Monday, 06 Feb 2012
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Ukraine: Business as usual?
06 February 2009
Prior to all the recent political and economic upheaval, Ukraine’s prospects appeared to be improving. Foreign investment had been growing substantially, mergers and acquisitions (M&A) activity was at record levels and progress was being made to improve the business environment.
According to ISI Emerging Markets’ DealWatch, there were 275 M&A transactions involving Ukrainian companies in the first half of 2008. While this was barely changed from the 272 deals recorded in the first half of 2007, it was still enough to make Ukraine the fourth most active emerging market after China, Russia and Brazil. The total deal value also grew by 25% over the corresponding period in 2007, rising to almost $4bn.
Some 112 of the 275 deals were in-bound transactions, with Russia the largest foreign investor, followed by Austria, Poland, Germany and France. High-profile transactions during this period include the sale of Pravex Bank to Italy’s Intesa Sanpaolo for $730m, the sale of a 60% interest in Dniprospetsstal to VS Energy of the Netherlands for $630m and the sale of steel business
Istil Group to Mirinvest of Russia for $600m.
Despite the large amount of consolidation that has taken place over recent years, Ukrainian lawyers believed attractive prospects still existed. “Many major transactions have already occurred, but the mid-size sector still possesses big M&A potential,” says Ronald Marks, a partner at Konnov & Sozanovsky.
While the immediate future may be bleaker than for a while, there are reasons for optimism in the mid to long term. The run-up to football’s 2012 European Championships, which Ukraine is to co-host with Poland, should still provide a big boost to infrastructure and property projects, as new stadia and hotels are built.
While the EU failed to give Ukraine a clear path to membership at a joint summit in Paris in September this year, it has not completely ruled it out. The two sides have entered into an “association agreement”, with a comprehensive free trade agreement the key goal.
Magisters’ Jason Bruzdzinski is confident about the country’s future. “The political and economic uncertainty that has existed here for quite some time is no longer a new and scary thing,” he says. “It is something that most who are living and working in the environment have simply adjusted to and accommodated.”
Ukraine continues to be moving in a good direction, Bruzdzinski insists. “The process is probably going to be slower than some would like, it is going to be bumpier than others would like but, generally speaking, the posture and direction are correct.”
Marks agrees that the long-term prognosis is good. “The big difference in this recession over previous ones is that the real economy in China did not exist then the way it does now,” he says. “While liquidity may restrict demand for a while, it will only create pent-up pressures for higher demand later for commodities such as steel.”
Even the International Monetary Fund, which came to Ukraine's economic rescue in November with a multi-billion dollar loan, appears optimistic. Ceyla Pazarbasioglu, the fund’s mission chief for Ukraine, said its economy should grow by an estimated 5-6% in 2011, when inflation should be less than 10%, as long as the global economy is also on the mend.
“The road ahead is difficult,” she said. “But Ukraine has enormous potential and should be able to reach it with consistent implementation of adequate policies.”
According to ISI Emerging Markets’ DealWatch, there were 275 M&A transactions involving Ukrainian companies in the first half of 2008. While this was barely changed from the 272 deals recorded in the first half of 2007, it was still enough to make Ukraine the fourth most active emerging market after China, Russia and Brazil. The total deal value also grew by 25% over the corresponding period in 2007, rising to almost $4bn.
Some 112 of the 275 deals were in-bound transactions, with Russia the largest foreign investor, followed by Austria, Poland, Germany and France. High-profile transactions during this period include the sale of Pravex Bank to Italy’s Intesa Sanpaolo for $730m, the sale of a 60% interest in Dniprospetsstal to VS Energy of the Netherlands for $630m and the sale of steel business
Istil Group to Mirinvest of Russia for $600m. Despite the large amount of consolidation that has taken place over recent years, Ukrainian lawyers believed attractive prospects still existed. “Many major transactions have already occurred, but the mid-size sector still possesses big M&A potential,” says Ronald Marks, a partner at Konnov & Sozanovsky.
Future trends
While the immediate future may be bleaker than for a while, there are reasons for optimism in the mid to long term. The run-up to football’s 2012 European Championships, which Ukraine is to co-host with Poland, should still provide a big boost to infrastructure and property projects, as new stadia and hotels are built.
While the EU failed to give Ukraine a clear path to membership at a joint summit in Paris in September this year, it has not completely ruled it out. The two sides have entered into an “association agreement”, with a comprehensive free trade agreement the key goal.
Magisters’ Jason Bruzdzinski is confident about the country’s future. “The political and economic uncertainty that has existed here for quite some time is no longer a new and scary thing,” he says. “It is something that most who are living and working in the environment have simply adjusted to and accommodated.”
Ukraine continues to be moving in a good direction, Bruzdzinski insists. “The process is probably going to be slower than some would like, it is going to be bumpier than others would like but, generally speaking, the posture and direction are correct.”
Marks agrees that the long-term prognosis is good. “The big difference in this recession over previous ones is that the real economy in China did not exist then the way it does now,” he says. “While liquidity may restrict demand for a while, it will only create pent-up pressures for higher demand later for commodities such as steel.”
Even the International Monetary Fund, which came to Ukraine's economic rescue in November with a multi-billion dollar loan, appears optimistic. Ceyla Pazarbasioglu, the fund’s mission chief for Ukraine, said its economy should grow by an estimated 5-6% in 2011, when inflation should be less than 10%, as long as the global economy is also on the mend.
“The road ahead is difficult,” she said. “But Ukraine has enormous potential and should be able to reach it with consistent implementation of adequate policies.”
