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Regional Fixed Income Market Watch | March 2018

13 Apr, 2018

Highlights

  • 4Q17 US GDP growth was revised up to an annualized 2.9% y/y (3rd estimate) from an annualized 2.5% y/y (2nd estimate). The growth was driven by personal consumption expenditures, fixed investments, exports and government spending. 
  • Based on rapid estimates, in February 2018 economic growth came in at 7.3% y/y in Armenia, 5.6% y/y in Kazakhstan, 5.5% y/y in Georgia and 1.5% y/y in Russia. In 2M18, GDP was up 5.6% y/y in Belarus and 1.3% y/y in Azerbaijan. Economic growth in Turkey came in at 7.3% y/y in 4Q17. 
  • In February 2018, annual inflation in the US was up 2.2% from 2.1% in the previous month. Based on the Eurostat flash estimate, annual inflation in EU19 was up to 1.4% in March 2018 from 1.1% in February 2018.
  • In March 2018, annual inflation was close to the target level in Georgia (2.8%), Kazakhstan (6.6%), Armenia (3.7%); Inflation was below the target in Russia (2.4%) and above the target in Turkey (10.2%) and Ukraine (13.2%). In February 2018, annual inflation retreated to 3.9% in Azerbaijan and 4.9% in Belarus.
  • Russian central bank cut monetary policy rate to 7.25% from 7.5% in March 2018. The policy rate has remained unchanged in other countries.
  • Fitch affirmed Georgia’s sovereign credit rating at BB- and revised the Outlook to positive from stable, Moody’s upgraded Belarus credit rating to B3 from Caa1 and Moody’s revised Armenia’s Outlook to positive from stable in March 2018.

 

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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Regional Fixed Income Market Watch | February 2018

13 Mar, 2018

Highlights

  • US GDP growth in 4Q17 was revised down to an annualized 2.5% y/y (2nd estimate) from an annualized 2.6% y/y (advance estimate). GDP growth in EU19 was 2.7% y/y in both 3Q17 and 4Q17.
  • Based on rapid estimates, in January 2018 economic growth was 10.2% y/y in Armenia, 4.7% y/y in Kazakhstan, 4.6% y/y in Belarus, 4.4% y/y in Georgia, 2.5% y/y in Russia, and 2.0% y/y in Azerbaijan. Economic growth in Ukraine came in at 1.8% y/y in 4Q17.  
  • Annual inflation in the US was 2.1% in January 2018 unchanged from December 2017. Based on the Eurostat flash estimate, annual inflation in EU19 was down to 1.2% in February 2018 from 1.3% in January 2018.
  • In February 2018, annual inflation decreased in Georgia (2.7%), Kazakhstan (6.5%), Turkey (10.3%) and Ukraine (14.0%) and increased in Armenia (3.3%). In Russia inflation remained unchanged at 2.2% in February 2018. January 2018 figures indicate a decrease in annual inflation to 4.5% in Belarus and 5.5% in Azerbaijan.
  • As of 12 March 2018, monetary policy rate is 13.0% (down from 15.0%) in Azerbaijan, 10.5% (down from 11.0%) in Belarus, 7.5% (down from 7.75%) in Russia and 9.5% (down from 9.75%) in Kazakhstan. Meanwhile, the policy rate was raised to 17.0% from 16.0% in Ukraine. The policy rate has remained unchanged in other countries.
  • S&P raised both foreign and local sovereign credit ratings for Russia to BBB- from BB+ and to BBB from BBB-, respectively and the outlook was revised to stable from positive. Moody’s downgraded credit rating of Turkey to Ba2 from Ba1 and changed the outlook to stable.

 

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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Regional Fixed Income Market Watch | January 2018

13 Feb, 2018

Highlights

  • US economy increased by 2.3% y/y in 2017 after a 1.5% y/y growth in 2016.  Notably, US GDP growth in 4Q17 was at an annualized 2.6% y/y (advance estimate) after expanding 3.2% y/y in 3Q17. EU19 real GDP grew by 2.5% y/y in 2017. GDP growth in EU19 came in at 2.7% y/y in 4Q17 after a 2.8% y/y in 3Q17. China’s economy grew by 6.9% y/y in 2017. The growth was smooth through each quarter of 2017.
  • Based on rapid estimates, economic growth in 2017 was 7.7% y/y in Armenia, 5.2% y/y in Kazakhstan, 4.8% y/y in Georgia, 2.4% y/y in Belarus, 1.5% y/y in Russia, and 0.1% y/y in Azerbaijan (not available for Turkey and Ukraine yet).
  • Annual inflation in the US was down to 2.1% in December 2017 from 2.2% in the previous month. Based on the Eurostat flash estimate, annual inflation in EU19 was down to 1.3% in January 2018 from 1.4% in December 2017.
  • In January 2018, annual inflation decreased in Russia (2.2%), Georgia (4.3%), Kazakhstan (6.8%) and Turkey (10.4%) and increased in Armenia (2.7%). December 2017 figures indicate a decrease in annual inflation to 4.6% in Belarus and 7.8% in Azerbaijan and an increase to 13.7% in Ukraine.
  • In January 2018, in response to increased inflation expectations, the Ukrainian central bank raised monetary policy rate further to 16.0%, while the Kazakhstan central bank lowered its key rate to 9.75% as inflation was within 5-7% target range. The policy rate has remained unchanged in other countries.
  • Fitch upgraded credit rating of Belarus to B from B- and the outlook to stable from positive, Moody’s and S&P revised the Russia’s outlook to positive from stable, and Fitch and S&P revised the outlook for Azerbaijan to stable from negative.

