Corporate actors whose headquarters and production capacities are located in the eastern part of Ukraine have serious troubles trying with business planning as the region is being roiled by separatists.
Pro-Russian activists backed by the Kremlin are taking over administration buildings in Donetsk and Luhansk, while trying to do the same in Kharkiv.
The political future of the eastern region is uncertain, the worst thing for businesses.
Share prices of key Donbas companies – Alchevsk Metallurgical Plant owned by local mammoth Industrial Union of Donbas, Avdiyivka Coke Plant, Azovstal and Yenakiyeve Steel Plant which belong to System Capital Management through Metinvest, Energoinvest Holding’s Donbasenergo – fell significantly on April 7, bringing down the Ukrainian Exchange index by 2.4 percent.
If the pro-Russian separatist movements in Donetsk Oblast continue, the financial stability of the local businesses is under serious risk, says Oleksandr Valchyshen, analyst for International Capital Ukraine headquartered in Kyiv.
“Any further annexation of Ukrainian territories will mean economic depression for the whole country and great problems for Donetsk entities. They may face margin calls from the investors,” he adds. Moreover, the cost of borrowing capital grows as investors lack confidence in the business activity done in the Russian-leaning region.
Ukrainian business giants System Capital Management, run by the country’s richest billionaire Rinat Akhmetov, and Industrial Union of Donbas, whose longtime owner Sergiy Taruta became Donetsk governor, are strongly connected with Ukraine’s economy and financial system.
For instance, SCM contributes almost 4 percent to the country’s gross domestic product and is heavily oriented on the local market. Its DTEK and First Ukrainian International Bank issued eurobonds attracting more than $1.5 billion and if eastern oblasts declare independence or become part of Russia legal status of these substantial borrowings will be unclear.
Moreover, the Russian business climate is very far from perfect; thus expanding Moscow’s jurisdiction over eastern oblasts of Ukraine is unlikely to boost their business development.
The hryvnia, Ukraine’s currency, broke the threshold of Hr 12 per dollar at the interbank exchange market on April 7, under pressur of political turmoil. It continues to set new historical lows each day, devaluing by more than 40 percent since the beginning of the political crisis in November.
However, political instability in eastern Ukraine costs a lot to Russia too as the probability of harder economic sanctions by Western democracies increases. “Probably, Western countries’ economic sanctions against Russia this time will be much harder,” says Moscow-based Nord-Capital investment bank in a report.
The Russian ruble is devaluing, while foreign capital keeps leaving the country as shareholders sell stakes in the Russian companies. Russia Trade System exchange index fell by 3.9 percent as for 4:50 p.m. Kyiv-time on April 7, while Moscow Exchange – by 2.9 percent.
The Russian Federation continues to use trade measures to put more pressure on Ukraine. Rospotrebnadzor, country’s consumer rights protection service, on April 7 temporary banned six Ukrainian dairy companies from supplying their production to Russia.
This move is harmful for three biggest Ukrainian cheese exporters – Milkiland, Milk Alliance and Almira. Last year they sold near 85 percent of all Ukrainian cheese exports to Russia, said Natalia Shpygotska, analyst for Kyiv-based Dragon Capital investment house. “They need to redirect their goods to local market.., because around 50 percent of their cheese exports is being exported,” she added.
Kyiv Post staff writer Vladyslav Golovin and associate business editor Ivan Verstyuk
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