Volodymyr Tskhvediani, Ukrainian Securities, Inc.
Although today
this sector is
on the verge
of bankruptcy
In early March, several new enterprises appeared
in the listing of the Over
the Counter Stock Trading System (OTC), including
the Okean shipbuilding yard and the Sevastopol Sea Plant, which are in a way stalking horses for the Ukrainian shipbuilding
industry on the domestic stock market.
And though today the companies stock has low-liquidity, (sell offers exceed buy offers by almost an order of magnitude), hopefully, following general market growth its liquidity will grow and prices rise. The trend is already visible. As of March 6, the shares in the Okean shipbuilding yard were quoted as follows: bid Hr 0.16, ask Hr 3.50 and at the last auction held at the OTC, bid for Okean rose to Hr 0.40, and ask was almost unchanged (the best was Hr 3.499).
As is well-known, capital turnover in the shipbuilding industry is lower than in most other sectors. Because of this, the sector has always been severely affected by cash-flow shortages, aggravated by the payments crisis and tax burden. Under these conditions and taking into account the reservation of the full government control, shipbuilders could hardly hope to stir the interest of serious investors.
However, with hyperinflation brought under control, many experts predict that the machine building sector in general and shipbuilding in particular will become attractive to investors again. This is fostered by the gradual privatization of the shipbuilding companies. In addition, the Ukrainian shipping companies have an urgent need to replenish their fleets. Although it is well-known that domestic companies prefer to place some part of their orders for repair or construction of vessels abroad, experience shows that domestic shipbuilders are capable of providing the same quality of work as their foreign colleagues at lower cost and with easier payment terms.
Despite this, the Arbitration Court of the city of Mykolayiv is now considering the bankruptcy of Okean. Its total debt is $9,031,000. One of the claimants is Yuneks Bank. The proceedings are being conducted at a time when the yard has virtually finished the construction of the bulk-carrier Kyiv (the vessel is 70,000 tons deadweight, and was ordered by the Chornomorske Shipping Company). Dry runs have already began and in a few days the ship worth about $25 million should be delivered. The Mykolayiv Shipyard is also under contract to build a similar vessel. The construction was financed by Yuneks and the First Ukrainian International Bank. The former granted the yard a $2,150,000 short-term loan (for four to five months), and the latter a $2.5 million loan. In the near future Okean intends to deliver the ship to the client, receive payment (unless the Chornomorske Shipping Company is insolvent), and pay off the debts. This will probably satisfy one of the major creditors, Yuneks Bank, which is currently in a rather complicated situation. If Okean is lucky, the market value and the liquidity of its shares on the secondary market will rise. In addition, the yard has recently been contracted by a German company to build 10 vessels according to Mykola Romanchuk, Okean director. The contract is worth $220 million and is to be executed within five years. In the next two months, a $160 million contract with Norwegians is expected. In other words, the yard is not standing idle, on the contrary, until 2000 it should be one of the most stable companies in Ukraine.
The Sevastopol Maritime Plant is the largest Ukrainian enterprise specializing in warship repair and construction and actually has a monopoly on floating crane and crane ship production. Following conversion, the share of military contracts continually falls.
As of January 7, 1997, the company's assets are Hr 209,878,000. As of January 1, 1998, its total market capitalization is Hr 772,479,250. Depreciation of fixed assets is 53.24%. The economic activity of the company for the first six months of 1997 resulted in a Hr 1,362,000 loss. The difference between accounts payable and accounts receivable was Hr 3,848,900, a situation caused by the lack of working capital and insolvency of its clients.
The State Property Fund of Ukraine adopted a decree of August 20, 1997, which specified the placement of Sevastopol Maritime Plant stock. According to the decree, 53.84% of the stock will be offered on a competitive basis. Another 5.75% will be sold at auction for compensation certificates. In addition, 15.16% of the stock was sold on a preferential basis and 14.09% at certificate auctions. It was planned to offer 26% of the stock at commercial auction. At the non-commercial auction late last year the State Property Fund offered 26% of the stock for a price 10 times over its nominal face value. But the auction did not actually take place because of a lack of tenders. 8% of the stock was sold on the stock exchange in late 1997.
The specified plan for placement of the stock will leave 26% with the government. The average market value of a share in the plant is Hr 0.25 (OTC bid price) while ask is Hr 2.39-2.40. The liquidity of company stock is thus not very high. However, there is little doubt that with the next boom of Ukrainian corporate securities, the shares in the enterprise will be in greater demand. They should be: stock market experts rank the Sevastopol Plant among companies which have the most promising opportunities in the Black Sea region primarily because of its geographic location. And the future of Sevastopol as the largest regional naval base and a developing economic center is beyond doubt.
Photo:
Uncompleted ships in the docks of Ukrainian maritime construction plants are a sign of the times. But this "frozen" labor force has significant influence on the financial market. Any rise in temperature in construction will lead to movement in the corresponding securities
