Viktor Yanukovych declared victory in Ukraine's 2010 Presidential Election late Sunday night (Feb 7) as the vote count began to come in showing him ahead of rival Yulia Timoshenko. "From this day, a new path opens up for Ukraine," Yanukovych proclaimed to a throng of jubilant supporters. Timoshenko was reluctant to throw in the towel claiming that it was too soon and the count too close to concede.

The Central Election Commission reported early Monday that with nearly 90% of the vote counted, Yanukovych had garnered 48.54% and Timoshenko trailed with 45.8%. The vote count is a mirror image of the National Exit Poll released Sunday.

Turnout for the runoff vote is expected to be higher than in the first round, and early data showed heavier turnout among Yanukovych’s base in the east of Ukraine. Data also showed that Ukraine remains a bitterly divided country with western Oblasts buying Timoshenko’s nationalist platform and Yanukovych maintaining support in the Russian speaking east.

Preliminary reports show that the “widespread” election fraud that both candidates had predicted did not come to fruition, and it would appear that Timoshenko has no legitimate grounds to challenge the vote’s legitimacy. International observers are expected to begin reporting as soon as 11:00 Kyiv time Monday.

So far so good for investors, as a smooth transition of power is the brightest scenario regardless the winning candidate.

The State Statistics Committee reported Saturday (Feb 6) that growth of consumer prices accelerated to 1.8% MoM in January compared to a 0.9% growth in the last month of 2009. Inflation in January was driven by food (+3.2% MoM) and fuel (+4.7%) prices. In the food basket, dairy prices soared 8.8% MoM, vegetables jumped 14.3% and sugar prices spiked 14.7%. On an annual basis, however, consumer inflation decelerated to 11.1%, the lowest level since May 2007.

Meanwhile, producer prices rose 1.9% MoM in January driven by the rising cost of utilities (+4.4%) and wholesale prices in the food sector (+2.9%). On an annual basis, prices at the factory gate rose for a fifth consecutive month to 16.3%.

Despite a relatively high month-over-month growth, we expect consumer prices to continue falling in February and March to single-digits. Producer prices are likely to remain volatile, in particular in the food and energy sectors.

The National Bank of Ukraine reported Friday (Feb 5) that its gross FX reserves shrank 4.6% MoM to $25.3bn in January. This was the steepest decline in FX reserves (excluding the two IMF tranches in May and July that added to the gross reserves) since last February.

Such a big loss in FX reserves in the first month of 2010 was quite a surprise given the mainly upbeat forecasts by NBU officials for 2010, the BoP deficit and hryvnia stability. As changes in FX reserves vastly correlate with changes in the Balance of Payments, we expect a deficit of the BoP in January in the range of between $0.3bn and $1bn despite a recent estimate by the NBU concerning the mainly flat current and financial accounts of the BoP.

President Victor Yushchenko signed into law yesterday (Feb 4) controversial amendments to the country’s presidential election law. The amendments – proposed by presidential candidate Viktor Yanukovych’s Party of Regions – cancel the requirement of a quorum of two thirds of territorial and district election commissions. These commissions are responsible for, among other things, opening polls and validating ballot counts. As each candidate is assured 50% representation in these commissions, the Yanukovych camp successfully argued that underdog Yulia Timoshenko was planning to have her representatives boycott quorums at key voting stations, thus invalidating the runoff vote scheduled for Sunday (Feb 7).

Timoshenko stated that the new measures will “make the election false, dishonest and uncontrollable.” More poignantly, Timoshenko recognized that she had once again been betrayed by President Yushchenko, with whom she co-led the 2004 Orange Revolution. "I think that a coalition of the Party of Regions, the Communists and Our Ukraine [Yushchenko’s Party] effectively appeared yesterday. I think that this coalition made its first successful step: destroying a fair presidential election and, in fact, jeopardizing the democratic path of the country's development," she told reporters Thursday.

