June 19, 2015 Bondholders slap down haircut calls as Ukraine...

June 19, 2015 www.bne.eu

Poland's PiS plans to copy Hungarian taxes on foreign investors

International holders of billions of dollars of Ukrain-ian Eurobonds firmly rejected any justification for a reduction of the principle debt in a statement on June 17 – also the due date for a $39mn Eurobond coupon payment by Kyiv on a $1.25bn Eurobond ma-turing in 2016 that Ukraine reportedly made.

Cutting the principle was "not the right way", the statement said, adding that a so-called haircut on

Bondholders slap down haircut calls as Ukraine makes coupon payment

Poland’s main opposition party Law and Justice (PiS) would seek to introduce special taxes on financial institutions and retail chains should it gain power in general elections in the autumn, a senior adviser said on June 16.

Piotr Glinski, who is in charge of drafting PiS' policy programme ahead of the vote, sched-uled to take place by October, suggested the

party would table proposals for special taxes on banks and retail chains, similar to those in Hungary. The populist party, which leads opinion polls, would also limit the transfer of profits out of Poland by foreign companies, he added.

"We uphold the proposal of sectoral taxes - that

the obligations "sends the wrong signal to global capital markets when Ukraine can least afford to be shunned".

Attempts to resolve the debt issue – previously thought to be crucial to Ukraine's agreement with the International Monetary Fund (IMF) for continu-

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Content: 2 Top Stories 4 The Regions This Week 9 Eastern Europe11 Eurasia14 Central Europe16 Southeast Europe18 Opinion20 Lists24 Lists

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ing a $17.5bn bailout package – foundered in re-cent weeks, with private creditors refusing to shift on the haircut demand and insisting that Ukraine can afford to pay them in full.

Backed up by the IMF, the government in Kyiv says it can only cover the debt by using central bank reserves, which is illegal. Its hand was strength-ened further in June when the Fund said it would keep lending to the former Soviet republic even if it did not restructure the debt.

Meanwhile, Ukraine is threatening to make use of legislation introduced in May that allows the govern-ment to declare a moratorium on debt payments. Jaresko again raised the possibility on June 16.

"If we fail to bring our lenders to the negotiat-ing table, apparently we shall keep in mind the leverage we've got from parliament - the right to decide whether to suspend payments or not," the finance minister said.

The ad hoc committee of private creditors, includ-ing T Rowe Price, TCW, Franklin Templeton, and BTG Pactual, say their proposals for restructuring without any haircut would still meet a key IMF re-quirement that Ukraine reduce its debt payments by $16bn over the next four years. According to the investment funds, Ukraine's future coupon payments would correlate to its achievement of certain GDP growth indicators.

They also argue that a debt haircut would limit the county's future access to credit, and is simply not necessary because Ukraine's problems do not de-rive from overall debt levels, but lack of liquidity.

According to the bondholders, the restructuring proposed by Ukraine would only extend to the $22bn

in private foreign debt they hold, whereas Ukraine's total sovereign debt including intergovernmental foreign debt and domestic debt run to $70bn.

The committee said in the statement that it had "gone out of its way to offer a proposal that is sympathetic, and delivers long-term benefit to all sides. We would like to see other creditors as-sume similar responsibility."

However, Ukraine's finance ministry called the debt restructuring proposals of the private creditors "unacceptable" in a statement issued on June 5.

The coupon payment that Ukraine paid on June 17, as reported by Interfax Ukraine quoting a source at the finance ministry, will be followed by a $75mn Eurobond coupon payment to Russia on June 22 to service the $3bn Eurobond it bought from Ukraine in December 2013. This was part of a bailout of Ukraine during the presidency of Viktor Yanukovych, who was ousted from power in February 2014.

Russian President Vladimir Putin on June 16 criticised Ukrainian threats to default on the two-year Eurobond, and warned that Kyiv may now be held to stringent terms of the bond that Moscow has not yet insisted on being enforced. "Now that Ukraine's aggregate foreign debt has exceeded 60% of GDP, we are entitled to call in this money early," Putin said.

"We are not doing this, considering a difficult economic situation in the country. But we hope to receive this money, as is stipulated by the relevant agreement," he added, as quoted by Interfax.

Ukraine is insisting the $3bn bond is private and not official, allowing it to be subject to restructuring along with the country's other Eurobonds. Comments from both sides became increasingly abrasive in recent days, with Ukrainian President Petro Poroshenko calling the 2013 bond a "bribe" to Yanukovych for keeping Ukraine away from the EU.

Bondholders slap down haircut calls as Ukraine makes coupon payment

June 19, 2015 businessneweurope I

Top Stories

is, taxing financial institutions and retail net-works," Glinski said in an interview with the Polish newspaper Rzeczpospolita. "We want to send a message to our foreign guests that we are happy to see their honestly-run businesses, but we have to introduce taxes which they are also paying in other countries."

The suggested policies will only raise the worries over the damage a PiS victory could do to market sentiment and the economy. The banking sector is already under pressure from the huge risks connected to forex mortgages, with over 500,000 borrowers having to pay higher installments since the cap on the Swiss franc was removed in January. PiS has suggested it will push lenders to convert loans at historic rates, which would inflict huge losses on lenders.

Hungarian borrowers escaped the Swiss franc hike by the skin of their teeth, after banks were forced to convert loans late last year. Prime Min-ister Viktor Orban's government has also imposed several taxes on the sector since coming to power in 2010.

However, it is now pushing to thrash out a deal with the banks to get them to resume lending, with credit levels having dropped dramatically over the past five years. Investors have also pulled back, wary of Budapest's erratic policymaking. Analysts insist Hungary is set to

struggle to keep pace economically with the rest of the Visegrad region over the next few years because of mistrust from banks and investors.

However, Glinski claims PiS is not concerned that the PiS policies would scare investors off. "This has not happened anywhere in the world," he says. "Please look at Hungary, which has intro-duced such measures recently."

As part of the policy package, PiS says it would use the funds raised from the sectoral taxes to in-crease the income tax threshold to PLN6,500 from the current PLN3,091.The latest opinion polls have the alliance led by PiS on around 30% support. Meanwhile, the ruling centre-right Civic Platform, busy trying to find some direction after a startling collapse this year, is running at around just 19%.

About two-thirds of Poland's banks and most of its large retail networks are foreign-owned. All companies pay a flat income tax rate of 19%. Banks also pay a levy for a banking guarantee fund.

Foreign banks are already heading for the exit. Raiffeisen Bank International is trying to sell its local unit Polbank, as is US giant GE Captial. However, they have struggled to attract bids, with the government still to make a definite response to the forex loans issue.

State-controlled insurer PZU has recently emerged as the leading contender to buy both businesses. The treasury and financial sector watchdog KNF have expressed support for its plan to build a new banking giant and kick off the "repolonisation" of the sector. The plan is remi-niscent of Hungary's recent purchases of major banks, including the local unit of GE.

