Avellum Partner Glib Bondar describes more of a quiet “hum” at the moment in Kyiv than an active Buzz.
“First of all, now is the summer,” he says, “so obviously there’s a slowdown, people are going on vacation, and so on.” Still, Bondar reports, he’s cautiously optimistic about what’s coming down the road. “In terms of workflow, I think we’re on the edge of some positive developments,” he says. “In my personal view, the restructuring stage is close to the end since the most large-scale cross-border restructurings of Ukrainian debt, including sovereign and municipal (the City of Kyiv) external debt restructuring, restructurings of corporate debt (e.g., Metinvest, DTEK) and re-profiling of external debt of Ukrainian state banks were completed. That was a precondition for the offer of new money by foreign investors/lenders.” He adds, “the hope is that, after successful recent eurobond offerings by Kernel and MHP, Ukraine will also be able to tap capital markets in the autumn or by the end of the year, and if Ukraine is back to capital markets that would show investors’ improved confidence in the Ukrainian economy and send a positive signal to a broader pool of foreign creditors.”
Although Bondar concedes that there has been little of other types of cross-border transactional work (such as cross-border M&A or new money financing) so far, he reports an increasing recognition by foreign investors “that there is some level of stability, in terms of both the economy and politics, that is encouraging some interest from foreign companies to look at Ukraine.” Nothing concrete has come of it yet, he says, “but we are receiving certain requests about the regulatory framework in certain areas, like energy — particularly renewables — that suggests to us that investors are looking at least to explore.” As a result, he says, “looking at this optimistically, it may result in actual deals. Of course the first investors will be more opportunistic. I doubt there will be many US or UK companies at first, but perhaps some VC companies. We also see some asset management companies that have in the past invested in Ukrainian securities, are looking again.” And increased stability in the country isn’t the only reason. Bondar says that, even aside from the becalmed economic and political environments, “the legislative and regulatory reforms in the corporate, banking, energy, infrastructure areas, and so on, are moving ahead, and of course investors see that. The only negative comment regards the still-weak court system, but the reform of that system is continuing as well, and we hope it will be effective.”
“Plus what we see,” Bondar says, “perhaps in anticipation of the Presidential elections in 2019, is the newly-established anticorruption bodies and general prosecutor’s office increasingly active in anti-corruption efforts, even following-up on accusations against some members of Parliament, which encourages some optimism that this is not just political positioning, but a real commitment to fighting corruption.” Of course, he says, “it remains to be see whether actual officials will finally go to jail.”
In short, Bondar concludes, “on several fronts we see reform happening.” He concedes that “it is unlikely that land reform will happen this year, but if it doesn’t happen this year that’s not so dramatic.” He smiles. “So there is some optimism.”
While Ukrainian firms await the return of big deals, Bondar reports that Avellum’s Corporate group is “quite busy with smaller and medium work coming in.” And, he says, “we still see activity in dispute resolution in particular in the area of investment arbitrations, with lawyers involved either as counsels or experts, and our Finance group continues to be busy with some restructurings, NPL, and regulatory-related work and financings from IFIs.”
On the legislative front, he says, “we still expect to see the new Law on Concessions passed, hopefully, by the end of the year, and there are a few initiatives to implement pilot projects for concessions of Ukrainian ports.” Indeed, he says, “there is political will to go to work on infrastructure projects in the country. Of course there’s always resistance. State ownership is viewed as a heavy source of corruption, so it can be quite difficult to implement, with a combination of private interests and state interests, but we see that on the one side from the government and ministries that there is a need for infrastructure developments, and on the other side there is support from international business community and international financial institutions, which suggests that this may happen beginning going forward.”
Finally, Bondar says, “at least some privatizations are also likely to happen this year,” citing the “announcements of seven state energy companies.” Available stakes will be quite small, Bondar reports, “so probably there will be few foreign investors (if any) involved, but it will still be a good sign. Everyone knows there will be no large foreign investment without a big success story first, so we need one large privatization to happen in a successful way to show everyone that it’s possible.” Similarly, he points out that with the EBRD’s support a corporate governance reform of Naftagaz has been successfully implemented, and he says that that reform is expected to be expanded to other state enterprises (such as Ukrainian state railways and the Ukrainian post office) as well. “This is something that needs to be done,” he says, “to make these companies more attractive and efficient to make them more attractive to foreign investors/lenders contemplating real direct foreign investments at a later stage.”
