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Norvik Research 03.10.2016

03/10/2016 16:50

Global developments

Global stock markets are rising, helped by stronger oil prices. Deutsche Bank shares soared 14% on Friday on reports of a possible reduction in its US regulatory claim. The pound sterling hit a 3-year low versus the euro at 1.145 as Brexit process is now expected to begin by March 2017. Euro Stoxx 600 is flat, CSI 300 is 0.3% higher, S&P futures are 0.3% lower.

Oil prices continue to climb, in the aftermath of last week’s unexpected agreement among OPEC producers to cut output. Brent prices rose 2.9% today to $50.5/bbl, despite evidence of further output recovery in the US (Baker Hughes active rotary rigs number increased by 7 to 425 in a week).

Russia and CIS area developments and market colour

Russia’s PMI data for September point to further recovery in the manufacturing sector. Headline manufacturing PMI in September came out at 51.1 (consensus forecast: 50.8) reaching the highest level since November 2014. The improvement was due to higher output and new orders components (the latter rose to 52.4 versus 51.8 in August).

Russia’s central bank has revised its original estimates for Q2 2016 current account surplus down to $1.5bn, from $3.4bn estimated three months ago. On the 4-quarter rolling basis, the current account surplus in Q2 2016 has been scaled down to $36.6bn (3.0% of GDP) from 3.1% of GDP earlier, compared to 4.0% of GDP in Q1. The revisions were due mainly to a higher deficit in the services trade balance. Given the seasonal pattern, quarterly current account balance has likely deteriorated further in Q3.

Ukraine now expects the EU to disburse a EUR 600mn loan tranche in 2017 rather than this year.

Corporate news

Phosagro may issue a new Eurobond in February 2017. According to CEO Guryev, the decision whether to return to capital markets or opt for other options such as bank financing (which is much cheaper at the moment) has yet to be made. In view of the current weakness in the fertilizers markets, Phosagro has scaled down its target for net debt repayment in 2016 to not more than $100mn, from $150-200 mn planned earlier. The company also aims to significantly reduce its capex program in 2017 compared to RUB 43bn-45bn planned for 2016. Earlier comments by management pointed to a 30% cut in capex in 2017.

The Russian Railways placed a 7-year RUB 15bn Eurobond with a 9.2% coupon. This was the first rouble-denominated Eurobond since the market reopened for Russian borrowers in 2015, we expect other issues to follow.

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