IFLR 1000
The Guide to the World's Leading Financial Law Firms

Few countries have been hit harder than the Ukraine by the global downturn. The onslaught of the credit crunch, the decline in commodity prices and ongoing squabbles within the government and with Russia all combined to change Ukraine's economic outlook....

Few countries have been hit harder than the Ukraine by the global downturn. The onslaught of the credit crunch, the decline in commodity prices and ongoing squabbles within the government and with Russia all combined to change Ukraine's economic outlook.

The change has left the country dependent on handouts from the IMF to stop it from defaulting. Even receiving the handouts has not been plain sailing, with the IMF adopting a carrot-and-stick approach to handing out each tranche of the $16.5 billion bailout.

The squabbling between the president, Viktor Yushchenko, and prime minister, Yulia Tymoshenko, has not helped on this front. Now commentators are starting to dispute the mantra that political turmoil has no affect on business in the country. First it creates a perception problem for foreign investors. Second it has a material effect on the country's finances. "Look at the last few weeks. When there was some stability the Ukrainian Eurobonds went up. It affects many micro-factors," says one partner.

The currency has devalued rapidly in the past year, losing up to 40% of its value at some stages. With lending primarily coming from foreign banks, the sudden deterioration in currency value has meant many will struggle to repay the loans.

Now banking and finance work is dominated by refinancing and restructuring deals, buy-out of debt, multi-party debt and non-residents setting up structures. "We are working as lawyers and business facilitators," comments a partner.

What makes it worse is that the majority of Ukrainian banks are in the same boat. "Ninety-nine per cent of banks are technically bankrupt," says one lawyer. This led to the government placing a moratorium on accounts.

The problem with banks being in such a bad way is that it makes it harder for them to restructure loans owed to them. Many believe that Ukraine is only at the beginning of a long process of restructuring that could last longer than in most European countries.

Eurobonds is another area that is undergoing heavy restructuring. Problems exist: "There is a lack of experience in restructuring Eurobonds," says a partner. Some local bonds are being restructured too. "They are not very sophisticated, but they are difficult to unravel," says one practitioner.

Finally, project finance has not kicked off as expected. The UEFA European football championship in 2012 is anticipated to bring about work in this market, but reports so far suggest little is happening yet.

From boom to bust is the most apt cliché to describe what has happened to the Ukrainian M&A market. For 2008, the predicted volume of M&A transactions was expected to hit $20 billion for the first time – however $3....

From boom to bust is the most apt cliché to describe what has happened to the Ukrainian M&A market. For 2008, the predicted volume of M&A transactions was expected to hit $20 billion for the first time – however $3.7 billion was the true figure.

Partners comment that in the third and fourth quarter nearly every deal that was being worked on collapsed, even those at the signing stage. Numerous factors played into this: the financial sector was a hub of activity, but the sudden freeze in liquidity exposed banks in Ukraine; the collapse in metal prices; the property decline. The fluctuating value of the hryvnia was also a huge factor.

Now every firm reports being mandated to do due diligence and being put on alert by sellers, yet the problem is that buyers just don't exist. "Everybody is just sitting around waiting," says one lawyer.

Some predict that in terms of deals the quantity could return to the M&A market, but the price level will be dramatically down. The days of massive prices are gone for a long time.

A change in the type of buyer might have an affect on law firms too. One partner explains: "The new types of investors are hedge funds, distressed asset funds [that are] doing business in the Ukraine for the first time. So, they will naturally turn to the international firms."

The agricultural sector is one area that has potential for deals. It is underdeveloped and in need of investment, and interest from Middle East investors has already materialised. Retail is another interesting sector. People see the opportunity not only in a chain but in the real-estate chains possess, providing potential to raise cash.