Poland's PiS plans to copy Hungarian taxes on foreign investors

June 19, 2015 businessneweurope I

The Regions This Week

Enel confirmed China National Nuclear Corporation is likely to make an offer for Slovenske Elektrarne. The Chinese state company has arrived late on the scene, with the deadline on binding bids for the 66% stake in Slovakia's dominant electricity producer having passed on May 9. Meanwhile, Bratislava is in the driving seat and is still understood to want to raise its 34% to a majority.

Brussels will rule on whether Hungary's Paks deal involves illegal state aid in October, the BBC claims. The EU has been tight-lipped on the planned expansion of the country's only nuclear plant since Budapest agreed a deal with Russia in January 2014 that will see Moscow lend €10bn to the project.

Erste is "on track" to buy the retail banking business of Citi Hungary, which the US bank put up for grabs late last year, banking sources claim. An agreement has been reached, with an announcement possible within a month, the sources say.

The US plans to station tanks and heavy weapons in CEE. The Baltics and Poland have repeatedly asked for expanded Nato presence as tension with Russia persists. The move is seen as reassurance to Nato countries on Russia's doorstep that the coalition will back them up. Moscow responded by warning parking tanks on the border would be a mistake, and pledging to upgrade its nuclear arsenal.

With state-controlled insurance giant apparently closing in on deals, new suitors are emerging for Polish banks, it is claimed. Chinese investment fund Fosun International has reportedly joined the chase for Raiffeisen Polbank, while billionaire Leszek Czarnecki is said to be eyeing General Electric's Bank BPH.

Hungary's central bank denied it is pursuing covert monetary financing through subsidiaries.

Central EuropeData from state debt manager AKK shows a 13-fold increase in the holdings of state debt by NGOs. The rise stepped up in August 2014 - the same month the MNB established several foundations.

PPF has launched a buyout offer on both parts of the recently split O2 Czech Republic. The move comes despite rising challenges over the treatment handed out to minorities, as well as criticism over information asymmetry and roles played by regulators and the Czech bourse.

Hungary plans to build a fence to seal off its southern border with Serbia in a bid to halt illegal immigrants. The move sees PM Orban continue to move to the right as his Fidesz government seeks to stem falling support. Data showed Hungarian asylum applications per capita in Q1 were the highest in EU by a mile. The scheme was roundly criticized in Brussels and Belgrade.

Latvia wants to turn airBaltic into a regional flag carrier. Riga plans to privatise a chunk of the airline within five years, and suggested Estonia and Lithuania buy into the company. However, true to form when it comes to pan-regional cooperation, the neighbours blasted the idea.

Poland's main opposition plans to follow the Hungarian economic model should it win elections in the autumn, a party official said. PiS would seek to introduce special taxes on banks and supermarkets and limit repatriation of profits by foreign investors.

Tension flared again in the Czech ruling coalition with the CSSD and Ano hurling insults and accusations of corruption at one another. The CSSD accused Finance Minister Andrej Babis of acting like an StB agent after he appeared to threaten a CSSD backbencher who had suggested the Ano leader has a new conflict of interest over a bill on the insurance sector.

businessneweurope I June 19, 2015

Southeast EuropeBosnia’s Federation Prime Minister Fadil Novalic has said he will not resign, despite the ruling coalition losing its majority in parliament. Earlier this month the Democratic Front part pulled out of the coalition following a disagreement with the PM.

Kosovo has urged Slovenia to allow former Kosovan PM Ramush Haradinaj permission to leave the country. Haradinaj was detained on an international arrest warrant issued by Serbia, which accuses him of war crimes during the 1998-9 civil war.

Johannes Hahn, EU commissioner in charge of European neighbourhood policy and enlargement, has once again called on all parties in Macedonia to find a lasting political compromise, building on the preliminary agreement reached on June 2.

Moldova’s outgoing prime minister, Chiril Gaburici, who resigned on June 12, has refused to serve as the interim head of the cabinet until a new prime minister is appointed.

Meanwhile the World Bank has earmarked $45mn for Moldova’s budget deficit financing for 2015, but will only release the money after the government takes positive steps to address the problems in the banking sector.

The US is set to station tanks and heavy weapons in Estonia, Latvia, Lithuania Poland, Romania, Bulgaria and possibly Hungary, as it seeks to reassure NATO countries on Russia's doorstep that the coalition will back them up.

Germany will lift all remaining restrictions on the free movement of Croatian workers as of July 1, while Croatian companies will be free to post their employees to Germany. Croatia joined the EU in July 2013.

Hungary has decided to build a fence along its border with Serbia to stop the flow of illegal migrants, with the move seen as the latest lurch to the right by the Fidesz government in a bid shore up sliding support.

Romania’s prime minister, Victor Ponta, will be unavailable for up to four weeks following knee surgery. The surgery comes at a time when Ponta is under heavily pressure to resign.

Wind and solar farms in Romania continue to struggle, with the government lowering green energy quotas set to electricity suppliers. The supply of green certificates is rising, further pushing down prices and affecting investments.

Even so, Romanian company Armand Group and its UK partner Greentech have announced plans to develop photovoltaic farms in Romania with a cumulated installed capacity of 20MW by the end of 2016, with an investment of some €20mn.

Meanwhile, Romania’s Nuclearelectrica says it expects to reach a final agreement with China General Nuclear Power Corp on the development of a third and fourth nuclear reactor at the Cernavoda nuclear power plant, with the project estimated to cost €6.45bn.

IKEA, which has just received a building permit for its first store in Serbia, plans to invest €350mn in opening up to five stores in the Balkan coun-try, with the long-term investment likely to create 1,500 jobs.

Cinven’s bid to buy Telekom Slovenije has hit a dead end after Slovenian Sovereign Holding (SDH) once again rejected the last-minute conditions added by Cinven in relation to the planned merger of Telekom Slovenije’s Macedonian unit One with its peer Vip. The overall deal could still take place later this year.



Eastern EuropeRussia's leading lender Sberbank asked the Finance Ministry for more mortgage subsidies on RUB200bn ($3.6bn) of new lending after the bank used up its current subsidy allocation. The state has allocated a total of RUB20bn ($366mn) as mortgage subsidies but banks have already used almost all this money up.

Rental demand for luxury apartments in Moscow collapsed in May driven down by fleeing expats. Demand for apartments with a rental rate of be-tween $4,000 and $10,000 a month fell around 30% year-on-year in May, according to Intermark-Savills. Occupancy in upmarket residential com-plexes like Rosinka have fallen to 50%.

The official ground-breaking ceremony for the Chinese segment of the Power of Siberia gas pipeline will take place in late June, Chief Executive Officer of Russia's gas giant Gazprom Alexey Miller said on Monday at a meeting with Russian President Vladimir Putin.

The Russian central bank cut its main lending rate by 1% on June 15, in line with market expectations, but said the pace of policy easing could slow in the coming months because of risks to inflation. This was the fourth cut this year and more are expected.

