200

190

180

170

160

150 05 b 05 b 05 e e Apr 05 Apr 05 Jan 05 Jan 05 Jan 05 Mar 05 Mar 05 F F 11 25 03 17 31 14 28 14 28 09 May Source: JSCB "Ukrsotsbank"

Effective yield of VAT-bonds, % VAT-bonds' yield spread has narrowed last week as Series 1, ask bid yield grew in spite of ask yield decline. 29% Series 1, bid Bid yield of VAT bonds (series I) declined by ¾% to 27% Series 2, ask 6.28% while offer yield grew by 6 b.p. Series 2, bid 25% In the whole market still stable. 23% It is possibly that in fall Ministry of Finance will be 21% forced to go on market with new borrowings because 19% privatization plans may be undone. And as it happens we expect hryvnia to appreciate with the target of 17% UAH4.8 for US$1. Thus currency premium equal to 15% about 5% may still be obtained this year.

13%

11%

9%

7%

5%

3% 4 eb 05 Jul 04 Apr 04 Apr 05 Oct 0 Jun 04 Jan 05 F Mar 05 Aug 04 Sep 04 Nov 04 Dec 04 May 04 May 05 Source: PFTS. Calculations: JSCB "Ukrsotsbank"

#20_05 UA_weekly 16’May’2005 – 22’May’2005 Financial Instruments Department

Volumes of bonds traded on PFTS, mln. UAH Volumes of bonds traded on PFTS by name from 16th of May 2005 to 20th of May 2005 200 Corporate bonds Municipal bonds OVDP 180 Ticker Issuer Volume, UAH. 160 20909 Ministry of Finance 48 220 000.00 OKYIV Kiev 30 202 702.30 140 OMTLA2 Metalen 21 183 490.00 120 OKINA Konti-Invest 10 237 650.00 100 16206 Ministry of Finance 6 322 000.00 80 20406 Ministry of Finance 5 890 000.00 60 OAVKB2 АVК 5 185 000.00 OZAZC ZAZ 5 138 650.00 40 OBIZA Biznes 2 099 507.30 20 OSLFA Sunoil-finance 1 045 410.00 0 OSNDC Sindikat 1 040 081.85 5 5 5 5 0 0 05 05 04 04 04 05 05 0 0 r r r r OZAZA ZAZ 1 007 600.00 c c c y y b b p p a a e e e a a e e A A Jan 05 Jan 05 F F M M D D D ODZBF Darnitsa Zbk Plant 300 000.00 M M 2 6 06 20 1 2 09 23 09 23 01 15 29 04 18 137 872 091.45 Source: PFTS Source: PFTS

Corporate and municipal bonds: yield graph for 13 May 2005, %

25% Corporate bonds

Bonds of banks

Municipal bonds

VAT bonds

OVDP

20%

Sunoil-Finance

Aktiv-Bank 15% Farlep-Invest

Energoatom (А)

АVК 10% Kiev

Donetsk 20909 21600 ProCredit Bank E Alfa-Bank Ukrtransgaz Series I 20800 Bank "Dnestr" D, F 5% South-West railways Series II

ProCredit Bank D

0% 0 200 400 D600uration, days 800 1000 1200 1400

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

#20_05 UA_weekly 16’May’2005 – 22’May’2005 Financial Instruments Department

Greek won the Eurovision Song Contest hosted in Kiev

The winner of anniversary 50th Eurovision Song Contest that took place in Kiev from 19th to 21st of May 2005 was Greek Helena Paparizou. Her song "" won the affection of spectators in 34 of 39 countries that had a right to vote including ten countries that gave her the highest score. The second and the third places were occupied by Malta and Romania respectively. Original Moldova band Zdob si Zdub who occupied the 6th place became probably the brightest remembrance of the contest. It is interesting that the winner got only nine points from ex-USSR states (Lithuania – 1 point and Russia and Moldova –4 points each). At the same time almost none liked Ukrainian competitors with their "revolutionary" song "!" ("Together as many"). It got voices only of Poland (probably because Polish people took too close to heart ""), Moldova (our neighbours), Portugal and Spain (special thanks to Ukrainians that work there), and Russia (only 2 points). We hope that received results will give some food for reflections that are out of scene. Firstly, revolutionary fervour is not in tack already. Europe is not that blindly admired by changes in Ukraine to vote for frankly mediocre song. Maybe they expect from Ukrainian politics something more than just "hip hop with torn chain of tyranny". Secondly, the rift in relations with Russia and Byelorussia is not that small as it pictured by politicians. Thus our closest neighbour Byelorussia gave no voices to Ukraine and "brotherly" Russia – only two. However Ukraine granted to Russia not much too – 4 points. Voting results on the 50th Eurovision song contest

