London-listed asset management group Polar Capital is looking to launch a fund later this year to take advantage of the attractive investment opportunities it believes exists in Ukraine. Earlier this year, Polar relocated its head office for emerging Europe to Kiev from Moscow, citing the growing attractiveness of the Ukrainian economy.
"Ukraine is a country with under-penetrated goods and services markets with a population of 47 million and GDP per capita still below $3,000," says Anton Khmelnitski, director of emerging markets at Polar Capital. He adds that this means that there are plenty of opportunities to invest in companies that will benefit from consumption-led growth as real incomes in Ukraine converge with those in the rest of central and eastern Europe.
Khmelnitski says that, in the wake of the global credit crunch, there are more companies, unable to raise loans from the banking markets, that are coming to Polar Capital in search of much-needed expansion capital. "We want to have exposure to well-run, established franchises which benefit from strong domestic demand," he says, adding that preferred sectors include agriculture, engineering, financial services, pharmaceuticals, retail and technology.
Most recent investments have taken the form of minority stakes in companies that are still at a pre-IPO stage. "It’s better to buy as close to the start of the story rather than at the end," he says. "The range of potential purchasers for our stakes is wider than just portfolio investors, it also includes strategic buyers and private equity groups."
With regard to the local capital market, Khmelnitski says that the authorities in Ukraine need to improve the running of the PFTS stock exchange to enable successful companies to list locally rather than internationally. "Ukraine needs a proper stock exchange – Ukrainian companies aren’t able to raise money domestically because the PFTS doesn’t function properly, unlike in Poland where you have a well-managed exchange with a good trading platform."
He says that while international investors are able to gain liquid exposure to the financially transparent Ukrainian corporates that have listed abroad in the past couple of years, local investors, which have started to buy stocks through recently established mutual funds, are only offered illiquid shares in often financially opaque firms. "Foreign money sees the upside of the Ukrainian economy, while domestic money sees the downside."
At present Polar has invested about $90 million in Ukraine and is looking to raise a further $100 million through a new fund that it is planning to open at the end of the year. "More and more companies are coming to us with funding proposals which are attractive," says Khmelnitski.