 

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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Georgian Railway - 9M17 update

6 Feb, 2018

GR released 9M17 unaudited results and Management Discussion and Analysis. Revenue decreased 12.0% y/y to US$ 122.3mn due to lower freight traffic volumes. Operating expenses, which are mostly fixed in GEL, decreased 5.4% y/y to US$ 110.2mn. As a result, adjusted EBITDA declined 21.3% y/y, from an already low base, to US$ 47.6mn. Strengthening of GEL vs. US$ in 9M17 led to a non-cash FX gain of US$ 31.6mn, which propped up net income at US$ 37.8mn. In November 2017, the CEO of GR, Mamuka Bakhtadze, became the Minister of Finance of Georgia. David Peradze, previously Director of Mtkvari HPP, has been appointed as his replacement. In September 2017, S&P Global Ratings affirmed Georgian Railway’s “B+” rating, but revised the outlook from stable to negative.

Freight transportation revenue declined 16.1% y/y to US$ 78.8mn in 9M17 from the low base of US$ 93.9mn in 9M16. Freight handling and logistic service revenue declined 6.5% y/y to US$ 15.4mn and 10.8% y/y to US$ 13.4mn, respectively. Freight car rental revenue also decreased 14.3% y/y to US$ 4.0mn. Passenger traffic and other revenue, which accounted for 8.8% of 9M17 revenue, were the only categories that posted increases.

9M17 operating expenses, which are mostly GEL-denominated, declined 5.4% y/y to US$ 110.2mn. The decrease was attributed to GEL’s 6.7% depreciation against US$ in 9M17 vs 9M16. Electricity, consumables, and maintenance expense, down 14.1% y/y to US$ 12.8mn, was the only category that posted a decrease in GEL terms. This decrease was largely driven by a 58.4% y/y decline in repair and maintenance expense to US$ 0.9mn due to lower utilization of the company’s rolling stock.

The decline in freight transportation revenues was almost equally attributable to decreases in liquid and dry cargo revenues. Oil transportation revenues declined 18.9% y/y to US$ 34.2mn, as crude oil transportation revenue dropped 72.0% y/y to US$ 2.6mn. The main driver was a 93.0% y/y decrease in the transportation of crude oil from Turkmenistan, which was redirected to the pipeline. Oil products transportation volume increased 11.7% y/y in 9M17. However, the decrease in tariffs on some oil products in 2016, coupled with a change in the direction mix, resulted in a 4.3% y/y decline in revenue to US$ 31.7mn. Dry cargo transportation revenue (56.6% of total revenue in 9M17) decreased 13.7% y/y to US$ 44.6mn. The major contributors to the decrease were ferrous metals, grain, and sugar. Ferrous metals and scrap revenue more than halved in 9M17 to US$ 3.3mn due to lower volumes to Azerbaijan. Revenues from grain dropped 46.1% y/y to US$ 2.4mn, as some of the volume was shipped by land instead. Sugar transportation revenue decreased 19.3% y/y to US$ 5.9mn due to problems at a sugar factory in Azerbaijan where Brazilian sugar was being re-exported to from Georgia. Chemicals and fertilizers category posted the largest positive contribution in revenue, increasing 26.9% y/y to US$ 3.5mn.

9M17 adjusted EBITDA declined 21.3% y/y to US$ 47.6mn. As a result, the adjusted EBITDA margin contracted from 43.5% in 9M16 to 38.9%. Strengthening of GEL against US$ between end-2016 and 9M17 led to a non-cash FX gain of US$ 31.6mn, accounted for as finance income, which propped up net income at US$ 37.8mn.

In 9M17 operating cash decreased 7.7% y/y to US$ 52.6mn. Investing and financing cash flows remained relatively stable. The decrease in adjusted EBITDA contributed the most to the deterioration of the adjusted EBITDA coverage ratio from 2.0x in 9M16 to 1.6x in 9M17.

In November 2017, the CEO of GR, Mamuka Bakhtadze, became the Minister of Finance of Georgia. David Peradze, previously Director of the Georgian Co-Investment Fund-owned Mtkvari HPP, has been appointed as his replacement. In prior years, David Peradze served in various roles at the Georgian Industrial Group and on several Booz Allen Hamilton/USAID projects at Georgian Railway.

In September 2017, S&P Global Ratings revised its outlook on Georgian Railway from stable to negative and affirmed the rating at “B+”.


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