Russia's leading fertilizer company Uralkali completed a share buyback of 11.56% of its stock. The main seller was oligarch Mikhail Prokhorov's Onexim group, which received $670mn of the total $1.1bn spent by the company and now owns a 20% stake. The remaining two large shareholders, Uralchem and Chinese Chengdong Investment Corporation, did not participate, maintaining their stakes at 20% and 12.5%.

The Russian federal budget ran a deficit of 3.7% of GDP or RUB1.05 trillion, over the first five months of this year. The budget was in surplus

of 1.4% of GDP over the first five months of 2014. Heavy defence spending is driving up the deficit but the pace of spending slowed in May to RUB1.85 trillion or 59.4% of the plan for the year.

Russia's 2016 general election likely to be moved forward one month to September by draft bill submitted to the Duma. The change would benefit the ruling United Russia party that didn’t win a single seat in a recent by-election in Kaliningrad.

The number of Russian living under the subsistence level rose by over a quarter (26%) to 23mn in the first quarter of 2015, from 20m in the first quarter of 2014 as a result of sharp depreciation, pushing 3m more Russians below the poverty line in the last 12 months, or about 16% of the population – still less than the EU average.

Ukraine’s State Savings Bank Oschadbank reached an agreement to restructure its Eurobonds with an ad hoc committee of investors on very similar conditions to what was earlier offered by its peer Ukreximbank at a meeting on June 12. The bank wants to exchange its $700mn in 2016 Eurobonds for new 2023 notes but will repay 60% of principal after a three-year delay.

Russia's biggest blini chain Teremok will open two stores in New York this autumn, the first Russian fast food chain to expand abroad. In the last few years many of the US leading fast food chains have opened in Russia.

Russian residential construction completions was up 28.4% more housing, or 295,000 apartments, delivered in the first four months of this year than in the same period in 2014, despite falling real incomes and a slowing economy. State subsidies for mortgages on new builds are buoying the market.



EurasiaUzbekistan’s remittances from Russia amounted to $460mn in the first quarter of 2015, down by 49% y/y from the same period of last year. At the same time, money transfers from Uzbekistan to Russia amounted to $150mn during the period, up 10% y/y from the same period of 2014.

Russian oil major Lukoil invested $160mn in exploration and production in Uzbekistan in the first quarter of 2015, up 20.3% from a year earlier. The company noted an increase in gas extraction in Uzbekistan without revealing the actual volume of extracted gas.

Iran has proposed a 10-year $30bn gas-for-good barter package to Turkmenistan. The deal aims to annually exchange $3bn worth of Turkmen gas for Iranian goods, technologies and services. Trade between the two countries amounted to $4bn in 2014, and is expected to reach $6bn in 2015. Turkmenistan exported 6.5bn cubic metres of gas to Iran in 2014, according to the BP’s 2015 Statistical Review of World Energy, more than 15% of its total gas exports.

Kyrgyzstan’s annual economic growth stood at 6.9% between January and May against 4.3% in the same period of 2014. The Kyrgyz economy is “performing relatively well despite the economic slowdown in Russia and the region”, according to the IMF. Non-gold growth remains resilient at 3.4% in March; the exchange rate strengthened recently, reflecting ruble appreciation; and 12-month inflation slowed to 7.9% in April.

The European Investment Bank (EIB) has lent the Tajik government €70mn to upgrade the power infrastructure running between Tajikistan and Kyrgyzstan. The resources will go towards the construction of a 500 kV, 477km-long power transmission line to interconnect the two countries and a 120km-long line to strengthen the Tajik internal backbone network.

Canadian firm Khan Resources is seeking enforcement of a $104mn arbitration award Mongolia is refusing to pay in the US. “The award is due and payable now,” Khan Resources said. Khan Resources was granted a $104mn award by a Dutch arbitration court as compensation for a controversy caused by the cancellation of the company’s local uranium licences in 2009.

Car registration increased by 68.7% y/y to 301,217 units in Kazakhstan in January-May. Car registration surged by 86.1% y/y in the first quarter of 2015. However, new car sales decreased by 28.87% y/y to 48,922 vehicles in January-April (no data for May are available yet). The difference between the sales and car registrations is an effect of the flooding of the Kazakh market by Russian cars.

Kazakh copper miner Kazakhmys fears obstacles on its way to enter the Chinese market, as the market for cathode copper would be less accessible because of an economic slowdown in China and growing competition from Chinese companies. Kazakhmys’s copper cathode exports to China dropped by 18% y/y in January-March. Kazakhmys heavily depends on the Chinese market: its exports of cathode copper increased from 64% of total output in 2012 to 88% in 2014.

The construction of a new 1,000MW nuclear plant in Armenia is “unreasonable”, according to the State Nuclear Safety Committee. At a price tag of $5bn the new plant may pose a threat to the country’s entire power supply system and may entail economic problems. The Soviet-era Metsamor nuclear power plant, the lifespan of which has been extended until 2026, is currently supplying about 40% of power consumed in Armenia.



bne Chart

Ukraine and Russia’s 'Despair Index' scores – a bne IntelliNews economic measure that combines inflation, unemployment and poverty – have continued to worsen throughout 2015 following a turbulent year for both nations.

Rocketing inflation in both countries has been the driving force behind the scores, with Russia’s year-on-year consumer prices (CPI) rising by 15.8% in May, with Ukraine’s CPI up 58.4% in the same month.

As the bne:Chart shows, the last two years have seen the EU and US Despair Index scores creep lower, with the last 12 months seeing Russia’s score move higher than both Western counterparts. Plummeting oil prices and continued Western sanctions have behind much of this.

Under President Vladimir Putin, the poverty rate in Russia steadily improved to the point of being

significantly lower than the rates in the US, EU and many Western European nations in the past few years. However, a recent World Bank report has cast doubt on the continuation of this improvement, forecasting a 2015 poverty rate in Russia of 14.2%, up from 11% in 2014.

The World Bank’s 14.2% forecast for Russia would mean its poverty rate is now marginally worse than the US’ 14.1%, pushing Russia’s Despair Index score higher than the Central and Eastern European/Commonwealth of Independent States (CEE/CIS) score of 33.6.

At the beginning of 2015, Ukraine’s Despair Index score had nearly tripled in two years, from an impressive 16.5 in 2013 to a worrying 46.5. Since then, the continued conflict in the country’s east has raised consumer prices further, pushing its Despair Index score past Bosnia and Herzegovina’s 61.3, making it the worst performing country in the CEE/CIS region.

