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Year: Month: All releases Economy Sectors Companies
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Initiating coverage of Silknet, which placed debut US$ 200mn Eurobond in 2019

3 Dec, 2019


10 things you need to know about Georgia’s telecom sector and Silknet
 
1. Georgia was one of the first post-Soviet countries to liberalize the telecom market. The country’s telecom industry has seen a number of mergers and acquisitions in recent years, enabling original operators to maintain the dominant market positions. In Georgia’s three-carrier mobile industry, Magticom and Silknet are the only full-service telecom operators, while Veon is focused on the mobile industry.

2. We find both the mobile and fixed market in Georgia to be attractive especially when compared to European markets. We believe that Georgia’s telecom market will benefit from rising urbanization, changing lifestyle and increased mobile data usage. 

3. Mobile segment expected to grow from mobile migration and increased data usage as Georgians use low levels of mobile internet compared to EU and CIS countries

4. Fixed broadband segment expected to benefit from increasing penetration in rural parts and shrinking household size in Georgia. After record breaking growth levels, we expect fixed broadband market to shift to steady growth path as penetration is still low in Georgia vs. EU. 

5. Pay-TV sector was the fastest growing segment, with penetration reaching 56.5% of the Georgia’s households. Despite the trend, Pay TV penetration still low in Georgia, particularly in rural parts. We estimate, urbanization trend and growing number of households to support the sector going forward. However, we acknowledge that the prevalent content piracy in Georgia hinders the sector’s growth outlook.

6. Fixed voice segment expected to continue decline, reflecting global trend of fixed-to-mobile substitution. Not surprising that more and more people, especially young Georgian families, do not have a fixed phone line at home. 

7. We initiate coverage of JSC Silknet, the largest fixed voice and second largest fixed broadband, Pay TV and mobile operator in Georgia. Silknet has transformed into a fully four-play-enabled telecom operator with the acquisition of Geocell in March 2018, then second largest mobile operator in Georgia. We believe that this acquisition enhances company’s market position and product profile, and better equips Silknet to compete with its rival.

8. Silknet placed its debut US$ 200mn Eurobond on 2 April 2019, with 5-year tenor and 11% coupon rate.  Major portion of the Eurobond proceeds was used to refinance the obligations incurred for Geocell acquisition and the remainder improved company’s liquidity profile.

9. Geocell acquisition almost doubled Silknet’s revenue as mobile sector became the largest and most profitable business line for the company. Silknet expected to benefit from the surge in mobile data traffic as well as growing fixed segment penetration in Georgia.

10. We believe that Silknet’s financial metrics will remain at comfortable levels compared to the Eurobond covenants in the medium term. Silknet’s credit profile is backed by robust profitability, moderate leverage and strong growth prospects, while key risks facing the company are related to competition in the sector and FX exposure. 

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Regional Fixed Income Market Watch | October 2019

25 Nov, 2019

Highlights

  • US real GDP growth came in at 1.9% annualized rate (advance estimate) in 3Q19 after 2.0% growth in 2Q19. Annual inflation in the US was 1.8% in October 2019, up from 1.7% in the previous month. Unemployment rate was 3.6% in October 2019, up from 3.5% in the previous month. Target range for the federal funds rate was lowered to 1.5%-1.75% in October 2019.
  • EU19 real GDP growth was 1.2% y/y in 3Q19 unchanged from 2Q19. Based on the Eurostat flash estimate, annual inflation in EU19 was 0.7% in October 2019, down from 0.8% in the previous month. Unemployment rate in EU19 was 7.5% in September 2019, unchanged from the previous month. In October 2019, ECB kept the interest rate unchanged on the main refinancing operations, the marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.50%, respectively.
  • Chinese economy increased by 6.0% y/y in 3Q19 after growing 6.2% y/y in 2Q19.
  • In September 2019, economic growth was 7.5% y/y in Armenia, 5.2% y/y in Georgia, 4.1% y/y in Kazakhstan and 2.9% y/y in Russia, based on preliminary data. In 9M19, growth was 3.8% y/y in Ukraine, 2.5% y/y in Azerbaijan and 1.0% y/y in Belarus.
  • In October 2019, annual inflation was above the target level in Belarus (5.3%), Ukraine (6.5%), Georgia (6.9%) and Turkey (8.6%); inflation was below the target in Armenia (0.9%) and in Russia (3.8%), while it was within the target range in Kazakhstan (5.5%). Annual inflation was 2.7% in Azerbaijan in October 2019.
  • In October 2019, monetary policy rate increased by 100 basis points to 8.5% in Georgia, while it reduced by 25 basis points to 7.75% in Azerbaijan, by 50 basis points to 6.5% in Russia, by 100 basis points to 15.5% in Ukraine, by 250 basis points to 14.0% in Turkey 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 - 1H19 update

