Ukraine Markets Daily (August 17, 2015)

Market news

  • Ukraine’s GDP contraction slowed to 14.7% y/y in 2Q2015
  • Privatbank adjourned noteholders’ meeting to August 27, 2015
  • Serinus’ revenue fell by 39% y/y to USD 47 mn in 1H2015

Market comment

The UX Index was up by 1.4% in UAH terms on Friday, and down by 1.3% in the US dollar. The PFTS index was unchanged in UAH terms. Nine out of ten companies in the UX index were up in UAH terms, with the largest increase recorded for Kryukiv carriage (5.0%), Avdiivka coke (4.2%) and Alchevsk MP (3.1%).

 

On the interbank exchange market, the USD/UAH was up by 2.8% to 22.04 (mid price) on Friday, according to Bloomberg. The official exchange rate reported by the NBU was UAH 21.76.

Ukraine 5-year CDS were down by 0.3% on Friday.

 

Ukraine’s GDP contraction slowed to 14.7% y/y in 2Q2015

Ukraine’s GDP fell by 14.7% y/y in 2Q2015, after falling by 17.2% y/y in 1Q2015, according to preliminary data of the State Statistics Service. The economy declined by 0.9% q/q, seasonally adjusted (SA), compared with a 6.5% q/q SA downfall in 1Q2015. No details of the GDP breakdown have been unveiled yet.

Our view: 

The GDP contraction was milder than generally expected. We think that improvement in the trade balance, thanks to a notable contraction in imports, together with increasing public defense and law enforcement related spending supported the economy in 2Q2015. The improvement became a first occurrence  of economic redressing since the start of the crisis in early 2014. We see the GDP improvement to get more accentuated since 3Q2015 considering the weakening comparative base of 2H2014.

 

Privatbank adjourned noteholders’ meeting to August 27, 2015

Privatbank shifted the meeting of holders of its Eurobonds maturing on September 23, 2015, called on August 13, to August 27, 2015, according to an announcement of the bank on the London Stock Exchange. The meeting was intended to make a decision on the bank’s solicitation to extend the maturity of the 2015 notes up to December 1, 2015. The meeting of August 13 failed to gather the necessary quorum to take a decision, according to the statement. If agreed by the note holders, the time left before December 1 would be used by the bank to negotiate a comprehensive reprofiling package for the 2015 bonds. 

According to the Consent Solicitation Memorandum dated 29 July 2015, the maturity of the Loan and the Notes are proposed to be extended to 23 January 2018, whereas the interest rate on the Notes to be increased to 10.25 per cent per annum. The offer supposes that 30 per cent (or USD 60 mn) of the principal amount of the Notes will be redeemed on September 23, 2017 with the remaining part of the debt to be redeemed in equal monthly installments in the period from October 23, 2017 to January 23, 2018. At the time when the Reprofiling takes effect, eligible Noteholders who validly vote in favor of the Reprofiling may be entitled to receive a consent fee of USD 20.00 for each USD 1,000 in principal amount of the Notes.   

Our view: 

Privatbank’s note holders have surprised again, failing to pass a decision on the 2015 notes. We estimate that the current failure might come as a result of some weakness in the bank’s communication with its creditors. In the meantime, we see the bank and its noteholders to come to a final agreement before the maturity of the bonds, whereas the terms of the solicitation memorandum will incur no substantial changes.

 

Serinus’ revenue fell by 39% y/y to USD 47 mn in 1H2015

Last Friday Serinus [SEN PW], an international oil&gas exploration and production company with assets in Ukraine, Romania and Tunisia, published its financial results for 2Q2015 and 1H2015. The company’s revenue fell by 39% y/y to USD 47 mn (USD 37.7 mn net to Serinus) in 1H2015 as a result of the 15% y/y drop in production (to 4,198 boepd) and the 28% y/y decrease in realized prices. Serinus reported a net loss of USD 3.6 mn in 1H2015, although the company recorded a net income of USD 0.5 mn in 2Q2015.  

The company’s cash flow from operations fell by 72% y/y and amounted to USD 9.9 mn in 1H2015, while capital expenditures for the period amounted to USD 20.9 mn, which was mostly financed by net borrowings of USD 12.8 mn during the period. Serinus reported a cash balance of USD 12.5 mn as of end-June 2015.

The company reported that its total working interest production (consisting of the company’s production in Tunisia plus its 70% interest in Ukraine) was down by 20% y/y in 2Q2015 to 3,993 boepd, which was mainly caused by the shut-in of the Sabria Field (Tunisia) due to protests in the area. However, Serinus noted that production resumed in late July 2015 and rates are approaching the pre-shut in levels of approximately 700 boe/d. Serinus reported netbacks of USD 11.50/boe (-68% y/y) in Ukraine and USD 24.53/boe (-56% y/y) in Tunisia during 2Q2015. 

Our view: 

The news is NEGATIVE for Serinus. Shrinking netbacks in Ukraine due to higher natural gas royalties and lower prices, as well as the drop in production in Tunisia negatively affected the company’s cash generation during the first six months of 2015. However, we remain positive on the outlook for the second half of the year, with the new taxation scheme for oil & gas in Ukraine likely to be implemented in 4Q2015 and the resumption of production of the Sabria field in Tunisia in July 2015.

 

Disclaimer

Although the information in this report has been obtained from sources which Empire State Capital Partners believes to be reliable and was collected in good faith, we do not represent or warrant its accuracy, except with respect to information concerning Empire State Capital Partners, its subsidiaries and affiliates, either expressly or implied, and such information may be incomplete or condensed. Nor has the information and/or data been independently verified, and so is provided without further caveat regarding its reliability, suitability for commerce or specific purpose. 

This report does not constitute a prospectus and is not intended to provide the sole basis for an evaluation of the securities discussed herein. All estimates and opinions included in this report constitute our judgment as of the date of the report and may be subject to change without notice. Empire State Capital Partners or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this report, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, or other services (including acting as advisor, manager) for any company referred to in this report and may, to the extent permitted by law, have used the information herein contained, or the research or analysis upon which it is based, before its publication. Empire State Capital Partners will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. This report is confidential and is being submitted to select recipients only. It may not be reproduced (in whole or in part) without the prior written permission of Empire State Capital Partners.

Any recommendations, opinions, forecasts, estimates or views herein constitute a judgment as at the date of this report. This document has been produced independently of Empire State Capital Partners and the recommendations, forecasts, opinions, estimates, expectations, and views contained herein are entirely those of the research analyst(s). While all reasonable care has been taken to ensure that the facts presented herein are accurate and that the respective recommendations, forecasts, opinions, estimates, expectations, and views are fair and well considered, none of the research analyst(s), Empire State Capital Partners or any of its directors, managers or employees has verified the contents of this document and, accordingly, no research analyst, Empire State Capital Partners or any of its respective directors, managers or employees shall be in any way responsible for its contents.