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Review of Corporate Finance Market and Recent Trends

In the course of the last year there has been a lot of positive corporate finance activity in Ukraine. In the area of capital markets, the end of 2010 saw several large corporates, namely PrivatBank and Avangard, raising successfully USD200 million each through Eurobond offerings. In January 2011 Metinvest successfully established a USD1 billion Guaranteed MTN Program and issued USD750 million notes within this program. On the IPO front, Avangard, Milkiland, Agroton and Sadovaya successfully did their public offerings in 2010, followed by KSG, IMK, Ovostar, Coal Energy and Westa, which debuted on the Warsaw Stock Exchange in May and June this year. MHP and Kernel did secondary offerings at the end of 2010. Prior to the recent turmoil on financial markets in August and September 2011, we expected to see at least six other agricultural companies to try IPOs in 2011. The Eurobond activity has not been very active in 1H 2011, but we expected more Eurobond issuers in 2H 2011. The potential second wave of financial crisis significantly altered the plans of many issuers, most of whom postponed their plans until 2012. This notwithstanding, several companies hope to do listings still in 2011, if the markets provide them with a good “window” opportunity. We also saw a slow, but reassuring trend in bank lending. Admittedly, mostly large corporates were able to attract bank financing, but the pool of such borrowers is gradually increasing. We have also seen a strong trend for trade financing covered by national export credit agencies, as well as some pre-export financing emerging. International financial institutions, namely IFC and EBRD, remain very active on the market. Finally, in the M&A area the activity has picked-up in many

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sectors, with agriculture, FMCG, and financial services being the leading ones. The agricultural sector has experienced a lot of consolidation, especially in the sugar industry, where major sugar producers (Dakor, Rise, and UkrRos) have changed owners in early 2011. The financial institutions sector has seen the sale of VAB Bank and Renaissance Credit, as well as investment by Horizon Capital into UkrFinance Group, one of the largest debt purchase and collection businesses in Ukraine.

Ukrainian government has been recently undertaking some reforms in the banking and regulatory sectors, as well as pushing the land reform in Ukraine. It has become easier to establish and to run a company in Ukraine.

While foreign investment stayed low in the last 9 months, a lot of investment came from local investors. We also see substantial interest from Middle Eastern investors, especially in the agricultural sector. Russian investors are also quite active, as well as private equity. Horizon Capital alone invested into approximately 3-4 companies in the course of the last 12 months, while Advent International made its first investment into a healthcare company Isida.

Consolidation has also been the trend in some sectors and it will certainly continue in 2012. The farming sector remains very fragmented and we expect significant consolidation during the next few years. A big part of the deal flow in 2011 was in the farming sector with acquisitions of Dakor, Rise, and UkrRos (all of which hold substantial land banks), as well as some other farming companies, such as recent acquisitions by Kernel Group. We expect more consolidation and deal flow in the banking sector and FMCG.

 Lawyer Monthly Legal Awards 2011

We expect M&A activity to pick up at the end of 2011 and in early 2012, as some businesses will continue to consolidate, while others will continue selling off their non-core assets. We also expect more joint ventures in those companies, which failed to attract capital through IPOs and Eurobonds earlier this year, but continue to experience the need for additional capital. The Ukrainian Government is expected to kick-off the privatization processes, which will lead to additional deal flow and even some acquisition finance transactions.

Contact

Mykola Stetsenko

Mykola Stetsenko Managing Partner

Tel: +380 44 220 0335 Fax: +380 44 220 0335

Email: mstetsenko@avellum.com Website: www.avellum.com