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Regional Fixed Income Market Watch | September 2017

10 Oct, 2017


  • US GDP growth in 2Q17 was revised up to an annualized 3.1% y/y (3rd estimate) from an annualized 3.0% y/y (2nd estimate). Revised figures show that GDP growth in EU19 came in at 2.3% y/y in 2Q17 after 2.0% y/y growth in 1Q17. The Turkish economy grew 5.1% y/y in 2Q17 after 5.2% y/y in 1Q17.
  • Based on rapid estimates, economic growth in August 2017 came in at 7.8% y/y in Kazakhstan, 4.3% y/y in Georgia, 2.8% y/y in Russia, and 2.4% y/y in Armenia. In 8M17, GDP was up 1.6% y/y in Belarus and down 1.1% y/y in Azerbaijan. GDP in Ukraine was revised down to an annualized 2.3% y/y in 2Q17 (from 2.4% y/y).
  • Annual inflation in the US was up to 1.9% in August 2017 from 1.7% in the previous month. Based on the Eurostat flash estimate, annual inflation in EU19 has remained unchanged at 1.5% in September 2017.
  • In September 2017, annual inflation increased in Turkey (11.2%), Kazakhstan (7.1%), Georgia (6.2%), and Armenia (1.0%) and decreased in Russia (3.0%). August 2017 figures indicate an increase in annual inflation to 16.2% in Ukraine and a decrease to 14.0% and 5.3% in Azerbaijan and Belarus, respectively.
  • In September 2017 the Russian and Belarusian central banks lowered their policy rates in response to low inflation to 8.5% and 11.5%, respectively. The policy rate has remained unchanged in other countries.


Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, and Ukraine.

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Georgia's Tourism Sector - Tourism Market Watch | September 2017

10 Oct, 2017

Turnover in hotels and restaurants increased 17.5% y/y to US$ 553.8mn in 2016, according to Geostat’s annual figures. Turnover reached US$ 271.7mn in 1H17, as strong visitor growth has boosted hospitality sector revenues. The sector has also posted significant gains in employment, with over 37,000 people employed in the hotel and restaurant industry in 2016.

Branded hotel supply outside of Tbilisi is set to increase significantly in coming years. Adjara Group Hospitality plans to open a 100-room Rooms Hotel in Kokhta-Mitarbi, the mountain resort near Bakuriani, which opened to visitors last season. With locations in Batumi and Sagarejo also in the pipeline, the Rooms brand could potentially have a portfolio of five hotels across Georgia by 2019.

The Agency of Protected Areas has published visitor statistics for 9M17. The number of visitors to protected areas was up 32.7% y/y to over 856,000 in 9M17 and already surpassed the 2016 annual figure. The number of domestic visitors increased 30.3% y/y to nearly 486,000, while the number of international visitors was up 36.0% y/y to nearly 371,000.

The number of international arrivals was up 20.9% y/y to 0.76mn in September 2017. Out of the top four source markets, there was strong growth from Armenia (+11.8% y/y), Azerbaijan (+15.6% y/y), and Russia (+32.0% y/y). The number of visitors from Turkey also increased (+10.5% y/y) for the third consecutive month.

The tourist category continues to drive arrival growth in September 2017. The number of overnight visitors (‘tourist’ category) was up 24.8% y/y and accounted for 49.9% of international arrivals. Same-day arrivals and transit visitors posted 12.7% y/y and 22.6% y/y growth rates, respectively. The number of tourist arrivals in 9M17 is up 28.8% y/y to 2.78mn, already higher than the number of tourists in Georgia in all of 2016.

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Georgian Oil and Gas Corporation - 1H17 update

3 Oct, 2017

GOGC released strong 1H17 unaudited results. Revenue increased 18.1% y/y to US$ 166.0mn, largely due to a 28.1% y/y increase in sale of gas to US$ 104.8mn, while operating expenses were up 23.3% y/y to US$ 124.3mn. Adjusted EBITDA in 1H17 reached US$ 49.9mn, up 6.2% y/y. Strengthening of GEL vs. US$ in 1H17 led to a non-cash FX gain of US$ 18.7mn, which boosted net income to US$ 64.2mn, up 58.9% y/y. 14 companies expressed interest in the international tender announced by GOGC for the engineering, procurement, installation, and commissioning (EPIC) of the gas storage reservoir. Selected companies will be asked to submit technical and price proposals at the second stage of the tender in the beginning of 2018.

GOGC reported 1H17 revenue of US$ 166.0mn, up 18.1% y/y. Strong growth in sale of gas (+28.1% y/y) accounted for 90.4% of total revenue growth. The increase was driven by a surge in sales volume (+28.2% y/y) to 879mmcm. Based on our estimates, higher gas consumption by thermal power plants accounted for about 30% of the increase in gas sales volume. Pipeline rental revenues also increased 20.8% y/y to US$ 16.1mn, due to higher volumes of gas transported. Electricity sales were up 5.9% y/y to US$ 39.2mn. Revenue from the sale of crude oil dropped off 44.2% y/y to US$ 2.0mn, while oil transportation revenue was flat at US$ 3.9mn.  