The signing of these amendments represents a huge nail in the coffin of Timoshenko’s presidential aspirations. Indeed, the possibility of a coalition between political alter egos, the Party of Regions and Our Ukraine, has been thrown into the mix. If this mindboggling union is allowed to take shape in Verkhovna Rada (Parliament) in the wake of a Yanukovych victory, embattled incumbent President Yushchenko may remain in Ukrainian politics as Prime Minister. Don’t expect Timoshenko to go down quietly, however. If she loses, Timoshenko is likely to declare the election “rigged” and has already threatened to mobilize her support in protest.

Ukraine’s Ministry of Finance reported Thursday (Feb 4) that the state of public debt edged up 1% in December 2009 to $26.5bn. External public debt shrank 1.1% MoM to $15.1bn, while internal debt climbed 4.2% to $11.4bn. For the whole year, the state public debt soared 56.1%: internal debt almost doubled and external debt grew by 35% YoY. Debt guaranteed by the state was unchanged compared the previous month, but rose 47.5% YoY in December.

The EU Health & Consumer Protection Directorate-General (SANCO) will once again inspect selected Ukrainian poultry farms in May 2010, a source from the State Veterinary Medicine Committee of Ukraine said. This action is aimed at determining whether domestic chicken meat and eggs could be allowed for sale in EU countries. SANCO had postponed a secondary inspection scheduled for January 2010. Some of MHP’s facilities will be included on the list of farms to be examined. During their first visit to Ukraine, inspectors surveyed MHP’s Lehko meat processing plant in Myronivka and Druzhba Narodiv Nova poultry factory in Crimea.

Ukrainian poultry producers could strongly benefit from accession to the vast EU market (estimated at 12mn tonnes of chicken meat annually). We believe Ukraine is in a position to supply Europe with a minimum of 100,000 tonnes of chicken per year. Moreover, prices on chicken in Europe are at least 25% higher than in Ukraine. Therefore, opening an export window to the EU would guarantee hefty margins for MHP and other Ukrainian poultry producers. On the other hand, permission to export Ukrainian poultry to the EU will stimulate a further increase in domestic production capacity and will justify MHP’s plans to begin a big-ticket investment project in Vinnitsa region which envisages an increase in poultry output volume by 440,000 tonnes per year.

Sergey Popov, CEO of Centrenergo, said the company’s net loss amounted to UAH 150mn ($19mn) in FY09 compared to a net loss of UAH 198mn ($35mn) in FY08. Popov noted that the main reason for the loss was Ukraine’s low electricity tariffs.

The company’s announced loss for FY09 was two times lower than expected. In 4Q09, Centrenergo managed to cover part of the UAH 217mn ($27mn) net loss posted in 9M09. More detailed information concerning the company’s FY09 financial situation is expected to be released next week.

Arterium Corporation, Ukraine’s third largest pharmaceutical manufacturer, reported that net profits for its Kyiv-based unit, Kyivmedpreparat, were slightly cut from UAH 42.4mn in 2008 to UAH 38.6mn in 2009. Net profit for its Lviv-based unit, Halychpharm, increased by 39% to UAH 18.7mn. The AGMs for Arterium’s pharma units will be held on March 25 and 26.

The NBU released yesterday (Feb 4) preliminary balance sheet data for the Ukrainian banking sector as of 1 February 2010.

The results are pretty typical of what we have seen in 2009. Deposits from individuals have been stagnating (+0.3% MoM as of 1 Feb 2010). Corporate deposits declined both on a monthly basis and on an annual basis. The loans to both corporate and retail clients dropped in January by 2% MoM.

We do not expect any growth in lending volumes until the second half of 2010. We do expect an increase in the volume of deposits from individuals in 1H10, although it is likely to be modest.

Motor Sich, the largest producer of aircraft engines and gas turbines in the CIS, increased net profit 196x to UAH 755mn in 2009, according a company announcement.

Motor Sich’s improvement in bottom line meets our expectations of a better performance in 2009 compared to other domestic machinery manufacturers.