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Norvik Research 26.08.2016

26/08/2016 16:20

Global developments

Markets are mixed ahead of today’s policy speech by Fed Chair Yellen. The head of Federal Reserve is scheduled to speak at a seminar in Jackson Hole, Wyoming from 14.00 GMT, her written remarks are expected to be distributed beforehand. Probability of a Fed policy rate hike in September increased to 32% from 18% on 1 August and zero on 1 July; that of a hike by year-end to 57% from 12% post-Brexit vote. The dollar index is down 0.1% while 10-year US Treasury yields are 1 bp lower today at 1.56%. Global stocks are mainly lower: S&P futures are flat today after a 0.1% drop in the index yesterday; Euro Stoxx 600 is down 0.1%; Nikkei 225 is down 1.2%. Chinese CSI 300 is slightly weaker. Bloomberg commodity index is broadly unchanged.

Oil prices remain range-bound. Brent prices fluctuated in a narrow range of $48.5-50.0/bbl this week as signs of forthcoming increases in output were countered by expectations of OPEC’s coordinated policy actions at a meeting next month. Brent prices are 1.0% weaker today at $49.2/bbl.

Russia and CIS area developments and market colour

Russia’s government may delay a return to a 3-year budget horizon. According to media reports, restoration of the 3-year budget planning may be delayed due to persistent uncertainty about future revenues, including due to lack of consensus in the government about key tax policy decisions. A Minfin official has denied that one-year budget planning may again be on the cards.

The rouble is 0.4% stronger today at 64.8 against the dollar. OFZ yields closed 1-5 bps tighter yesterday. Yields on Russia’s and Kazakhstan’s longer-term Eurobonds closed 1bp tighter yesterday and are little changed today. Yields on Ukraine’s longer-dated sovereign Eurobonds are 0-2 bps tighter, Ukraine 19 yield fell 7 bps to 8.25%. Belarus 18 is wider 2 bps today, while Azerbaijan 24 and Armenia 25 are flat.

Corporate news

Metalloinvest has reported weak financial results for H1. Revenue declined by 21% YoY to $1,931 mn as weak iron ore and steel prices, as well as RUB depreciation, outweighed production increases. EBITDA was $503 mn, or 38% lower YoY, while EBITDA margin was 26.0% (H1 2015: 33.3%). Net income declined by 17% YoY to $428 mn.

Metalloinvest reduced capex by 22% YoY to $155 mn after completion of construction of its Pellet plant in 2015. Construction of HBI plant at Lebedinsky GOK continued and accounted for 63% of total capex in the period. Free cash flow was strong at $246 mn, however the company choose not to make net debt repayments, instead issuing related party loans for $151 mn (net). As a result, total debt/EBITDA reached 5.5x (end-2015: 3.4x), while Net debt/EBITDA was at 3.7x versus 2.8x at end-2015. In July the company repaid a Eurobond and PXF loans, thus reducing scheduled debt repayments in 2016-17 to almost zero.

Sovcomflot’s privatization has been postponed until 2017, according to a report in Vedomosti. The government (the company’s 100% shareholder) planned to sell 25% minus one share of Sovcomflot in this year. An official clarification regarding the reasons of this decision has yet to be made. Privatization of Bashneft had been postponed earlier this summer. Thus, privatization agenda for this year includes only a 19.5% stake in Rosneft.

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