230 4 12 4 0 12 6 12 5 12 2 0 3 8 7 12 12 2 2 7 0 1 6 4 0 10 4 1 3 10 4 12 2 8 12 7 12 0 12

192 0 4 5 5 8 0 0 4 6 10 4 8 7 0 8 8 5 4 10 10 5 2 0 5 5 10 0 0 2 12 0 1 7 6 3 8 10 10

158 7 5 6 1 7 2 8 0 8 3 0 0 5 2 0 5 10 5 5 12 0 0 7 7 4 3 6 7 12 0 3 0 12 2 0 4 0 0

154 8 3 1 8 6 0 0 0 0 5 1 5 10 0 5 0 8 0 6 2 3 8 6 12 7 5 0 5 7 8 0 0 6 1 1 3 7 7

153 10 0 0 6 5 0 0 7 1 6 10 4 0 0 7 1 1 3 12 6 12 10 12 0 0 8 4 6 0 5 0 7 0 3 0 0 1 6

148 0 0 2 7 1 4 6 1 2 0 6 0 2 5 1 7 4 8 0 4 8 10 2 0 0 0 3 10 12 10 5 3 4 0 0 7 12 2

137 0 6 12 3 0 10 4 12 10 0 0 0 6 10 3 6 2 0 0 0 1 0 0 1 6 4 0 0 0 6 6 10 0 4 12 0 3 0

128 1 0 0 10 0 0 0 3 4 1 12 10 0 0 4 3 3 7 3 2 12 8 1 0 8 0 3 6 4 0 7 0 6 0 5 0 5 0

125 2 0 0 4 3 3 1 0 3 12 8 12 0 0 0 4 0 12 4 1 6 5 5 3 0 1 8 0 0 0 2 4 3 8 0 0 6 5

125 3 0 0 0 4 0 0 0 0 5 2 0 0 6 0 6 10 7 3 4 4 3 0 10 8 12 5 1 4 0 0 0 10 10 0 0 0 8

115 0 2 8 0 0 12 2 0 0 2 1 0 8 2 0 7 1 0 0 7 6 0 0 7 2 2 2 0 5 1 10 12 0 0 8 0 8 0

97 6 0 0 2 2 1 5 6 7 0 3 0 3 1 0 2 6 0 8 3 0 0 0 0 0 0 10 2 8 3 6 0 5 0 0 6 2 0

92 0 8 7 0 10 8 3 0 0 8 0 12 0 4 10 0 0 0 0 0 0 0 0 0 0 12 0 0 0 3 0 0 0 0 0 6 0 1

79 0 0 10 0 0 0 10 0 4 0 0 0 3 0 0 0 0 1 0 0 0 0 0 0 6 7 0 0 0 0 4 8 0 7 5 10 0 4

57 0 0 0 12 0 0 0 0 0 0 7 7 0 0 0 0 0 0 0 0 10 7 0 10 0 0 0 0 0 0 0 0 0 0 0 0 4 0

53 0 3 0 0 5 0 2 0 0 0 0 1 12 0 10 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 0 0 0 10 2 0 0

52 0 10 0 0 0 7 7 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 7 5 0 0 2 5 0 0

46 0 7 0 0 0 0 10 0 0 0 0 0 0 0 12 0 0 0 0 0 0 12 0 0 0 0 0 0 1 0 1 0 0 0 0 0 0 3

30 0 0 0 0 0 0 0 0 0 7 0 6 0 6 0 0 0 0 0 0 0 0 0 5 3 0 1 0 0 0 0 0 0 2 0 0 0 0

30 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 0 0 0 12 7 0 2 0 0 1 0 0 0 0

28 12 0 0 0 0 0 0 0 0 0 0 0 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 0 0 0 0 0 4 0 0 0

18 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0 8 0 0 0 4 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0

11 5 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Source: http://www.eurovision.tv

#20_05 UA_weekly 16’May’2005 – 22’May’2005 Financial Instruments Department

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 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

© JSCB”Ukrsotsbank”, 2004.All rights reserved.

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.

#20_05 UA_weekly 16’May’2005 – 22’May’2005