Ukraine Markets Daily (December 24, 2015)

Market news

  • Ukrainian banks incurred UAH 57 bn of losses in January-November 2015
  • Serinus announces the sale of its Ukrainian assets for USD 30 mn

Market comment

The UX Index was up by 1.1% in UAH terms on Wednesday, and up by 1.3% in the US dollar. The PFTS index was up by 0.3% in UAH terms. Five out of ten companies in the UX index were up in UAH terms, with the largest increase recorded for Ukrnafta (5.6%), Azovsteel (2.9%) and Kryukiv carriage (1.5%).


On the interbank exchange market, the USD/UAH rate was down by 0.2% to 22.85 (mid price) on Wednesday, according to Bloomberg. The official exchange rate reported by the NBU was UAH 23.00.

Ukraine 5-year CDS were unchanged on Wednesday.


Ukrainian banks incurred UAH 57 bn of losses in January-November 2015

The monthly losses of the Ukrainian banks decreased by 74% m/m in November 2015, and amounted to UAH 1.0 bn (USD 47.4 mn), according to the NBU’s press-release. Banks’ income increased by 1% m/m and totaled UAH 19.0 bn (USD 812.6 mn), whereas expenditures declined by 13% to UAH 20.0 bn (USD 856.8 mn). Interest income remained  unchanged at UAH 12.3 bn (USD 526.3 mn), income from fees and commissions declined by 3% m/m and amounted to UAH 2.4 bn (USD 104.9 mn), while income from trading operations increased by 7% m/m to UAH 3.4 bn (USD 144.8 mn). On the expenditure side, interest expenses grew by 4% m/m and totaled UAH 8.3 bn (USD 357.8 mn), administrative expenses increased by 9% m/m to UAH 3.4 bn (USD 148.2 mn), while reserves provisions decreased by 32% m/m to UAH 6.8 bn (USD 293.2 mn).

The losses of the banking system amounted to UAH 57.3 bn (USD 2.6 bn) in January-November 2015, with income coming to UAH 191.3 bn (USD 8.8 bn), and expenditures totaling UAH 248.6 bn (USD 11.4 bn). Banks’ interest income amounted to UAH 135.2 bn (USD 6.2 bn) in eleven months, fees and commissions to UAH 26.3 bn (USD 1.2 bn).  Banks’ interest expenses amounted to UAH 88.2 bn (USD 4.0 bn) during the period, forming 35.5% of expenses, while reserve provisions amounted to UAH 109.9 bn (USD 5.0 bn) making 44.2% of expenditures in eleven months.

Our view: 

A notable reduction of loan loss provisions contributed to the consolidation of banking results in November. The development is most likely related to the execution of the NBU’s requirements to cut banks’ exposure to related parties. In the meantime, the completion of the stress-testing of the largest banks of Ukraine, resulting in adjustment of banks’ lending policy and liquidity management, together with a gradual easing of the restrictions on the foreign currency market, on background of the gradual revival of economic activities, should revitalize the banking business in the coming months.


Serinus announces the sale of its Ukrainian assets for USD 30 mn

Yesterday Serinus [SEN PW], an international oil&gas exploration and production company with assets in Tunisia, Romania and Ukraine, announced that it has entered into an agreement for the sale of all of the 70% of the outstanding shares of KUB-Gas Holdings Limited (“KHL”) currently owned by Serinus. KUB-Gas LLC (100% owned by KHL) owns 100% of and operates the six licences/permits in Ukraine which contain the Olgovskoye, Makeevskoye, Vergunskoye and Krutogorovskoye gas fields. KUB-Gas was assigned gross 2P reserves of 64.5 Bcf and 459 Mbbl of NGL’s (45.1 Bcf and 321 Mbbl net to SEN) at December 31, 2014. Gross production in 3Q2015 was 23.5 MMcfe/d (16.4 MMcfe/d net to SEN), of which 98% was natural gas.

A private company is purchasing the shares of KHL for cash consideration of USD 30 mn plus working capital and inter-company adjustments. The sale is anticipated to close before January 31, 2016 with an effective date of December 31, 2015, and is subject to the waiver or expiry of the right of first refusal by the owner of the remaining 30% of KHL. The company also commented that it intends to repay USD 11.28 mn of debt plus accrued interest to the EBRD, and may at the EBRD’s discretion repay an additional USD 7.4 mn on its Tunisia Facility. According to Serinus, the balance of the proceeds of sale will be used to further the development of the company’s Moftinu gas discovery in Romania.

Post the transaction, Serinus will have 11.8 MMboe of 2P reserves in its properties in Tunisia which are currently producing 1,415 boe/d of which approximately 75% is oil. Netbacks during 3Q2015 were USD 22.19 per boe. Serinus also has an effective 100% interest in the Satu Mare Concession in northwest Romania, which contains the Moftinu gas discovery made in early 2015. The Moftinu-1001 well tested at a maximum rate of 7.4 MMcf/d and 19 bbl/d of liquids. Serinus estimates a P50 recoverable volume of 18 Bcf for the field. The company commented that ending regulatory approvals and financing, first production could be in early 2017. The cost of full development of the Moftinu discovery is estimated at USD 16 mn. Serinus also noted that the Satu Mare field also has a multi-year exploration inventory of over 25 leads and prospects with risked prospective resources of 59 MMboe.

Our view:

The news is POSITIVE for Serinus, as it effectively de-risks the company’s operations (as the Ukrainian fields were located close to the conflict area) and allows the company to repay some of its debt to the EBRD and finance the development of its assets in Romania (the Moftinu field). According to our calculations, the purchase price is equivalent to USD 4.4/boe using Serinus 2P reserves as of end-2014 and adjusting for production in 2015. Using SEN’s price before the deal announcement, we arrive at a pre-deal valuation of USD 16,742 per boepd and USD 3.5 per boe of 2P reserves, while adjusting the enterprise value for USD 30 mn of cash and excluding production and reserves of the Ukrainian assets gives valuation of USD 26,979 per boepd and USD 3.2 per boe of 2P reserves, which gives room for an upside since the Ukrainian assets were bought for USD 4.4/boe and considering the company also has two fields in Romania in active development. The news is also POSITIVE for Cub Energy [KUB CN], which has a 30% working interest in Kub-Gas LLC, as the deal values Cub’s share at USD 12.75 mn compared to the company’s current enterprise value of USD 5 mn.



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