Russia and Ukraine 'Despair Index' scores rise after turbulent year

2009 2010 2011 2012 2013 2014 2015

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

Des

pair

Inde

x Sc

ore

77.2

35.2

30.5

26.2 23.6

46.5

36.5

17.2

23.6

16.5

24.422.9

62.263.0

58.6

24.1

31.5

19.4

63.2

27.7

33.6

36.6 36.236.8

61.3

27.0

21.5 21.6

37.1

26.7

37.3

26.1

30.2

20.6

65.2

32.9

37.5

30.0

25.9

64.6

29.9

26.2

DESPAIR INDEX: MAY 2015 UPDATEUkraine goes from bad to worse while Russia continues to lose ground to the West

EM average

EU

Russia

Ukraine

United States

Bosnia and Herzegovina

Sources: World Bank; Rosstat; USDA Food and Nutrition Service; US Bureau of LaborStatistics; EuroStat; European Central Bank; State Statistical Service of Ukraine


Yukos by Russian authorities. Khodorkovsky was released in 2013 and has continued his criticism of Kremlin politicies.

Belgian court bailiffs notified Russian organisations in that country that they should disclose their ownership of any Russian state assets, reports said.

However, the actions in both countries had little effect in financial terms, the Vedomosti source said, adding that accounts frozen contained only "tens of thousands of euros".

A notice and a letter drafted by Marc Sacré, Stefan Sacré & Piet De Smet law firm was reportedly sent to 47 Belgian offices of Russian companies, inter-national banks, branch of the Russian Orthodox Church, and other institutions. The letter accused the Russian side of "systematic failure to voluntarily follow" the rulings of international legal institutions.

The action in Belgium is related to the $1.85bn award granted by the Permanent Court of Arbitration in The Hague in July 2014 to former shareholders of Yukos as compensation for "expropriating investment" by the Russian authorities. The award is part of the $50bn settlement ordered by the arbitration court but not recognised by Russian authorities, which claim the Yukos case has been politicised in the West on the background of the Ukraine conflict.

Russian air carrier Aeroflot told gazeta.ru that it had not received any documents on property arrest. A partner of Lidings law firm, Andrei Zelenin, reminded that only fully owned state assets could be arrested in such a case, and doubts that enough such assets could be found in Belgium to meet the awarded sum.

Eastern Europe

Russian state property arrested in Belgium, France in Yukos case

bne IntelliNews

Court bailiffs in Belgium and France have reportedly begun seizing Russian state property to settle a $50bn compensation award made last year during arbitration in The Hague to shareholders in the former oil giant Yukos.

Arrested assets included the Paris offices of the Russia Today television channel, according to Forbes Russia, while gazeta.ru reported on June 18 that assets belonging to the state news agency TASS were also affected. Russian daily Vedomosti cited a former Yukos shareholder as confirming French bailiff actions were underway, including the freezing of bank accounts. Diplomatic representations were not affected, however.

Amid similar initial moves underway in Belgium, Russian officials participating in the annual inter-national economic forum in St Petersburg said the government in Moscow did not recognize the ruling and was braced for more property to be impound-ed. Economy Minister Aleksei Ulyukayev was quot-ed by TASS as saying Russia would never pay on the Yukos claims. "I completely rule this out," said Ulyukayev, warning that "we may also expect this kind of unfriendly actions in other jurisdictions".

"This needs to be challenged in a judicial procedure," Foreign Minister Sergei Lavrov added in a statement. "If there are breaches of law, then we will take the legal steps against this."

Meanwhile, former Yukos owner Mikhail Khodorkovsky wrote on Twitter that he welcomed the Belgian government's decision to freeze Russian assets. "I expect that the money raised will be used for projects useful to Russian society," commented Khodorkovsky, who was jailed in 2005 for nine years for tax evasion, before the final bankruptcy and dismemberment of


Eastern Europe

There was no follow-up as there can be none to this statement. As US banker and Russia investment doyen Bernie Sucher pointed out in an early morning interview with Bloomberg, everything stops with the elite clustered around Putin, who control all economic, bureaucratic, administrative and commercial power in Russia with no checks and balances.

"Political risk trumps economic risk and it all comes down to what is going on in Putin's head," Sucher said. "No one can know that."

Russia's shift to the East was on prominent display in the agenda and the European CEOs that do make the trip will feel less at home than in the past, as the Chinese delegation is large and obvious. The event will offer SCO (Shanghai Cooperation Organisation) and BRICS (Brazil, Russia, India, China, South Africa) business forums, a B20 regional consultation forum, while the Russia-China intergovernmental commission will be devoted to investment cooperation.

Momentum in the latter area has been building fast. In May last year, as Western outrage over Ukraine was transforming into economic retaliation against Russia, Moscow and Beijing signed a 30-year, $400bn gas supply contract to supply 38bn cubic metres of natural gas annually from 2018.

A major coup at this year’s SPIEF could also come from the Greek delegation, which says it hopes to sign off on a new pipeline deal that extends the mooted Turkish Stream gas pipeline into an EU country. If, or when, this is inked, it will defy Brussels’ attempts to block Russia's gas diplomacy.

St Petersburg Economic Forum opens under a cloud

Ben Aris in St Petersburg

The St Petersburg International Economic Forum (SPIEF), dubbed the "Davos of Russia", kicked off on June 18 to a reasonably heavyweight turnout from the business world despite global tensions over Ukraine. With thousands of delegates from 144 countries, this is one of the biggest events yet, but the agenda holds only one question of real note: does the Russian leadership have a plan to fix the economy?

The short answer is "no", boiling down to the fact that President Vladimir Putin is preoccupied with his geopolitical showdown with the West, which is largely manifested by events in Ukraine and the vast industrial power and wealth being pumped into building up Russia's military might.

Economic reform and the people will have to wait until Putin is satisfied this programme is complete. Given that the current military strategy calls for 70% of military equipment to be modernised by 2018, it could be at least another three years before a new comprehensive economic programme is launched.

The forum opened with a panel discussion that included Sberbank CEO German Gref, First Deputy Prime Minister Igor Shuvalov and former finance minister and outspoken pro-liberal economic re-former Alexei Kudrin. While the whole event has been themed, "Time to Act: Shared Paths to Stability and Growth", action and plans are almost certainly going to be entirely missing from this year's jamboree.

In a sign of what is very likely to come, the opening panel fell at the first fence, when the moderator asked: Are you satisfied with level of political and media competition in Russia?" "No," Gref and Kudrin replied in unison.


January and May, when it returned below RUB50 to the dollar from RUB69 at the end of January. Yet the tide on the ruble has turned again as a political solution to the crisis in Ukraine seems further away than ever, casting new shadows over Central Asian currencies.

The course of the ruble directly affects Central Asian currencies mostly through the channel of remittances. Remittances from migrants working in Russia make up around 50% of GDP in Tajikistan and 33% in Kyrgyzstan. Uzbekistan also receives more than $6bn of remittances from Russia every year.

As the ruble falls, the monetary value of the money that workers send back home decreases, and total remittances to Central Asia are falling at an “alarming” rate of between 20% and 30%, the European Bank for Reconstruction and Development (EBRD) said in its latest regional outlook published in May. Should the ruble weaken further, it could once again drag down local currencies in Tajikistan, Kyrgyzstan and Uzbekistan.

