Theresa May survived no-confidence vote but MPs rejected her Brexit Withdrawal Agreement so UK PM is now to hold cross-party talks in order to bring new Brexit deal. Nevertheless, it seems that Brexit story is all but clear and all scenarios seem possible. Meanwhile, Destatis published its first estimate on German GDP in 2018, showing that Germany avoided technical recession. However, one should wait for the full data on Q4.
‘Meaningful vote’ held in UK’s House of Commons on Tuesday evening ended up as not so meaningful after all, with MPs rejecting the Withdrawal Agreement with a historically wide margin of votes (432 nays, 202 yeas). Following the 230-seat margin of defeat, leader of the opposition Jeremy Corbyn forced a no-confidence vote that also failed yesterday, meaning that Theresa May could start with cross-party talks on a new deal that should be negotiated with the EU all over again.
It is worth mentioning that regardless of yesterday’s no-confidence vote, out of May’s 317 members of the parliament, only 196 backed the deal, pointing out that snap election might be around the corner (the last one was held in spring 2017 and ended up with a hung parliament).
The story that began in the first days of summer of 2016 is still unravelling and could easily be continued beyond March 29th to July or even beyond in case UK government requests an extension and Berlaymont approves. Analysts still predict that soft Brexit is the most likely scenario while probability of UK remaining in EU in case of second referendum seems more likely than hard Brexit. However, there’s still a long path in front of UK government and every scenario looks possible: extension of Article 50, new elections, soft and hard Brexit.
While most of the investors’ focus was on UK, German Statistical Office published its preliminary estimate of GDP for 2018 this week and it seems that German economy narrowly avoided a technical recession last year as GDP increased by 1.5% YoY. In case first three quarters of 2018 won’t be revised, 1.5% growth means that in terms of QoQ, GDP in Q4 increased slightly above zero. However, one should bear in mind that these are still preliminary estimates, so we should wait until February 14th when Q4 data will be published. Looking at the drivers of the deceleration in 2018, household consumption takes the blame, as it grew by 1.0% compared to 1.8% in 2017 while net exports decreased by 0.2% versus 2017.
Looking at the cable exchange rate, it seems that Withdrawal Agreement vote eased some of the fears of investors (the reason why is arguable). However, unclear Brexit story and apparent economic slowdown in Germany (which might trickle down to the rest of the EU countries) forced investors into safer assets such as German Bund. This week we have seen EUR 10Y benchmark once again dipping below 0.20% handle, the level last recorded in April 2017; and that was when the ECB was still buying sovereign and corporate bonds.
The chart submitted demonstrates how the CEE EUR-denominated international bonds caught a bid in the last few weeks, with risk premiums tightening at a modest pace. The move was also influenced by dovish comments from central bankers, as well as low core yields pushing yield thirsty investors to the periphery.
The new contribution does not seem to apply retroactively, but will apply from 2019. However, the basis of calculation will be the one of the previous year (2018 for the 2019 contribution). This means that it will be paid based on the free market prices rather than the new capped ones.
Romanian energy companies licensed by the Romanian Energy Regulatory Authority (ANRE) will have to pay the 2% tax applied to the estimated turnover for 2018 which will be calculated at free prices, not regulated ones.
The new contribution does not seem to apply retroactively, but will apply from 2019, the year when the ANRE order will be issued, not for 2018, the year when the EGO 114 was adopted. However, the companies are still going to pay a conturibution to their higher revenues, as the basis of calculation will be the one of the previous year, meaning that 2018 would be the basis for the 2019 contribution. This means that it will be paid based on the free market prices rather than the new capped ones.
The license holders will communicate to ANRE by 20 February the value of the turnover expected to be realized in the previous year from the activities subject to the licenses held.
If the license holders fail to meet the deadline, ANRE will calculate the contribution due based on the latest turnover reported to the Ministry of Public Finance, meaning all of the company’s business.
Note that the only exceptions are granted to license holders granted for activities in the field of cogeneration, heat and thermal energy production and in the centralized heating system energy, which have the obligation to pay annually ANRE a cash contribution equal to 0.1% of the turnover achieved by them in 2018 from the activities subject to their licenses, but not less than the minimum contribution equal to RON 3.125.
In case the measure is enforced, banks will have to record provisions as revenue, which will boost their profit, but will hurt them when a loan goes bad and they will have to record the loss all of sudden.
According to the media, the Romanian Finance Ministry is discussing a new measure in which provisions will no longer be tax-deductible unless there is a loan or financial-asset loss. The new measure is expected to be introduced sometime in the next few weeks.
In case the measure is enforced, banks will have to record provisions as revenue, which will boost their profit, but will hurt them when a loan goes bad and they will have to record the loss all of sudden.
At stake are banking provisions of over EUR 4bn banks set aside over the years without actually posting losses. At the moment, a bank may start setting aside fully tax-deductible provisions if it thinks a loan will go sour or a financial asset is worth less than its purchase price.
Romanian Finance Minister, Eugen Tedorovci stated that since 2015 when the banking system returned to profit, this profit has mostly come from reversing provisions and not from an increase in business. This means banks had provisions set aside for loans or the decline in the collateral value and when the debtors paid off their loans or the collateral value increased, they recorded the difference as profit.
The Romanian M&A market neared EUR 2bn in 2018, based on public sources and disclosed deal values. Factoring in the deals whose value was not published, it is estimated that the M&A market was between EUR 3.8bn and EUR4.3bn, slightly below the previous year.
As Deloitte recently published an overview of Romanian M&A market in 2018, we bring you some key takes from it.
The Romanian M&A market neared EUR 2bn in 2018, based on public sources and disclosed deal values. Factoring in the deals whose value was not disclosed, Deloitte estimates that the Romanian M&A market was somewhere between EUR 3.8bn and EUR4.3bn, slightly below the previous year. The reason for this slight decrease in 2018 could be attributed to specific set of circumstances in 2017, namely a record number of deals between EUR 100m and EUR 500m.
In 2018, 14 deals with a disclosed or estimated value of at least EUR 100m were announced. In total, there were 96 deals in 2018. The average value of the disclosed ones was 50 million euros.
Some of the largest deals of 2018 were Vodafone’s acquisition of Liberty Global shares in Germany, the Czech Republic, Hungary and Romania for an undisclosed amount. Next, Advent International’s acquisition of Zentiva Group for EUR 287m. The sale of Agricost to Al Dahra group follows with a value of EUR 200m, making it the largest deal in Romanian agriculture.
Note that Deloitte expects 100 M&A deals to occur in 2019.
The Bucharest Tribunal convicted RCS & RDS S.A. (Digi’s subsidiary in Romania) in connection with the offence of money laundering for which the court applied a criminal fine in the amount of RON 1.25m.
The Bucharest Tribunal’s decision also decided on the confiscation from RCS&RDS of an amount of EUR 3.1 plus RON 655,124 and it maintained the seizure over the two real estate assets first instituted by the DNA.
Integrasoft S.R.L. was convicted in connection with the offence of accessory to money laundering for which the court applied a criminal fine of RON 700,000.
The decision also abolishes the joint-venture agreement from 2009 concluded between RCS&RDS and Bodu S.R.L., as well as all the agreements concluded between RCS&RDS, Bodu S.R.L. and Integrasoft S.R.L. in 2015 and 2016.
Digi’s former Director Ioan Bendei was convicted to a 4 years imprisonment sentence in connection with the offence of accessory to money laundering.
Note that Digi released a statement saying that they will challenge the decision to the Bucharest Court of Appeal and that they deem the Bucharest Tribunal’s decision to be profoundly unjust, incorrect and ungrounded.