1H17 operating expenses increased 23.3% y/y to US$ 124.3mn, on the back of a 29.0% y/y increase in cost of gas. The latter includes cost of gas used in electricity generation and cost of gas sold. Cost of gas sold was the main driver, up 35.1% y/y and accounting for 85.6% of cost of gas. The increase was largely the result of higher purchase volumes, coupled with a slight increase in average purchase price (+5.5% y/y to US$ 103.6/mcm).

Strong growth in sale of gas was the main driver behind a 6.2% y/y increase in adjusted EBITDA to US$ 49.9m. The adjusted EBITDA margin contracted from 33.4% in 1H16 to 30.1% in 1H17, largely as a result of the increase in operating expenses. Strengthening of GEL against US$ in 1H17 led to a non-cash FX gain of US$ 18.7mn, which boosted net income to US$ 64.2mn.

Operating cash flow was at US$ 37.1mn in 1H17, compared to US$ 19.6mn in 1H16. According to company sources, the increase was largely driven by collection of past receivables. However, the accounts receivable balance remains elevated at US$ 76.0mn. In May 2017, GOGC repaid the remaining portion (US$ 53.6mn) of the outstanding GEOROG 05/17 bonds. Investing cash flow was at US$ 25.6mn, reflecting a US$ 29.6mn increase in term deposits. The adjusted EBITDA coverage ratio was up from 4.8x in 1H16 to 5.0x in 1H17.

14 companies expressed interest in the international tender announced by GOGC for the engineering, procurement, installation, and commissioning (EPIC) of the gas storage reservoir, with storage capacity of 210-280mmcm. Selected companies will be asked to submit technical and price proposals at the second stage of the tender in the beginning of 2018. Construction of Gardabani CCPP II is expected to commence by end-2017.

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Georgia's Energy Sector - Electricity Market Watch | August 2017

29 Sept, 2017

Georgia’s net import of electricity in 2017 is expected to come in at 1,007.4GWh. By comparison, Georgia was a net exporter of electricity in 2016, albeit with only 80.1GWh of net export. Electricity export was up 22.6% y/y to 684.7GWh in 8M17, while imports more than doubled to 962.3GWh. Based on the updated annual forecast, electricity import in 2017 is expected to reach a historical high of 1,692.0GWh (+253.3% y/y), with net import of 1,007.4GWh.

Turkey remains the main export market, with a 41.4% share in total exports in 8M17. Exports to Turkey were down 3.6% y/y from an already low base in 8M16 (-15.9% y/y), largely due to lower average prices on the Turkish market. Electricity exports to Armenia and Russia posted significant growth. Export to Armenia was up 23.3% in 8M17, from an already high base in 8M16 (+57.4% y/y), and accounted for 20.1% of total electricity exports. Electricity export to Russia was up 77.5% y/y in 8M17 and accounted for 38.3% of total exports, with ESCO being the sole exporter. The reason behind the increase in export to Russia was an unexpected surplus of generation in June and July and inflexibility of other markets to import additional electricity on short notice. Overall, ESCO accounted for over half (53.6%) of the electricity exports in 8M17.

TPP tariffs were revised downward for the rest of 2017. The reductions varied from 6.9% for Mtkvari Energy (down to 11.358 tetri/kWh) to 25.4% forGPower (down to 10.537 tetri/kWh). The reason behind the reductions, as stated by GNERC, is the difference between planned and actual data, including exchange rates. While changes in US$ terms were insignificant for Mtkvari Energy and Gardabani CCGT, the tariff for Blocks 3 and 4, owned by Georgian International Energy Corporation Ltd (GIEC), was lowered 13.6% in US$ terms and 23.0% in GEL terms.

Georgia’s overall energy security was rated 3.7 out of 5, according to a study conducted by World Experience for Georgia, a non-profit organization specializing in energy security, economic sustainability, and environmental issues. The highest risk category (E) was assigned to natural gas, due to the highest import dependency (99.7% in 2016) and lack of reservoir capacity. The lowest risk category (A) was assigned to hydropower, taking into consideration variability, risks, and resilience associated with hydro supply.

Domestic consumption increased 14.4% y/y in August 2017. Consumption by eligible consumers, up 66.0% y/y, was a key driver, with Georgian Manganese doubling its consumption (+102.4% y/y) to 114.9GWh, a historic maximum for the company. Consumption of distribution companies, up 10.5% y/y, also played a significant role in overall growth. Consumption was up 8.6% y/y by Telasi, 11.7% y/y by Energo-Pro, and 8.7% y/y by Kakheti Energy Distribution. The Abkhazian region’s electricity usage was up 1.7% y/y and accounted for 11.2% of domestic consumption. 

Electricity import accounted for 6.6% of total electricity supplied to the grid in August 2017. Domestic generation increased 8.1% y/y, with HPP generation up 5.5% y/y (85.2% of total). Thermal generation increased 31.3% y/y (7.5% of total) from the low base in 2016 (-33.9% y/y), while the new wind power plant accounted for 0.8% of total electricity supply. 2.3% of total electricity supply was exported. Deregulated HPPs posted a significant increase in generation (+37.6% y/y), due to the addition of Dariali HPP (108.0MW) and Khelvachauri HPP (47.5MW). The commissioning of Shuakhevi HPP (178.7MW) in late August 2017 will result in higher growth in this category in the coming months.

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