A weaker ruble would also affect the competitiveness of Kazakh products against Russian products in the domestic market, adding new pressure for a devaluation, although with the government committed to keeping the peg, the faith of the Kazakh tenge lies more with oil prices. If the barrel slips below $50, a devaluation becomes inevitable, authorities have already pointed out.

Eurasia

Central Asian currencies bounce back from spring lows, but risks loom large

Jacopo Dettoni in Almaty

Pressure on Central Asian currencies has eased after most of them touched historic lows in the first months of 2015, but renewed trouble could loom ahead as the Russian economy and the ruble remain on shaky ground.

The Kyrgyz som and the Mongolian tugrik have both recovered over the last few weeks on the back of two of Central Asia’s most iconic, and controversial, mining developments, Kumtor and Oyu Tolgoi. The som trades around KGS60 to the dollar, 6% higher than the historic low of KGS63.9 to the dollar it touched at the beginning of April, according to figures from the National Bank of the Kyrgyz Republic.

In Kazakhstan, politics played a big role in damping down speculation over the tenge. Kazakhtan’s President Nursultan Nazarbayev ruled out a devaluation of the Kazakh currency as soon as he secured a new five-year term in early elections in April. The political elite is committed to avoiding the same blow to its image that it suffered in February 2014, when it lost credibility overnight by devaluating the tenge by 19% against the dollar after it had repeatedly ruled out any such measure. Pressure is now gradually easing. The ask price of a six-month tenge forward contract – which banks commonly use to hedge the forex risk in their portfolio – is now quoted at around KZT204 to the dollar, down from 240 back in February, according to Bloomberg figures.

Easing pressure on Central Asian currencies has mirrored the recovery in the ruble between


Eurasia

States. “Ordinary consumers have been hit hard, exacerbating the situation for the population of a country where one-third of the Armenian population lives in official poverty,” explains Richard Giragosyan, founding director of the Regional Studies Centre in Yerevan. “This latest increase will only further escalate mounting socioeconomic tension.”

Prices went hiked by 27% in July 2013 following the increased cost of Russian gas that generates more than a third of Armenia’s electricity. In July 2014 an additional 10% rise led to clashes between police and demonstrators and resulted in 27 arrests.

The government has tried to reassure people that it would support low-income families, but was in favour of the increase. In May, the minister of energy and natural resources, Yervand Zakharyan, stated that the company’s huge debt of AMD106bn (€196mn) to power plants and commercial banks resulted from external factors like the unplanned halt of the Metsamor nuclear power plant and a dry 2014 that affected hydropower plant output.

However, outrage is growing against the company’s management, who are accused of the inefficient use of funds, embezzlement and corruption. The 3,000-page document ENA presented to justify the case for the price hike included evidence that the company was paying out $12.5mn annually to rent luxury housing and cars. PSRC head Robert Nazaryan reportedly admitted management shortcomings and added that “no single penny of costs from poor

Monica Ellena in Tbilisi

Armenians took to the streets to protest as the utility regulator gave the green light to a 16% electricity price rise by power distributor Electric Network of Armenia (ENA), a monopoly under Russian ownership. The increase is the third in just two years, and opposition parties and rights groups complain it will have a severe impact on Armenian households and the economy at large.

ENA had actually requested on May 8 a 40% tariff increase, the fifth since Inter Rao’s fully-owned subsidiary acquired the electricity distribution company in 2006. Since then, the Russian company has been piling on ever more debt, creating increased discontent at the way the power company is being run.

As of August 1, 1 kilowatt hour (kWh) of electricity will rise by AMD6.93 (€0.012) compared with the AMD17.08 (€0.031) requested by ENA, the public services regulatory commission (PSRC) said. As a result, the daytime tariff will be AMD48.78 (€0.09) per kWh, while at night it will cost AMD38.78 (€0.071).

Protests have been mounting for weeks. On May 27 in Yerevan and in more than 15 cities across the country protestors voiced frustration at the expected price hike. According to the Union of Informed Citizens (UIC), a civil rights group, Armenia, one of the poorest countries in the former Soviet Union sphere, now has the highestelectricity rates of among all countries in the Commonwealth of Independent

Armenian electricity tariffs hiked again, sparking social unrest


Eurasia

management or presumably slapdash work will be included in the electricity tariff.” However, he insisted that the higher tariffs are needed to enable ENA to repay its outstanding debt.

The compromise price hike that PRSC opted for pleased no one. As protests erupted, ENA’s Rus-sian chief executive, Yevgeny Bibin, said that the price rise does not go far enough and accused the commission of ignoring most of its “economically justified operational costs”. He warned that the company will not be able to meet the necessary “requirements for the quality and reliability of electricity supplies” if the PRSC refuses to accept its tariff application in full. Nazarian publicly con-demned the warning as “blackmail.”

The electricity price hike is bound to have wider impacts. “An increase in power prices on this scale won’t just hit people’s pockets, it will do great damage to our economy,” the speaker of the parliament, Galust Sahakyan, warned in May. According to economists, rising electricity costs will have wider inflationary effects, as local manufacturers will have to raise retail prices as production becomes more expensive.

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Hungary to build fence to seal border with Serbia

Minister Sandor Pinter has been tasked with preparing a plan by next week.

Szijjarto insists building the barrier would not break any international treaty, and noted other countries such as Bulgaria and Greece have recently opted for similar projects on their borders with Turkey. According to estimates byPortfolio.hu, the fence could cost HUF30bn (€96mn).

Last year, Hungary received more refugees per capita than any other EU country except for Swe-den, with the number of illegal immigrants surging to nearly 43,000 compared with just 2,000 in 2012.

So far this year, some 54,000 migrants have entered Hungary, and the figure is forecast by Budapest to reach 130,000. However, it's unclear According to official data, 95% of illegal entries are made across the Serbian border. Data from Hungary's Office of Immigration and Citizenship suggests, however, that the majority then look to head to the richer EU states to the west.

The closure of the Serbian border comes amid a large-scale anti-immigration campaign recently launched by the government. Billboards bearing slogans such as, "If you come to Hungary, you cannot take Hungarians' jobs," have popped up across the country, while last month, it sent a survey to 8mn Hungarian voters with questions linking migrants with terrorism.

Central Europe

bne IntelliNews

The Hungarian government has decided to build a fence along its border with Serbia to stop the flow of illegal migrants, Foreign Minister Peter Szijjarto said on June 17. The move is the latest lurch to the right by the Fidesz government in its bid to shore up sliding support.

The move comes as little surprise. Despite Hungary primarily being a transit country for migrants seeking to head further north, Prime Minister Viktor Orban has been railing against immigration for months. He suggested in early June that Budapest is considering all options to keep out migrants, including effectively closing its southern border. Brussels expressed alarm over the growing extremism of Hungary's approach around the same time.

