Ukrnafta finally approved the distribution of its 2006-2008 profits, with almost 90% flowing to dividends. UAH 5.1 bln ($635 mln) of UAH 5.8 bln ($725 mln) was channeled into dividends, resulting in combined dividends of UAH 93.81 per share, which is equivalent to a dividend yield of 51% to the January 25 closing price. The payout schedule was approved as follows: 2006 dividends of UAH 44.48 per share should be paid from August 1, 2010 to August 1, 2011; 2007 dividends of UAH 22.82 per share are to be paid from January 29, 2010 to August 1, 2011; 2008 dividends of UAH 26.51 per share are to be distributed to shareholders from January 29, 2010 to August 01, 2010. The cut-off date to determine the list of eligible shareholders has not been announced. However, expectations that it will be announced on January 29 caused massive speculation on the Ukrainian stock exchange yesterday.

We see the news as POSITIVE for Ukrnafta, as we believe it may lead Privat Group to allow an AGM to go forward. Doing so would keep the group from coming under pressure from the government if Yulia Timoshenko wins the second round of the presidential election on February 7, while it could block the decision in the courts if Ms. Tymoshenko loses, as the group has the support of Viktor Yanukovych. Another scenario is that Privat Group is preparing to exit the oil and gas business in Ukraine by selling its controlling stake in the vertically-integrated holding, providing unlimited access to Ukrnafta resources to a strategic investor (such as Gazprom). In any case, there will likely be more breaking news on Ukrnafta throughout 2010.