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Year: Month: All releases Economy Sectors Companies

Regional Fixed Income Market Watch | July 2017

9 Aug, 2017


Highlights
  • US GDP growth accelerated from an annualized 1.2% y/y (revised) in 1Q17 to 2.6% y/y (‘advance’ estimate) in 2Q17. GDP growth in EU19 was also higher at 2.1% y/y in 2Q17 vs 1.9% y/y in 1Q17. The Chinese economy grew 6.9% y/y in 2Q17. 
  • According to rapid estimates, in June 2017 economic growth came in at 5.8% y/y in Kazakhstan, 5.1% y/y in Armenia, 4.8% y/y in Russia, and 4.6% y/y in Georgia. In 1H17, GDP was up 1.0% y/y in Belarus and down 1.3% y/y in Azerbaijan. Ukraine’s GDP was up 2.5% y/y in 1Q17.
  • Annual inflation in the USA retreated to 1.6% in June 2017 from 1.9% in the previous month. According to the Eurostat flash estimate, EU19 annual inflation was stable at 1.3% in July 2017.
  • In July 2017, annual inflation retreated in Georgia (6.0%), Turkey (9.8%), Russia (3.9%), Kazakhstan (7.1%), and Armenia (0.9%). June 2017 figures indicate an increase in annual inflation to 15.6% and 6.5% in Ukraine and Belarus, respectively, and a decrease in Azerbaijan to 14.4%.
  • Central Bank policy rate was lowered in Belarus (from 13.0% to 12.0%) in July 2017 and 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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Georgian Oil and Gas Corporation - FY16 update

14 July, 2017

GOGC released FY16 audited results. Revenue increased 22.7% y/y to US$ 267.7mn, driven by electricity sales of US$ 77.9mn. Electricity sales, now with a sizable, 29.1% share in revenue, has helped GOGC diversify its business. Revenues from traditional sources posted low single-digit decreases, while operating expenses were up 14.2% y/y to US$ 205.0 mn. As a result, adjusted EBITDA increased 57.3% y/y to US$ 79.6mn. Higher profitability led to a significant improvement in the net debt-to-adjusted EBITDA ratio to 2.0x, well below the Eurobond covenant of 3.5x.

Sale of gas and pipeline rental revenues declined 4.5% y/y to US$ 147.1mn and 4.5% y/y to US$ 28.9mn, respectively. Due to lower oil prices, crude oil sales and transportation categories posted marginal declines as well, with revenues down 2.6% y/y to US$ 4.4mn and 3.7% y/y to US$ 7.6mn, respectively. Oil trading, a new business line for GOGC, brought in US$ 1.7mn in revenue, generated by providing logistical services for the transportation of Turkmen crude oil from Baku to Batumi. The slight underperformance in traditional business lines was compensated by a 262.9% y/y increase in electricity sales to US$ 77.9mn, as FY16 was the first fully operational year for the Gardabani combined-cycle power plant.

FY16 operating expenses increased 14.2% y/y to US$ 205.0mn. Cost of gas sold decreased 5.1% y/y to US$ 130.5mn, while cost of gas used in electricity generation grew 215.7% y/y to US$ 34.8mn, as FY16 was the first full year of electricity generation.

FY16 adjusted EBITDA increased 57.3% y/y to US$ 79.6mn, leading to a considerable improvement in the adjusted EBITDA margin to 29.7% (23.2% in FY15). EBIT grew 58.8% y/y to US$ 63.2mn. The weakening of GEL against US$ in FY16 triggered a non-cash FX loss of US$ 21.3mn, accounted for as a finance cost and dampening the bottom line performance, which was still up 141.8% y/y to US$ 33.0mn.

Operating cash flow was at a three-year high of US$ 67.2mn. A 50.0% y/y decrease in capital spending to US$ 22.4mn helped GOGC close FY16 with US$ 148.0mn in cash, which, coupled with higher adjusted EBITDA, drove a significant improvement in the net debt-to-adjusted EBITDA ratio to 2.0x, comfortably below the Eurobond covenant of 3.5x. Despite the additional interest expense on the outstanding portion of the GEOROG 05/17 Eurobond in FY16, the adjusted EBITDA coverage ratio improved from 2.7x in FY15 to 3.9x.

In Apr-16, GOGC refinanced its outstanding GEOROG 05/17 US$ 250.0mn Eurobond with a new US$ 250.0mn Eurobond maturing in five years. Approximately 78% of the outstanding bonds were purchased by GOGC, while the rest was redeemed in May-17. Construction of Gardabani CCPP II is expected to commence in 2H17, while the gas storage reservoir project is in the planning phase, as GOGC evaluates various financing options. A full report with our detailed projections will follow shortly.