"Illegal immigration presents serious difficulties for the entire European Union," Szijjarto told a news conference, according to a statement on the government's website. "The EU countries are looking for an answer but the road to a joint response appears to be long and time-consuming .... Hungary cannot afford to wait any longer." Budapest had been discussing the immigration issue with Belgrade, and plans were in place for a summit with Serbia in July. It now appears Hungary has taken matters into its own hands.

The Fidesz government plans to build a four-metre high fence along the 175km border. Interior


Central Europe

Prime Minister Bohuslav Sobotka - who has seen the newly-formed Ano lead the CSSD in opinion polls ever since the October 2013 election - harshly criticised Babis.

The increasingly powerful finance minister's behaviour was "unprecedented and totally unacceptable," the PM claimed, and called on Babis to apologize. Sobotka said he would convene a meeting of the coalition leaders to discuss the issue.

The CSSD party was quick to land another blow, as it seeks to erode Ano's lead in the polls, with the senior party having seen a steady - but slow - recovery in its approval ratings over the past 12 months or so.

"Ministers have to face criticism from members of parliament and citizens. They cannot react to it in a way reminding of the infamous practices of the former Communist secret police," the party said in a resolution.

The dispute comes less than a month after the government survived a no-confidence vote forced by the opposition over Babis' conflicts of interest. However, the coalition itself, despite common sniping amongst the major partners, has proved remarkably stable to date, especially considering the tricky geopolitical environment and the meddling of President Milos Zeman.

bne IntelliNews

Tension has flared up again in the Czech ruling coalition with the government leading Social Dem-ocrats (CSSD) and main partner Ano hurling insults and accusations of corruption at one another.

CSSD released official statements on June 18 accusing the finance minister, Ano leader and billionaire Andrei Babis of acting like an agent of the Communist-era secret police StB. The barb was particularly pointed, as Babis only last year managed in a legal battle to get his name removed from files suggesting he had been an StB operative in the 1980s.

The spat comes on the back of efforts by CSSD deputies to resurrect the ongoing criticism that Babis - who owns a business empire including agricultural, chemicals and media assets - has huge conflicts of interest. CSSD backbencher Ladislav Sincl has asked the finance minister to explain his change of tack on a bill that would limit the earnings of insurance brokerages. Media reports say that Babis' brother recently acquired a licence to operate an insurance brokerage.

Sincl complained that on June 16 that Babis had accused him and his family of corruption and intimidated him by waving documents around parliament, CTK reports.

In an apparent bid to press home an advantage,

Tension flares again within Czech coalitionbusinessneweurope I June 19, 2015

Southeast Europe

World Bank warns Moldova against saving fraud-hit banks

announced on June 12. BEM is one of the three troubled banks under special administration following the disappearance of an estimated $1bn from the banks.

The WB will support Moldova’s budget when it is sustainable, Kremer explained hinting at the possible cost for the public budget of the ruling coalition’s plans to recapitalise the three troubled banks. “It would not make sense and it would be irrational transferring money through the front door, while there are still high risks that money is siphoned through the back-door,” Kremer explained.

The WB projects Moldova’s GDP will contract by 2% this year. Nonetheless, the country’s statistics office announced 4.8% y/y expansion in Q1 driven, surprisingly, by the financial sector. The banking system’s stability nonetheless depends on government support – namely emergency loans extended to the three troubled banks. Thus the record profitability might reflect exactly the transfers from public funds, while the fall of the three banks would have a systemic impact. Three other large banks were placed last week under special monitoring, a procedure typically used by the central bank when irregular operations are spotted or where the financial situation is fragile.

bne IntelliNews

The World Bank has earmarked $45mn for Moldova’s budget deficit financing in 2015, in order to prevent a sharp contraction in public investments. But the money will only be released after the government takes the right steps to address the problems in the banking sector, WB resident representative at Chisinau Alex Kremer said in a comment published by Infotag news agency on June 16.

“We recommend authorities that the three banks under special administration […] be liquidated,” Kremer stressed. Attempts to nationalise or recapitalise Banca de Economii (BEM) would increase the cost to public budget, he explained. Furthermore, this would generate the risk that taxpayers’ money is used to cover banks’ hidden losses and future losses. It is possible that part of the money owed by the bank is actually owed to the same groups that siphoned money from the bank – and in this case the recapitalisation would actually allow those firms to siphon even more public money, he explained.

The leaders of the two parties within Moldova's minority ruling coalition, Vlad Filat (PLDM) and Marian Lupu (PD), have agreed on the nationalisation of the country’s main savings bank, Banca de Economii (BEM), Timpul daily


Southeast Europe

Bosnia’s Federation opposition calls for PM’s resignation

the control of the energy ministry, which was previously headed by Reuf Bajrovic of the DF.

On June 12, all four ministers from the DF resigned. However, Federation President Mirko Cavara accepted only the resignation of Energy Minister Bajrovic, saying he would need further discussions to decide on the other three ministers: Deputy PM Aleksandar Remetic, Social Policy Minister Milan Mandilovic and Tourism Minister Snjezana Soldat.

Before the ministers’ resignation, the two parties that remained in the coalition – the hardline Croatian Democratic Union of Bosnia and Herzegovina (HDZ BiH) and the Party of Democratic Action (SDA) – were giving contradictory statements about whether they would seek a new partner to secure a majority in the parliament.

Should they decide not to enter into coalition with another party, they will have just 42 MPs in the Federation’s parliament, while they need at least 50 to secure a majority. Local daily Dnevni List has reported that all opposition parties have declared they will not enter into the ruling coalition.In November, SDA, HDZ BiH and DF signed an agreement on joint action at all levels of Bosnia's government.

bne IntelliNews

Representatives of the opposition parties in Bosnia’s Federation parliament have called for the resignation of Prime Minister Fadil Novalic, after the ruling coalition lost its majority, local daily Dnevni List reported. The PM has dimsissed the calls, claiming the government is functioning normally.

At the latest parliamentary session, the ruling coalition failed to gain enough support to pass the session’s agenda, and according to Nasir Beganovic of the opposition Alliance for a Better Future (SBB), the voting of the session’s agenda was an informal no-confidence vote for the government, which it seemingly failed.

On June 4, one of the parties in the ruling coalition – the Democratic Front (DF) – withdrew its support from the government following Novalic's decision to propose a change in the procedure for appointing managers of state-controlled companies, without him informing the respective government ministers.

According to the new rule, approved at a government session on June 4, the management of state-controlled companies will be appointed by the government instead of the respective minister. Currently, the most attractive companies – those operating in the energy sector – are under


Opinion

Sergei Kuznetsov in Minsk

Minsk's recent efforts to shepherd peace talks between the EU, Russia and Ukraine have borne fruit – Brussels has shown that it is ready to renew its dialogue with Belarus, a country that has been a pariah in recent years. However, this process will not be smooth; Brussels is not ready to abandon its human rights principles, while Alexander Lukashenko’s regime is not going to ease off the oppression of its internal political opponents. Belarus’s heavy dependence on financial support from Russia will add to the difficulties.

