Standard & Poor’s affirmed its long-term foreign and local currency ratings on Ukraine at B-, with a stable outlook. Among rating-supportive factors, S&P noted a moderate fiscal deficit, downward-trending public debt and central bank independence, reinforced by the appointment of Yakiv Smoliy as NBU Governor earlier this year. Credit weaknesses include a challenging institutional and political environment, fragile external position caused by a combination of large foreign currency redemptions and widening C/A deficit, and high banking sector risks.

Ukraine’s retail trade turnover rose by 6.9% y-o-y in September, slowing from 7.5% in August and bringing the 9M18 tally to 5.5% y-o-y, down from 8.7% in 9M17.

Fitch Ratings affirmed its long-term issuer default rating for WSE-listed Kernel Holding, Ukraine’s largest sunflower oil producer and one of the largest grain exporters, at B+, with a stable outlook. The rating incorporates a leverage spike and weak operating results for 2018FY due to a challenging operating environment. Fitch expects a rebound in profits and an improvement in leverage, due to Kernel’s expansion plans and strong support from the group’s relationship banks. The agency noted that Kernel is at an advanced stage of obtaining up to $250m of long-term funding from the European Investment Bank (EIB) to cover its 2019FY capital expenditures, seeing limited execution risk for Kernel's expansion plans

Following a staff-level agreement with the IMF announced late on Friday, Ukraine swiftly scheduled a road show for a 10-year Eurobond this week, which might be appended by a “long” 5-year tranche. Markets will definitely focus on the planned new issuance this week. We estimate the government needs to raise $1.3bn-2.0bn and do not rule out that the priority will switch to a cheaper 5-year issue. Domestically, the NBU is to announce its rate decision on Oct. 25. Although the latest substantial progress on the IMF program mitigated external risks, we think the NBU may still hike its key rate by up to 50bp, to 18.5% p.a. (vs. flat rate at 18.0% seen by Bloomberg consensus), given that inflation expectations remain elevated and September’s inflation (headline at +8.9% y-o-y, core at +8.7%) came in above NBU estimates (+8.3% and +8.1%, respectively). Among macro data releases, we estimate September IP (Oct. 23) improved only marginally, to close to 0% from -0.5% in August. In addition, September budget and public debt data may come out early next week. Finally, Fitch is scheduled to issue its next update on Ukraine on Oct. 26 — we expect the rating to remain unchanged at B- with a stable outlook.

Ukrainian equities: up w-o-w locally and abroad Last week (a day shorter in Ukraine due to a holiday) saw the local PFTS index increase by 1.1% in UAH and 0.3% in USD terms and the broader KP-Dragon index lose 1.0%. The latter’s decline was driven by several big stocks including Ferrexpo (-4.1%), MHP (-2.9%) and Kernel (-1.6%). Yet not all foreign-listed names were up for sale, as Astarta rose by 1.9% and IMC by 1.5% and non-index Regal Petroleum surged by 35% w-o-w, extending its impressive YTD gain to 669% (and +904% y-o-y).

Ukraine reached a staff-level agreement with the IMF on a new lending program — a 14-month $3.9bn Stand-By Arrangement (SBA) — substituting for the outstanding $17.5bn EFF program that was set to expire in March 2019. Final approval of the SBA by the IMF Board and disbursement of the first tranche were conditioned on parliament’s passage of the 2019 budget law consistent with IMF recommendations and “an increase in household gas and heating tariffs to reflect market developments while continuing to protect low-income households”.

The government on Friday raised gas prices for households and heating utilities by 23.5% to UAH 8,550/tcm (incl. VAT, transportation and delivery costs; $303/tcm) effective Nov. 1. Separately, the government plans to set a 90% dividend payout ratio for state oil and gas company Naftogaz Ukrainy.

WSE-listed Kernel Holding, Ukraine’s largest sunflower oil producer and one of the largest grain exporters, reported 2018FY (July 2017-June 2018) sales of $2.4bn (+11% y-o-y), EBITDA of $223m (-30%) and net income of $52m (-70%).

Parliament approved the government’s 2019 state budget draft at first reading yesterday. The document targets a deficit of 2.3% of GDP (UAH 90bn), in line with this year’s target.

Ukraine’s agricultural production rose by 11.4% y-o-y in September, accelerating from 9.0% y-o-y in August and bringing the 9M18 tally to 4.9% y-o-y.

The Finance Ministry sold $254m of 9-month USD-denominated bonds at a 7.0% yield (flat vs. previous auction) at an unscheduled auction yesterday.

DTEK plans to convert at least one power unit at its Kryvorizka power plant to run on high-volatile coal and expects to phase out anthracite consumption at its Prydniprovska power plant in 2019.

WSE-listed Kernel Holding, Ukraine’s largest sunflower oil producer and one of the largest grain exporters, is due to report its 2018FY (July 2017-June 2018) financial results and 1Q19FY (July-September 2018) operating results on Monday, Oct. 22, before the market open.

The government reportedly decided yesterday to extend the “public service obligation” (PSO) for Naftogaz Ukrainy to supply gas to households and heating utilities at current prices until Nov. 1, 2018.