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Regional Fixed Income Market Watch | June 2017

6 July, 2017

Highlights

  • US GDP growth in 1Q17 was revised up to an annualized 1.4% y/y (3rd estimate) from an annualized 1.2% y/y (2nd estimate). GDP growth in EU19 was also revised up to 1.9% y/y in 1Q17 from the previous 1.7% y/y growth estimate. The Turkish economy grew by 5.0% y/y in 1Q17.
  • According to rapid estimates, in May 2017 economic growth came in at 8.9% y/y in Armenia, 7.4% y/y in Kazakhstan, 5.6% y/y in Russia, and 5.3% y/y in Georgia. In 5M17, GDP was up 0.9% y/y in Belarus and down 0.9% y/y in Azerbaijan.
  • Annual inflation in the USA retreated to 1.9% in May 2017 from 2.2% in the previous month. Price pressures also eased in the Eurozone, with annual inflation at 1.3% in June 2017 vs 1.4% in the previous month.
  • In May 2017, annual inflation was flat in Russia (4.1%), while it accelerated in Azerbaijan (15.1%), Ukraine (to 13.5%), and Armenia (1.6%) and slowed in Belarus (6.1%). June 2017 figures indicate an increase in annual inflation in Georgia to 7.1% and a decrease in Turkey to 10.9%. In Kazakhstan inflation has remained unchanged at 7.5% April through June 2017.
  • Central Bank policy rate was lowered in Belarus (from 14.0% to 13.0%), Kazakhstan (from 11.0% to 10.5%), and Russia (from 9.25% to 9.00%) in June 2017.
     

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 - 1Q17 update

5 July, 2017

GR released 1Q17 unaudited results. Revenue declined 9.4% y/y, from an already low base, to US$ 40.1mn due to lower freight volumes and an unfavorable shift in freight category/direction mix. Operating expenses decreased 3.4% y/y to US$ 36.4mn, leading to an 8.7% y/y decline in adjusted EBITDA to US$ 17.6mn, with the adjusted EBITDA margin at 43.9%. Lower adjusted EBITDA and higher debt from financing the purchase of four new passenger trains resulted in a deterioration of the adjusted EBITDA coverage ratio from 1.9x in 1Q16 to 1.7x in 1Q17.

In 1Q17, freight transportation and freight handling revenues declined 16.1% y/y to US$ 26.2mn and 6.1% y/y to US$ 5.1mn, respectively. The downward trend persisted in the freight car rental category as well, with revenues down 23.7% y/y to US$ 1.4mn. On the other hand, logistic service and passenger traffic revenues grew 25.1% y/y to US$ 5.0mn and 15.6% y/y to US$ 1.5mn, respectively.

1Q17 operating expenses declined 3.4% y/y to US$ 36.4mn. Electricity, consumables and maintenance expense posted the largest drop (-22.4% y/y to US$ 4.1mn), while employee benefits expense was down 4.6% y/y to US$ 13.6mn.

The main driver of the decrease in freight traffic was ferrous metals and scrap transportation, down 62.3% y/y to US$ 1.1mn due to lower shipments of oil and gas pipes (a profitable freight category) to Azerbaijan. Transportation revenue from oil products, the single largest freight category, decreased 9.7% y/y to US$ 10.8mn on the back of lower fuel diesel volumes from Azerbaijan, which was partially offset by higher heavy fuel and gasoil volumes from Kazakhstan. Crude oil transportation dropped 40.1% y/y to US$ 1.4mn, despite the substantial shift in freight origin from Kazakhstan to the more profitable Azerbaijan. Ores transportation decreased 10.7% y/y to US$ 2.4mn, as there were no shipments from Brazil, a profitable source, which accounted for 14% of ores volume in 1Q16. Sugar transportation revenue shrank 34.2% y/y to US$ 1.6mn due to lower shipments of cane sugar from Brazil to Azerbaijan and Armenia. Chemicals and fertilizers, industrial freight, and grain were the only categories that posted increases, but together they accounted for only 10.1% of freight transportation revenues in 1Q17.

1Q17 adjusted EBITDA declined 8.7% y/y to US$ 17.6mn, while the adjusted EBITDA margin improved slightly to 43.9% (43.6% in 1Q16). Higher depreciation expense weighed on EBIT, which dropped 35.4% y/y to US$ 5.5mn. Strengthening of GEL against US$ since end-FY16 led to a non-cash FX gain of US$ 34.3mn, accounted for as finance income, which propped up net income at US$ 35.7mn.

Operating cash was down 17.6% y/y to US$ 15.7mn, partially due to higher VAT payments for the purchase of passenger trains. Investment of US$ 17.2mn in new passenger trains was one of the reasons behind the 41.5% y/y spike in capital spending to US$ 36.4mn. The increase in debt from financing the purchase contributed to a deterioration of the adjusted EBITDA coverage ratio from 1.9x in 1Q16 to 1.7x in 1Q17. Modernization project expenditures were also a major part of investing outflows.


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