“Lately we have seen speculation in the media that someone is changing their foreign policy vectors. We view Russia as our strategic partner… and will abide by all agreements,” said Vladimir Makei, the Belarusian foreign minister, as he met with his Russian counterpart Sergei Lavrov on June 8.

These remarks appeared shortly after the EU’s Eastern Partnership summit in Riga, where Belarus, alongside Armenia, heavily opposed attempts to include any mention of the “illegal annexation” of Crimea by Russia in the summit’s final declaration.

Although avoiding such discussions would possibly have been a good signal for the EU that Belarus is ready to improve its relations with Western nations, the Minsk government instead preferred to continue to support Russia. And cash-strapped Belarus has been rewarded for

its efforts. Russia is considering restructuring Belarus’ debt in 2015, and could also support its request for a new loan from the bailout fund of the Eurasian Economic Community.

Russia traditionally has taken a negative stance towards the EU’s activities in post-Soviet space, considering them as a threat to its vital interests in the territories which it considers part of the so-called “Russian World”. The crisis in Ukraine has shown that the Kremlin is ready to defend its influence there, even through military force.

However, the EU is not ready to give up. An informal meeting of the foreign ministers of the member states of the Eastern Partnership has been scheduled to take place in Minsk at the end of June, the first such event in Belarus since the EU initiative was launched in 2009. “The EU wants to see stable, peaceful, prosperous countries on its borders. I would presume that this could be also in Russia’s interests, because we [the EU and Russia] border on the same countries,” Maira Mora, head of the EU delegation to Belarus, tells bne IntelliNews.

Meanwhile, Andrei Yeudachenka, permanent representative of Belarus to the EU and Nato, believes that the country has sent many “positive signals” to the EU over the years, and that these “deserve more attention” from Brussels and could provide the basis for improved relations. “Unfortunately, many of these signals were not heard by the political elite of the EU… But

EU’s Belarus dilemmabusinessneweurope I June 19, 2015

Opinion

better late than never,” Yeudachenka tells bne IntelliNews.

Principles and prisoners“The EU will never compromise on the principles on which it is based: the principles of democracy, the rule of law and human rights,” Mora says, underlining that the existence of political prisoners in Belarus is in “first place” among the obstacles to a fast improvement of EU-Belarus relations.

The figure of Nikolai Statkevich, a 59-year-old former military officer and a presidential candidate during the disputed 2010 election, is at the forefront of this dispute. Statkevich was accused by the Belarusian authorities of plotting to riot on election night and found guilty by a local court soon after. He has so far refused to write a plea for a presidential pardon (as many other opposition politicians did) in order to be freed.

It could be argued that Statkevich’s stubborn stance makes little sense from the political point of view, given that the general public in Belarus has almost completely forgotten his name; this is at least partly attributable to tough government control over the country’s media. However, the former presidential candidate’s position is well understood in Brussels. “I perfectly understand Statkevich’s stance. He is a politician, a prominent politician. And asking for a pardon means admitting guilt, whereas he does not consider himself a person who did any wrongdoing,” Mora says.

A release of political prisoners and an improvement in the country’s human rights environment may lead to an easing of the sanctions currently in place against Belarusian officials and companies. The next review of the sanctions list is due in October, the EU delegation head underlines. However, any preconditions will be met with sharp criticism from Minsk.

“Preconditions, which violate the principle of equality, are unacceptable to us. Especially when they border on interference in the internal affairs of our country,” Yeudachenka says.

Upcoming electionDespite some signs of a possible normalisation in the EU’s relations with Minsk, it is more likely that the EU will delay any significant decision over Belarus until after the presidential election later this year. On June 9, after a meeting with Lukashenko, the head of the country’s Central Election Commission (CEC), Lidia Yermoshina, recommended that the election should be held on October 11.

Lukashenko, who has been in power since 1994, has already announced that he intends to run in the election, and there is no serious doubt about whether he will be re-elected for his fifth term in October, considering the almost complete lack of opposition in Belarus. The West seems ready for such a result. The only thing required from Minsk is that violence is avoided, as is blatant pressuring and harassment of opponents.

Mora says that the EU wants to see “free and fair” elections and she expects that the OSCE Office for Democratic Institutions and Human Rights (ODIHR) will be given all necessary opportunities for observation. “Candidates must not be prosecuted for their political views, no single party should be denied from participating in the elections,” Mora adds.

“The EU officials express their wishes at bilateral meetings, and, where appropriate, we try to take them into account,” Yeudachenka says. “Especially, considering the fact that in many respects they coincide with our own intentions and expectations. Today, we and the EU are aiming to ensure positive dynamics in our relations, both before and after the election.”


bne: Infrastructure

Weekly Lists

Belgrade to draft plans for first line of future metro system by end-2015

Belgrade mayor Sinisa Mali said on June 18 that the exact route of the first line of the city’s future underground rail transport system will be defined by the end of 2015, news wire eKapija reported.

Mali said that he hopes in the meantime that the city administration will also identify, with the help of the French government, possible ways of financing the project. He was speaking after meeting representatives of the French government in Belgrade on June 18.

Mali said the discussions with French MPs also included waste water management projects as well as cooperation between French companies and Belgrade power utilities and water supply firms.

Below is a selection of stories from bne's lists. bne offers a variety of daily, weekly and monthly lists to subscribers, including: daily lists for Russia, Turkey, Ukraine, Central Europe, Southeast Europe and Eurasia; the weekly lists Banker, Deal, Credit, Investor, Stocks; and monthly lists Real Estate and Infrastructure. For more information, please visit the website at www.bne.eu.

China to provide $300mn for Kyrgyz road

EIB lends €145mn towards motorway project in Slovenia

China has agreed to allocate approximately $300mn to continue the construction of the North-South motorway in Kyrgyzstan, local news website 24.kg reported on June 16, quoting the Kyrgyz government.

The resources will finance the development of a 95km-long stretch during the second phase of road construction, according to the report. The financing will be provided by China’s state-run Export-Import (Exim) Bank.

The government expects the project to cost $850mn, and for construction to be completed at the end of 2018, according to a report by news website centralasiaonline.com. The 433km-long road is designed to connect Issyk-Kul Region in the north with the city of Jalal-Abad in the south. The construction of the road began at the end of March 2014.

The European Investment Bank (EIB) said on June 12 that it is lending €145mn to Slovenian motorway operator DARS to finance the construction of the 13km Drazenci-Gruskovje section of motorway in the eastern part of the country.

The loan will also support investments in several other stretches of motorway across the country, aimed at raising road safety as well as improving transport security through introducing intelligent transport systems and control centres, the EIB said in a statement.

The total cost of the project is €303.4mn, with the EIB financing almost a half of it and the remainder coming from Slovenian national resources and European Union cohesion funds. According to the EIB, the project will be implemented from 2015 to mid-2018.