31 Oct, 2019

GOGC released 1H19 unaudited results. Revenue was up 17.8% y/y to US$ 160.4mn in 1H19, mostly due to a 19.8% y/y (US$ 106.7mn) increase in sale of gas. Revenue from electricity generation, second largest revenue category, was also up 21.6% y/y, while GEL-denominated gas pipelines rental revenues were down 7.1% y/y. Meanwhile, operating expenses increased 14.9% y/y to US$ 130.9mn in 1H19. Higher revenues helped adjusted EBITDA to grow by 21.7% y/y to US$ 36.5mn. Notably, more than 90% of the construction works on Gardabani II CCPP have been completed as of October 2019. GOGC’s strong financial position is attested by a one-notch rating upgrade from S&P in October 2019 to BB- outlook stable.

GOGC’s 1H19 revenue was up 17.8% y/y to US$ 160.4mn, driven by increased gas sales revenue (+19.8% y/y to US$ 106.7mn). Gas demand was mostly affected by increased demand from TPPs as well as from commercial sector. Notably, increased demand from TPPs was a result of reduced hydro generation in 1H19 (down 9.7% y/y) due to unfavorable hydrological conditions. Importantly, gas sales to commercial sector were recorded for the first time, and this new category lifted average gas sale price to US$ 126.6/mcm in 1H19 compared to 115.5/mcm in 1H18.

Gardabani TPP operated for 165 days during 1H19, compared to only 134 days in 1H18, as hydrogenation reduced. As a result, revenue from electricity generation was up 21.6% y/y to US$ 40.6mn in 1H19 (25.3% of total). Rent from gas pipelines is the only GEL-denominated revenue category for GOGC since September 2017, when an annual fixed GEL 42mn fee was introduced. Consequently, GEL’s 10% depreciation against dollar in 1H19 (vs. 1H18 average) reduced pipeline rental revenue in US-terms by 7.1% y/y to US$ 7.9mn, while in GEL terms income remained flat. Oil transportation revenue declined 15.1% to US$ 3.6mn, as crude oil throughput in WREP was down. Significant growth in revenue from crude oil sales (up 70.8% y/y to US$ 1.6mn), which makes up only 1% of total revenue, was partially driven by increased volumes (up 53.9% y/y) as well as higher global crude oil prices.

1H19 operating expenses were up 14.9% y/y to US$ 130.9mn. Cost of gas, largest expense category, which combines gas purchased for resale (85% of cost of gas) and gas used by Gardabani I, grew 19.6% y/y to US$ 114.5mn. Gas costs for resale increased in both, volume (+12.8% y/y) and price (+ 3.8% y/y) terms. As a result this category was up 16.7% y/y to US$ 97.9mn. Cost of gas used in electricity generation also grew 39.9% y/y to US$ 16.7mn as demand on gas from Gardabani I increased in the reporting period. Other expenses, accounting for 12.5% of total, decreased 9.9% y/y to US$ 16.4mn helped by GEL’s depreciation in the period.


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Regional Fixed Income Market Watch | September 2019

18 Oct, 2019

Highlights 

  • US real GDP growth was an annualized 2.0% (third estimate) in 2Q19, after 3.1% growth in 1Q19. Unemployment rate was 3.5% in September 2019, down from 3.7% in August 2019.
  • In August 2019, economic growth was 7.6% y/y in Armenia, 7.3% y/y in Kazakhstan, 5.8% y/y in Georgia and 2.2% y/y in Russia, based on preliminary data. In 8M19, real GDP growth was 2.4% y/y in Azerbaijan and 1.1% y/y in Belarus.
  • Annual inflation in the US was 1.7% in September 2019, unchanged from the previous month. Based on the Eurostat flash estimate, annual inflation in EU19 was 0.8% in September 2019, down from 1.0% in the previous month.
  • In September 2019, annual inflation was above the target level in Belarus (5.3%), Georgia (6.4%), Ukraine (7.5%) and Turkey (9.3%); inflation was at targeted level in Russia (4.0%) and within the target range in Kazakhstan (5.3%); inflation was below the target in Armenia (0.5%). Annual inflation was 2.1% in Azerbaijan in September 2019.
  • Monetary policy rate increased by 50 basis points to 7.5% in Georgia on 25 September 2019 and has remained unchanged in other countries during end-September -1H of October 2019.
  • In October 2019, S&P upgraded Georgia’s sovereign credit rating to BB from BB- with a stable outlook and Ukraine’s rating to B from B- with a stable outlook. 



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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