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Norvik Research 04.10.2016

04/10/2016 17:01

Global developments

The dollar has been boosted by strong US manufacturing data and further hawkish comments from senior Fed officials. Both headline ISM and its new orders component bounced back strongly in September, boosting the market-implied probability of a US policy rate increase by December to 60%, from 50% a week ago. The dollar index rose 0.3% yesterday and is up a further 0.6% today. S&P futures are up 0.1%, Euro Stoxx 600 is 0.7% higher, CSI 300 is 0.3% higher, Nikkei 225 is rising 0.5%.

The rally in oil has come to a halt amid evidence of further output increases within OPEC. Crude output in Libya has reportedly reached 0.5 mn bbl/day and is set to rise further. Oil inventories are projected to have risen 1.75 mn bbl in the previous week. Brent prices are up 0.4% today to $51.1/bbl.

Russia and CIS area developments and market colour

Russia’s Finance Ministry now expects both budget expenditure and deficit to be considerably above initial projections this year. Compared to the original budget (envisaging a 3.0% of GDP deficit, based on average Urals oil price assumption of $50/bbl), MinFin now expects expenditure to increase by RUB 300bn, resulting in a deficit of 3.7% of GDP. MinFin now expects RUB 700bn from forthcoming privatization of Rosneft. The higher deficit will also be covered through additional domestic borrowing (of up to RUB 500bn this year, from 300bn earlier) and, indirectly, through higher government guarantees against loans to undisclosed projects (widely believed to be defense-related).

CBR Governor Nabiullina will be personally supervising monetary policy issues under the new management structure, unveiled yesterday. First Deputy Governor Tulin will now head the bank supervision department.

The rouble is 0.3% weaker at 62.5 against the dollar. OFZ yields widened 2-5 bps today after declining 1-8 bps yesterday. Russia and Kazakhstan sovereign Eurobond yields are flat, Ukraine yields are 2-7 tighter, Belarus-18 is 11 bp wider.

Corporate news

TMK shareholders have approved RUB 2bn dividend for H1 2016. While the size of the dividend is modest, we view the news as credit negative for the company. In H1 2016, high debt and difficult markets resulted in poor credit metrics: EBITDA/Interest expense was 1.9x, with net debt/EBITDA at 5.2x.

Norilsk Nickel signed a 5-year $500mn credit facility with international banks. In the medium term, the company aims to maintain at least a $2bn liquidity cushion. As of mid-2016, net debt/EBITDA was 1.4x, total liquidity $5.7bn including $2.3bn in credit lines.

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