Norvik Research 28.09.2016

28/09/2016 16:23

Global developments

European stocks are rising led by Deutsche Bank. Deutsche Bank rose 2% after it agreed to sell its insurance business in the UK for €0.9bn. Euro Stoxx 600 is up 0.7%. S&P futures are up 0.1% after the index closed 0.6% higher yesterday. The dollar index is up 0.1% today, US 10y yields are up 2 bps at 1.57%. Nikkei 225 fell 1.4% and China’s CSI 300 was 0.3% lower.

Oil prices are higher today on positive comments from a senior Saudi official. The Saudi oil minister yesterday signalled his country’s readiness for a compromise solution as regards the proposed output freeze that would allow such producers within OPEC as Iran, Libya and Nigeria to continue boosting output. Such an agreement is unlikely to be signed at today’s meeting in Algiers but may materialise at the next scheduled OPEC meeting in November. The US crude inventories fell 0.75 mn bbl in the previous week according to API. Brent prices are up 1.3% today at $46.6/bbl after a 3% drop yesterday.

Russia and CIS area developments and market colour

Russia’s real GDP growth was close to zero in seasonally-adjusted terms, according to the latest estimates from the CBR reported yesterday. The central bank has reiterated its earlier range of year-on-year estimates for Q3 (for a decline of 0.4-0.7% YoY) published on 16 September in its latest monetary policy report. The CBR has pointed out to modest growth in industrial output in September and improvement in other supply-side indicators while demand indicators continued to deteriorate (including real incomes and retail sales). The resulting increase in inventories (supported also by this year’s good harvest) should result in deceleration in the pace of GDP declines. The CBR has confirmed its full-year GDP growth forecast of -0.3-0.7%, still weaker than the latest projection from the Ministry of the Economy, of -0.2% YoY.

The rouble is 0.4% weaker at 63.9 against the dollar. OFZ yields widened 1-5 bps yesterday and are broadly flat today. Russia and Kazakhstan longer-dated yields are 1 bp tighter today. Ukraine yields dynamics is mixed, Azerbaijan-24 is 2 bp tighter while Armenia-25 and Belarus-18 are unchanged.

Corporate news

The board of Norilsk Nickel has approved a syndicated revolving credit facility for $500 mn. The company earlier announced plans to raise up to $2 bn in loans from a syndicate of western banks. In our view, given the relatively light debt repayment schedule in 2016 and 2017 ($0.3bn and 0.9 bn respectively) and exceptionally strong liquidity (end of June 2016: $3.4 bn in cash of and $2.3 bn in credit lines), these funds will most likely be used to finance dividend payments. Dividends may total up to 60% of EBITDA as long as the Net debt/EBITDA ratio remains below 1.8x (end of June 2016: 1.4x).

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