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Norvik Research 08.12.2016

08/12/2016 16:07

Global developments

Markets are mixed ahead of today’s ECB meeting in absence of a consensus on its outcome. Bond yields are rising as investors are wary of the extent of ECB monetary stimulus going forward while stocks are broadly stronger. 10-year UST yields are up 3 to 2.37%, 10-year German Bunds yields are 2 bps higher at 0.37%. Euro Stoxx 600 is up 0.2%, S&P 500 futures are up 1.2%. Nikkei 225 is 1.3% higher while CSI 300 is marginally lower. The dollar index is lower 0.3%. Brent prices are up 0.8% at $53.4/bbbl.

Russia and CIS area developments and market colour

The rouble is 0.1% lower at 63.8 against the dollar. OFZ yields are 3-9 bps lower. Russia and Kazakhstan longer-term sovereign Eurobond yields are 4-5 bps tighter. Ukraine sovereign bonds are 2-7 bps tighter.

Corporate news

Rosneft surprised the market late yesterday when it announced a sale of the 19.5% stake to Qatar’s sovereign wealth fund (QIA) and Glencore, a commodity trader. According to comments by Rosneft CEO Sechin at his televised meeting with Putin, the consortium will pay EUR 10.5bn for the stake, a 5% discount to Rosneft’s share price on Tuesday (shared rallied 6% this morning). Glencore disclosed this morning that the transaction (yet to be closed) will involve its own equity investment of just EUR 300mn, with the rest to come from bank financing. Glencore will also secure a 5-year offtake deal for Rosneft’s oil, of 220K bbl/day. According to FT, bank financing is being organized by Intesa Sanpaolo. At the meeting with Sechin, Putin stressed the need for the government and Rosneft to coordinate the deal with the CBR, to minimize its impact on Russia’s financial markets.

The last-minute announcement (two days after the government’s deadline) means that the widely expected share buyback by Rosneft will not materialize and instead a consortium of two prominent foreign players will be the third largest shareholder of Russia’s largest energy company. This is clearly good news from the point of incoming FDI (which is important both from the balance of payments viewpoint and also as a chance to improve transparency of Rosneft’s operations). The exact details of the deal remain opaque however, most importantly whether proceeds of the recent RUB 600bn bond issue by Rosneft could be used towards the RUB 721bn payment to the budget. If this is the case, than the needed conversions would be less than $2bn, a manageable amount. In order to project the impact of the transaction on domestic FX market and interest rates, investors need to know further details, including the nature of demand for the RUB 600bn of bonds. Until yesterday, domestic interest rates did not react to the Rosneft-related transactions. At the same time, bank balances with the CBR fell sharply yesterday by about RUB 350bn, a sign of possible involvement of Russian banks (or corporates) in operations with Rosneft securities.

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