Sovereigns somewhat recover followed by blue chips, more financial support for Ukraine’s needs – Dragon Capital

10 March, 07:33 PM
A Ukrainian UAH 1000 note (Photo:National Bank of Ukraine / Flickr)

A Ukrainian UAH 1000 note (Photo:National Bank of Ukraine / Flickr)

Russia’s war against Ukraine affecting bonds, shares, pushing them to uncomfortable territory

Dragon Capital investment company (and NV publisher) provides analysis on Ukraine’s economic developments. Below is company’s analysis of news and trends that matter. The information is up to date as of 1142, March 10, 2022.

TRADERS’ VIEW

Fixed income: The sovereign rallied impressively (+6-8pt) as global markets decided that a peace deal between Ukraine and Russia was within reach. President Zelensky's comments from last night in the House of Commons started the rally, and it was supported by further hopes regarding foreign ministers’ meeting in Turkey on March 10. Local participants as well as those investors who have been watching Ukraine/CIS for a while remain skeptical, but likewise we didn’t see much selling into this rally.

Video of day

Equities: The local market remained closed yesterday while the KP-Dragon rebounded by 8.1%. FXPO jumped by 12.4% on a healthy trading volume of $8.9m, closing at GBp 141. Agricultural names were also stronger, with IMC rising by 20% and AST and KER growing by 7.3% and 4.6%, respectively.  

NEWS ANALYSIS

Russia’s War On Ukraine, Day 15

Dragon view: Please find our latest summary:

·  For yet another day, with the intensity of fighting visibly lower, accounts of Ukraine’s massive humanitarian crisis continued to overshadow battlefield reports. Russia proceeded with its widespread and indiscriminate shelling and air strikes on civilian targets on March 9, this time destroying a children’s hospital and maternity ward in Mariupol, a city of 450,000 before the war, which has been without electricity, heat and water supply since last week. The attack reportedly killed three people, including a child, and injured more than a dozen. Mariupol administration officials say Russian strikes have already killed 1,300 people in the city.

Authorities in Kharkiv said the first 14 days of the war had left 281 of the city’s residential and 102 of its administrative buildings either damaged or destroyed, including 26 schools and 23 kindergartens, as well as a 19th century building that had survived the three-year Nazi occupation of Ukraine during the Second World War.

At the same time, presidential administration officials said Ukraine had managed to evacuate 48,000 people from frontline cities and towns via agreed “humanitarian corridors” on March 9. Officials announced this morning evacuations via seven routes confirmed with Russia, including from Mariupol to Zaporizhzhya, which Russian forces had previously disrupted, would continue today.

Russia’s systematic destruction of civilian infrastructure expanded as its military successes on the ground became much more modest in the second week of the war. The horrific incident in Mariupol, which by its psychological impact on further Western actions to ostracize Russia could be compared to the 2014 downing of the MH17 aircraft (which was carrying mostly Dutch citizens) over eastern Ukraine, prompted renewed pleas from President Zelensky and other Ukrainian officials to the West to protect Ukraine’s airspace. This, coupled with growing Western concerns conveyed to media about Russia’s potential use of chemical weapons and confirmed use of thermobaric bombs, may finally help the no-fly zone issue gain traction. While NATO directly enforcing a no-fly zone is an unrealistic option by and large, some indirect solution to enhance Ukraine’s capabilities in the air without overt Western presence (e.g. finding a way to deliver the Polish MiG-29s) may ultimately be found.

The military situation on Ukraine’s multiple fronts remained little-changed yesterday. The Ukrainian army reported localized counterattacks to the northwest and northeast of Kyiv and north of Kharkiv, pushing the enemy further away and in particular thwarting yet another attempt to surround the capital from the west/southwest. Authorities in Odesa said Russia had abandoned plans for a landing operation for the time being, with Russian warships in the area sailing back to Crimea.

According to the Ukrainian army’s latest update on the Russian losses, from Feb. 24 through March 9, the Ukrainian military has destroyed 49 Russian planes and 81 helicopters, 335 tanks, and 1,105 armored vehicles, with Russian fatalities estimated at over 12,000. The numbers were again little changed compared to a day earlier – an indication that the intensity of the fighting has lessened.

In addition, the Interior Ministry reported that some 2,000 Russian soldiers have been taken prisoner. Zelensky repeated yesterday the earlier U.S. and local assessments that Russia has already deployed virtually the entire combat power it had massed around Ukraine before the war. Meanwhile, the BBC calculated that authorities in 39 out of Russia’s 83 regions had confirmed the deaths of soldiers in Ukraine, albeit mostly reporting only one or two such cases (Buryatiya in eastern Siberia was the notable exception, with eight deaths reported).

In other notable mentions, Ukraine’s state power transmission operator Ukrenergo said the decommissioned Chornobyl nuclear power plant, currently occupied by Russian forces, was disconnected from the power grid.

New pro-Ukrainian rallies were held in Russia-occupied cities in Chernihiv and Zaporizhzhya Oblasts as Ukraine celebrated the anniversary of the birth of national poet and writer Taras Shevchenko, further signaling that Russia will face serious challenges exercising control over the captured territory.

In diplomatic developments ahead of today’s meeting between the Ukrainian and Russian foreign ministers in Turkey, which has already been completed with no major outcome reported, a senior official at Zelensky’s office said Ukraine was prepared to discuss its future neutral status with Russia, but only at the highest negotiating level and after fighting was terminated and Russia had withdrawn its troops from Ukraine.

In a symbolic move possibly signaling its closer diplomatic engagement at a later stage, China announced it was sending $800,000 worth of humanitarian aid to Ukraine.

Macro and Corporate Update


Dragon view: Below is our summary of key macro and corporate events:

The IMF approved $1.4 billion in support for Ukraine under its Rapid Financing Instrument Facility. It is our understanding that the disbursement will proceed quickly and replenish state budget coffers, alleviating Ukraine’s immediate funding pressures caused by collapsing tax revenues and increased spending on military and social assistance.

In the meantime, Ukraine cancelled its $5 billion Stand-by program with the IMF, signed in 2020 and due to expire in mid-2022, under which $2.2 billion remained undrawn. Instead, Ukraine will work with the IMF to “design an appropriate economic program aimed at rehabilitation and growth when conditions permit.”

On a related note, the EBRD announced an initial EUR 2 billion resilience package of measures for Ukraine and affected countries. Within Ukraine, the measures will focus on supporting companies’ liquidity, providing trade finance, including for fuel imports, and emergency reform support. The EBRD will also take part in financing the reconstruction of the Ukrainian economy once conditions are in place.

Also, the U.S. House of Representatives approved on March 9 a $13.6 billion aid package related to Ukraine, mostly to finance military and humanitarian assistance. Senate approval is expected in the coming days.

Ukraine will need massive financing to restore its economy after the war. Damage to  transport infrastructure, which includes roads, bridges, airports and railways, amounted to $10 billion as of March 7, according to Infrastructure Minister Oleksandr Kubrakov. This is only a fraction of actual asset losses, as it does not account for destroyed residential buildings, hospitals, schools, kindergartens and industrial production facilities. Also, with an end to the war not yet in sight, costs will continue to grow.

Astarta Holding said that the Ukrainian subsidiaries of Raiffeisen Bank and OTP Bank became the first financial institutions to open credit lines to the company, for UAH 190 million (EUR 6 million), to finance preparations for the spring planting season.

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