Ben Aris in Kyiv -

Two days after a crucial parliamentary election that put the seal on Ukraine's latest political transformation, SP Advisors, a leading local investment firm, held its first investment conference and invited international investors to Kyiv to debate the Eastern European country’s future. The mood at the conference, “A Fresh Look at Ukraine”, on October 28-29 was a mixture of curiosity and caution.

Curiosity has been piqued by the ridiculously low valuations on nearly every attractive asset in the country. Despite two decades of chaos, Ukraine has still produced several world-class companies – mostly in the agricultural sector, such as poultry producers Avangard and MHP. However, caution has been engendered by Ukraine's repeated failure to capitalise on past opportunities to make a fresh start that have arisen over the same period. As one delegate quipped: "In 2006 there was a revolution to drive [Viktor] Yanukovych out of power, which created a golden opportunity to reform the country and see it flourish. In 2014 there was a revolution to drive Yanukovych out of power (again), which created a golden opportunity to reform the country and see it flourish (again)."

Still, the turnout was good, as at the end of the day Ukraine probably represents one of the sexiest investment opportunities left in the Commonwealth of Independent States (CIS). Precisely because it has failed to make any meaningful reforms since 1991, and has so much catch up to do, if it finally get its act together, there could be a decade-long boom the same as that enjoyed by nearly every other country in the region. The question at the back of everybody's mind in the room was: "Is this time different?"

Nick Piazza, CEO of SP Advisors and a veteran of Ukraine's capital markets, didn’t shy away from the "challenges" (a word used repeatedly by every speaker throughout the day) that Ukraine faces. "When I arrived in Kyiv in 2005 it was one of the most popular investment destinations in the CIS. Investors then were prepared to turn a blind eye to weak management and corporate governance problems to take part in the booming business," says Piazza in his opening remarks. "Then the 2008 crisis came and crushed those hopes and we all lost money. There was a brief revival of hope in 2009 following a string of listings on the Warsaw Stock Exchange, but those too were crushed by a second wave of fear that began in 2011. Ukraine today is probably at its lowest point. So we are building again, but the difference this time is the new Ukraine will be built by the people, not the politicians."

The attitude of the Ukrainian people is probably the biggest change between the 2004-2005 Orange Revolution and the current one. The Orange Revolution was marked by optimism followed shortly by internecine fighting amongst its leaders – especially president Viktor Yushchenko and his prime minister Yulia Tymoshenko – that scuppered reform efforts.

However, this time around the people remain sceptical of their new leaders and not doing anything isn’t an option for the new government. The sceptism was also clearly visible in the parliamentary election results, where the Poroshenko Party won just over 20%, well down on its pre-election poll result of over 30%. "The people are going to hold the government to account," Piazza tells bne. "There are demonstrations in front of the Rada everyday already complaining about things like lack of hot water. If the government fails to come up with the goods, the people will protest."

Tough sell

Piazza's "It can't get any worse" doesn’t sound like a strong sales pitch, but actually it’s an effective one. Two Israel investors were at the event for exactly that reason. "I was looking at the numbers for Avantgard and can’t believe them. The growth in profits is phenomenal and they pay out a 8% distribution yield that barely impacts their bottom line," said one, who didn’t want to be identified by name and was in Ukraine for the first time.

What happens next all depends on how committed the new leaders are to reforming the system. The parliamentary elections on October 26 brought in at least 100 independent candidates and many of the new MPs are much younger and from civil society. There is clearly an atmosphere of hope in Kyiv amongst potential investors and dignitaries who attended the conference that this time will be different.

"The Rada is key to the process," Ukrainian Finance minister Oleksander Shlapak told the assembled delegates. "The three parties that won the election [on October 26] are all for EU integration and ready to launch a radical reform programme… Ukraine is pregnant with reforms."

Everyone is making the right noises. The newly formed State Fiscal Service, a merger between the tax office and customs service, is promising a radical new tax regime that should go into place at the start of next year and a planned donor conference could provide a funds for substantial investment to kick start a real recovery.

But investors are holding back, because for Ukraine seeing is believing. "The challenge is that the people in the government will fight tooth and nail before they will part with power," says Oleg Bakhmatyuk, chairman of UkrLand Farming, the biggest agricultural enterprise in Ukraine. "We can’t be a success if the country isn't."

It’s perhaps telling that the big difference between this post-revolution investor conference and the one held by Renaissance Capital in 2007 after the Orange Revolution, is that the delegates in attendance were almost all debt investors, whereas the Rencap conference was attended mainly by equity investors. Indeed, the Ukrainian stock market soared in the aftermath of the Orange Revolution to become the best performing market in the world that year.

Marshall plan

It is becoming increasingly clear that Ukraine is going to be largely left to fend for itself by the international community.

The International monetary fund (IMF) has stepped in with a $17bn that will be paid out over two years. The IMF has already given Ukraine some $3bn to get it through to Christmas, but Finance Minister Shlapak said October 28 that the government is unlikely to receive a second tranche before the end of this year.

Of this initial payment, $1.6bn has already been used to pay off the Eurobonds of indebted state energy firm Naftogaz that matured in September, while the rest has been put aside to meet Russia's outstanding gas bill estimated to be a total of $6bn (including buying some more gas to get it through the winter). That means almost all of the IMF's money will end up in Russian state coffers this year before anything can be spent on rebuilding.

During the Q&A session, one of the delegates asked US Ambassador to Ukraine Geoffrey Pyatt if the West was intending some sort of Marshall Plan to help get the country back on its feet. In this case words didn't come so cheap, as Pyatt reiterated that the US government would give Ukraine $300m in aid, plus a $1bn loan guarantee (note: guarantee, not cash). Given the estimates for the amount Ukraine needs to become a functioning country again run from $24bn and $35bn, the US money is a drop in the bucket. "It was a significant accomplishment that Ukraine, in the face of war and a campaign by aggressive neighbour, managed to hold international standard elections," said Pyatt. "The US will do all that is possible to support the rebuilding of new Ukraine politics and remove the cancer of corruption."

Everything, that is except give Ukraine more money. US President Barack Obama called Poroshenko on election night to congratulate him and offered his support in "the process of reform," according to Pyatt.

The wild card in all this is what the Kremlin decides to do next. Some commentators have speculated that Russia has now reached the point where it would also like a resolution to the conflict in the east and Russian Foreign Minister Sergei Lavrov said explicitly in his UN speech in October that Russia needs a "new reset" with Washington. But negotiating a truce will not be easy.

"The best case scenario is if Russia pulls out of eastern Ukraine and leaves us alone," Finance Minister Shlapak said. "This scenario is actually the basis of the Poroshenko peace plan: to recover our lost territory and then start reconstruction. The worst case is if we are left with some sort of frozen conflict… We have hit bottom and there is hardly anything ahead that could make things worse. Time will re-establish the balance [with Russia]."

And even Pyatt struck of note of caution in his remarks: "Ukraine has had good laws before, but the problem has always been in their implementation" – which cuts to the nub of the "challenge" that Ukraine faces today.