Ukraine’s Azovstal, Dniproenergo and Dniproazot listed on the Frankfurt Stock Exchange

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On February 24, 2006, the Frankfurt Stock Exchange began listing depositary receipts of the Ukrainian energy distribution company Dniproenergo. Three days before this, two other Ukrainian blue chips, steel-maker Azovstal and nitric fertilizer producer Dniproazot, were listed on the FSE as well. This was reported by Ekaterina Shumskaya, Project Manager for Emerging Markets at RG Securities AG, who managed the deal.

Ukraine’s leading investment bank, Concorde Capital (, mediated the negotiations with the companies, as well as co-developed the documents required for listing.

Trading of the first companies started on February 22. According to FSE market makers, demand for these securities is starting to appear, though they lack quotation rates yet. Ms. Shumskaya noted that the quotation rates on these Ukrainian companies will appear in the next few days.

According to RG Securities AG representative, the Frankfurt Stock Exchange circulated a notice to its participants last week, stating the amendments to the regulations related to the listing of Ukrainian companies. Specifically, Ms Shumskaya claims that such rules are now significantly simpler, “At some stage, the Ukrainian market might be even recognized by Deutsche Boerse, the operator of the Frankfurt Stock Exchange, as controllable. In that case, it would greatly facilitate the listing of Ukrainian companies on the Frankfurt Stock Exchange. For now, the listing is applicable solely for the depository receipts of these Ukrainian companies,” believes Shumskaya.

Now, even the companies’ consent is not required to attain this. In addition, the Frankfurt Stock Exchange does not require the submission of a special report concerning these companies; financial returns are enough.

According to RG Securities AG, one and a half years ago they submitted applications for the inclusion of 10 Ukrainian companies in the Frankfurt Stock Exchange listing. Specifically, Ukrnafta, Ukrtelecom, Centerenergo, Zaporizhstal, Poltava Mining-And-Processing GOK, Khartsyzkyy Pipe Plant, Ordzhonikidze and Marganets GOKs , Nizhnidniprovsk Pipe Plant, Zakhidenergo, Dniproenergo, Stirol, and Azovstal were included. However, the stock exchange initially listed accepted shares of only four companies; Ukrnafta, Ukrtelekom, Centerenergo and Zaporizhstal. Later on, Concorde Capital facilitated the listing of Concern Galnaftohaz and Forum Bank.

“Inclusion in the listing of the largest trading floor in Europe, namely Deutsche Boerse, will bring additional visibility for Ukrainian companies in Europe, and will serve as kind of promotion since the XETRA trading system unites virtually all European trading systems. We can also expect an improvement in the companies’ liquidity: there’s a great difference between domestically trading shares, where demand is to a degree limited, and access to a trading floor such as Frankfurt. We expect the demand for such securities to increase due to investors’ interest in the booming Ukrainian market. To support the trend, RG Securities AG is currently developing a marketing programme for German-speaking countries. Growing demand will boost the market capitalization of Ukrainian companies. Furthermore, listing on such a trading floor as Frankfurt will facilitate obtaining credit ratings in the future,” says Shumskaya.

As reported before, on December 6, 2005, depositary receipts of Galnaftohaz also were listed on XETRA – FSE’s electronic trading system.

Corporate backgrounder

RG Securities AG specializes in securities trading on the Frankfurt Stock Exchange. The Company first dealt with the Ukrainian market in Germany and attained the inclusion of depository receipts of Ukrainian companies in the Frankfurt Stock Exchange listing, operated by Deutsche Boerse.

Investment bank Concorde Capital, established in November 2004, provides broker services to institutional investors, as well as services in the corporate finance domain to domestic companies. According to 2005 results, Concorde placed second among the most active stock traders in PFTS rating. In 2005, Concorde Capital handled five private placements for Ukrainian issuers among foreign investors. In particular, over mentioned period the Company placed 5% of AvtoKrAZ shares ($4,5 million), 7,5% of Dniproazot ($7,3 million), 12% of Concern Galnaftohaz ($17,5 million), 10% of Forum Bank ($20 million), and 9,9% of Bank of Georgia ($4,5 million).

Azovstal is the Ukraine's third largest steel producer with 2005 output of 5.9mln tonnes of crude steel and 9M05 sales of 1,813mln USD. The company has announced an aggressive production plan for 2006. It plans to raise 2006 pig iron output by 25% y-o-y, to 6.2mln tonnes, crude steel production by 26%, to 7.5mln tonnes, and finished steel output by 27%, to 6.7mln tonnes. The company also plans to reduce consumption of coke in blast-furnaces, which would reduce its production costs.

At the beginning of February Standard & Poor's rating agency assigned a long-term B- corporate credit rating to Azovstal with a positive outlook. This was followed by Moody's, which assigned a (P)B2 corporate rating to the company, also with a stable outlook. Both agencies noted that Azovstal's ratings could be raised if a planned capacity upgrade proves successful and when its makes significant progress in its corporate governance issues.

Dniproazot is the largest chemical enterprise in Ukraine concentrating on the production of nitrogen fertilizers. The company supplies its products to Europe, North America and Asia. The largest consumers are Brazil, Turkey, Vietnam, India, Mexico and Egypt. The basis of its commercial output for export is urea (78.8% of total sales in 2005), ammonia (5.8%), caustic soda (5.2%) and other products (10.1% of total sales). The company’s domestic market share in mineral fertilizer production is 10%. Dniproazot is Ukraine's 2nd largest producer of caustic soda, which is used in the food industry, cellulose and dye production, the chemical industry and metallurgy.

Dniproazot's 9M05 sales are 174mln USD (12% growth yoy), with EBITDA of 51mln USD (25% growth yoy), NI of 36mln USD (82% yoy). With a current market capitalization of 140.6 mln USD, analysts’ consensus is that the company is traded bellow its fair value. The fact that Dniproazot is one of the most efficient fertilizer producers in Ukraine in terms of its gas consumption will mitigate a hike in gas costs.

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