American investment banker ‘cautiously bullish’ on Ukraine

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20 Oct, 2014
American investment banker ‘cautiously bullish’ on Ukraine

Nick Piazza, CEO at SP Advisors, talking about investment trends at Milk Bar on Shota Rustaveli street in Kyiv.
Photo by Anastasia Vlasova

When the smoke clears after this Sunday’s parliamentary election, the CEO of Kyiv-based investment house SP Advisors plans to tell financiers that fortune has a way of often favoring the bold during the firm’s investment conference on Oct. 28-29.

“My general message to investors will be to thank those brave enough to be looking at Ukraine in this difficult period,” Nick Piazza told the Kyiv Post over brunch at Milk Bar.

Describing himself as “cautiously bullish on Ukraine” for the next two years, the native Chicagoan noted that Ukraine’s only lenders for the same period will be the International Monetary Fund and other international finance institutions.

“I will not say ‘come and buy-buy-buy,’ but there is also a lot of misinformation around. People are talking about default, we don’t see that,” he said.

Following this year’s $1.6 billion Naftogaz eurobond settlement, the nation’s next major sovereign payments aren’t due until late 2015. This comes on the back of the economy shrinking by 9.5 percent this year, and an additional 4.3 percent next year, according to the investment banker’s estimates.

Another challenge that needs to be addressed is capital flight, which is about $600 million for the first eight months of this year.

Still, investors continue looking at Ukraine as an investment opportunity, albeit through a high-risk, high-yield prism.

“There are many people who have already invested in Ukraine and want to see what is left, while others are looking for something cheap to buy,” said the 37-year-old banker. Investors want to know how will Ukraine turn out and whether it will become some kind of quasi-Soviet state again.

Given the turbulent changes that have taken place since November when the EuroMaidan Revolution started, and leading up to the military conflict in Donbas, Piazza said “it’s time for Ukraine’s leaders to acknowledge that society has taken a big step forward…government should recognize this not with cheap words and slogans but with real action, prosecution, jailing and enforcement of legislation.”

“Like no other time in its modern history Ukraine’s people are determined to be heard and respected, the politician that fails to recognize that will likely not be in office very long.”

Thus, his message to government representatives at the conference will be to say “try by doing, change as you go, listen to business, stop hindering it…it’s not a question of understanding (which they do), it’s a question of implementation.”

Rules for accessing capital markets have also changed. Because two-thirds of Ukrainian companies that have been listed lost investors’ money, according to Piazza, corporate bonds with double-digit yields are one of the few routes that remain.

To build trust, he noted, Ukrainian businesses must stop doing “business po-ukrainski,” and “become serious and start playing by international rules – legal compliance, conduct regular audits, effectively communicate with investors.”

A contrarian strategy suits the current market conditions, he added, citing investment guru Warren Buffett: “Be greedy when others are fearful.”

Regarding the banking sector, the SP Advisors CEO thinks the central bank should better explain its actions and what it plans are. Moreover, the regulator should help with obtaining cheaper internationally-backed lending to those banks that deserve it.

State-run banks account for much of domestic borrowing, he noted. The biggest government-owned lender, Oshchadbank, issues loans in hryvnias at a very high price, which, given the contracting economy, is quite challenging to pay back.

Piazza established SP Advisors in 2011 after the Ukrainian branch of BG Capital, that he led, closed. “I could have settled in Georgia, collect a big paycheck, but at the end of the day there is not too much to do there for a guy like me; the market is ten times bigger here than in Georgia,” explains Piazza.

Before joining the Georgian bank, he headed corporate relations at Concorde Capital starting in 2006, coordinating its sales, research and corporate finance departments.

His SP Advisors focuses on investment banking, portfolio management, brokerage, hedging services and consulting for midsized agriculture companies. Obolon brewery, UkrLandFarming, and Ukrproduct Group are among the company’s clients. It also conducts several joint projects with the European Bank for Reconstruction and Development in the green energy sector.

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