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Announcement:

Moody's: Hryvna devaluation scenario positive for the majority of rated Ukrainian corporates, with some facing pressure

28 Feb 2014

London, 28 February 2014 -- The effects on the majority of the six rated Ukrainian corporates would be positive to neutral under a scenario in which Moody's tested the robustness of their credit profiles in the event of a 30% devaluation of the hryvna to around 10.5 per US dollar from its initial level of 7.99 as at 6 February, says Moody's Investors Service in a Special Comment report on Ukrainian corporates published today.

The rating agency has considered the likely implications of the aforementioned scenario to demonstrate the rated companies' vulnerability to the local currency devaluation, which should not be interpreted as being a forecast for the hryvna/US dollar exchange rate. The hryvna's official exchange rate was 9.9 per US dollar on 28 February, while on the interbank market it surpassed 11, and there is a risk that it may weaken further given the current political uncertainty, market, economic pressures and social unrest in Ukraine.

Moody's report, entitled "Ukrainian Corporates: Hryvna Devaluation Would Have Positive or Neutral Effect on Most Rated Issuers", is available on www.moodys.com.

"A weaker hryvna would have positive credit implications for large Ukrainian export-oriented commodity producers, as the majority of their revenues are in US dollars, while their costs are mainly in hryvna," says Ekaterina Lipatova, a Moody's Analyst and author of the report. "The credit impact on MHP would be neutral supported by its growing export volumes. However, DTEK would be most vulnerable as almost all of its debt is denominated in foreign currency and its exports account for only a small portion of its revenues," continues Ms. Lipatova.

Moody's expects that a hryvna devaluation would be credit positive for the large Ukrainian export-oriented commodity producers (i.e., Ferrexpo Plc, Metinvest B.V., Fintest Trading Co Limited (Donetsksteel)) as their EBITDA would increase. The companies' ability to service their US dollar-denominated debt would be unaffected by the devaluation because most of their cash flows are in US dollars, which would provide a natural hedge.

In its report, Moody's also projects that Lemtrans LLC would gain moderately from a devaluation because up to 60% of its revenues are linked to the US dollar, while its operating costs are mainly in hryvna.

In addition, Moody's expects that the credit impact of a devaluation on MHP S.A. would be credit neutral overall. While most of the company's debt is in foreign-currency, its growing export volumes (which accounted for nearly 40% of its total revenues in the first nine months of 2013) would provide a partial hedge.

Furthermore, Moody's anticipates that DTEK would be the most vulnerable to a further hryvna devaluation. This is because 96% of its total debt is denominated in foreign currency, while its exports and US dollar-linked domestic revenues combined only account for 12% of its revenues. DTEK's operating costs and capital are mainly in hryvna. Although credit negative, the effect of devaluation of up to 30% would be manageable within the company's current rating. DTEK would also remain in compliance with its covenants, although the headroom would be reduced.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Ekaterina Lipatova
Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group

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Moody's: Hryvna devaluation scenario positive for the majority of rated Ukrainian corporates, with some facing pressure
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