PPF has launched a buyout offer to remaining shareholders in the recently split telecommunications company O2 Czech Republic, the Czech investment group announced on June 15. The move comes despite rising criticism of the treatment handed out to minorities.

In April, O2 CR approved a plan to spin off its mobile and fixed-line infrastructure into Cetin. It was the first ever voluntary split of a major telecom in Europe. O2 CR shares promptly plunged, with a lack of clarity over the strategy at the rump company, which will now run voice and data services.

PPF is offering CZK78 (€2.9) for each share in O2 CR and CZK176 per share in Cetin, the new infrastructure company controversially spun off from the telecom earlier this year. The offer is valid until July 13.

Weekly Lists Below is a selection of stories from bne's lists. bne offers a variety of daily, weekly and monthly lists to subscribers, including: daily lists for Russia, Turkey, Ukraine, Central Europe, Southeast Europe and Eurasia; the weekly lists Banker, Deal, Credit, Investor, Stocks; and monthly lists Real Estate and Infrastructure. For more information, please visit the website at www.bne.eu.

PPF launches buyout offer for O2 Czech Republic and Cetin amid rising criticism

Russian mobile operators report user outflow in 1Q

Russian internet retailer Yulmart plans IPO in 2016

Russian mobile operators posted a uniform decline in their cus-tomer base in 1Q, according to a survey by AC&M Consulting cited by Vedomosti on June 18. This is the first time all Big Three opera-tors - MTS, VimpelCom and Megafon - registered client outflow, AC&M said. The efgfect was observed in Moscow and the regions.

The number of SIM-cards in use in Russia fell by 0.8% q/q to 238.4mn in 1Q. Mobile penetration as a result dropped by 1.4 ppt q/q to 166.8%. Moscow is on top of the trend with 2% decline of the sub-scribers base to 39mn, and penetration of 210%, 4.7 ppt lower q/q.

Russian internet retailer Yulmart will hold IPO in March-April 2016, Vedomosti daily quoted chairman of the board of directors Dmitry Kostygin as saying on June 18. Yulmart plans to sell 15% of its newly issued shares on London Stock Exchange (LSE). JPMorgan and UBS will organise the offering.

Apart from its initial offering, the retailer is preparing the sale of 10% of its capital to a private investor, Kostygin told the newspaper. The company "would like to receive $150mn" for this stake, bringing the total value of the company to $1.5bn, the board chairman said. There are about hundred of potential buyers and 10 already interested investors, including Tiger Global Management (TGM) and Naspers investment funds, he added.

bne:TMT



Weekly Lists

Chinese banks freeze out Russian banks, says VTB deputy head

Chinese banks are still freezing out Russian banks a year after Western sanctions were imposed on Russia over its actions in Ukraine, according to a top official in VTB Bank. Such a situation will hamper Russian attempts to counteract Western financial sanctions with a "pivot to Asia", including currency swaps and financing deals.

"China's ambiguous position regarding Russian banks in the wake of US and EU sanctions is a key issue holding back progress towards greater bilateral cooperation," VTB's deputy CEO Yury Solovyev wrote in FinanceAsia Magazine, Interfax reports. "Most Chinese banks will currently not execute interbank transactions with their Russian peers. In addition, Chinese banks have significantly curtailed their involvement in interbank foreign trade deals such as providing trade finance."

Russia’s Moscow Credit Bank to place 10% of capital in IPO

Czech mortgage rates bouncing back from record lows

Russia's Moscow Credit Bank (MCB) will IPO at least 10% of its shares on the Moscow Stock Exchange within two weeks, it announced on June 16. The bank will decide on the final placement date after the supervisory board announces the share price. VTB Capital is the organiser and the book runner of the offering.

According to Kommersant daily, the placement is expected to favour pension funds within the government recapitalisation programme. According to Vedomosti daily, potential buyers of MCB stock include Soglasie, a pension fund controlled by MCB’s main shareholder Roman Avdeev, who holds a 86.2% stake.

Czech mortgage rates seem to have hit the bottom and are starting to rise, snapping a downward trend that has lasted for year and a half now.

Two of the leading mortgage lenders in the country, Hypotecni Banka and Komercni Banka said they have increased their lending rates, Pravo reported on June 16. The two banks control half of the Czech home loans market. Third-placed Ceska Sporitelna is keeping rates on hold for the moment in a bid to take competitive advantage. However, it is expected to follow suit within a few months.

Czech mortgage rates saw a steady decline since the start of 2014. The average interest rate on mortgages hit an all-time-low of 2.11% in April, according to the Fincentrum Hypoindex indicator. Record-low interest rates and stable real estate prices have led to a boom in the mortgage market in the past two years.

bne:Banker



Weekly Lists

Poland sets up new state investment funds to drive innovation

Poland has set up four new investment funds with a total target capitalization of PLN6.5bn (€1.56bn) to drive innovation at local companies, state bank BGK announced on July 18. The funds will offer capital and debt financing to local authorities and Polish companies, and be managed by state investment vehicle PIR. Originally set up as an infrastructure fund in 2012, PIR has signed an agreement with BGK and its investment arm TFI BGK.

Out of the four funds, two will concentrate on infrastructure. Their initial capitalisation of PLN2.2bn will offer project finance for investments in the power, transport and telecom sectors. The third fund will be an enterprise fund with initial capitalisation of PLN1.5bn, which will be invested in company stocks, convertible bonds or via mezzanine financing, mostly in the industrial sec-tor. The fourth – starting with PLN600mn – will invest in municipal companies responsible for local infrastructure like water supply or waste management.

Russia's Putin urges Ukraine to repay $3bn bonds

Russian central bank cuts 2015 GDP loss forecast from 4% to 3.2%

Russia expects Ukraine to repay $3bn Eurobonds, President Vladimir Putin said on June 16. "We care little who used this money and how. We want to have it back," TASS quoted Putin as saying amid harsh exchnaged of words between Moscow and Kyiv on the disputed loan, which Ukraine insists was a commercial rather than state loan and can therefore be restructured.

Putin stressed that Russia could have demanded early payment of the debt as Ukraine’s debt-to-GDP rate has exceeded 60% of its GDP. However, the Kremlin is not doing this" bearing in mind the difficult economic situation [in Ukraine]", he said. "But we hope to have this money back as is committed to paper in the relevant agreement," Putin added.

The Russian Central Bank (CBR) revised its 2015 GDP contrac-tion forecast from 3.5-4% to 3.2%, following the revision of the oil price forecast from $50 to $60 per barrel, the regulator said on June 15.

The fall in investments in Russia was less than expected, whilethe government’s anti-crisis measures and the beginning of the construction of Power of Siberia gas pipeline to China also supported the economy in 1Q, the CBR said. However, in the second quarter of the year these factors will not effect the economy to the same extent, it added.

bne:Credit


June 19, 2015 Bondholders slap down haircut calls as Ukraine...

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