In H1, Fondul recorded a net unrealized loss from equity investments at fair value through P&L of RON 1.9bn. Meanwhile net loss amounted to RON -848.6m.
In the first half of the year, Fondul Proprietatea recorded the net unrealized loss from equity investments at fair value through profit or loss of RON 1.9bn compared to a gain of RON 1bn in H1 2020.
Such a result was mainly generated by OMV Petrom (RON 696.6m, decrease in share price of 27.5%) and the RON 1.3bn decrease in value of unlisted holdings following the valuation update in June. The following unlisted companies recorded the highest decrease in NAV: Hidroelectrica (RON -179m), CN Aeroporturi Bucuresti (RON -287.1m), EDistributie Banat (RON 266.7m), E-Distributie Muntenia (RON -215.8m) and E-Distributie Dobrogea (RON -156.8m).
During the first half of 2020, 10 companies in the Fund’s portfolio declared dividends for the FY 2019 and FY 2018. In addition, 4 companies declared special dividends. The total amount of gross dividend income amounted to RON 1.2bn. The main dividend payers were E-Distributie companies (RON 522.9m), Hidroelectrica SA, (RON 399.5m), OMV Petrom SA (RON 175.6m), and Nuclearelectrica SA (RON 34.9m).
As a result, net operating loss amounted to RON -798.9m, compared to a gain of RON 1.7bn in H1 2019. In H1 2020, the company recorded a net loss of RON -848.6m compared to a profit of RON 1.7bn in H1 2019.
During Q2 of 2020, the NAV per share had an overall increase of 7.6% compared to the end of Q1 2020, mainly due to the dividends recorded from portfolio companies during this period (RON 417.6m), the valuation update of the unlisted holdings in the portfolio (impact on the Fund’s NAV of RON 217.5m compared to 31 March 2020) and the positive share price evolution of the Fund’s listed holdings, principally OMV Petrom SA (impact on the Fund’s NAV of RON 192.6m compared to 31 March 2020) as well as the eleventh buyback programme carried out by the Fund during this period. However, these were partially offset by the dividend distribution of RON 0.0642 per share approved by shareholders during the GSM held at the end of April (total impact in Fund’s NAV of RON 418.0 million). To read more about Fondul’s Q1 NAV click here
On Friday, the Croatian Bureau of Statistics published its first estimate on GDP for Q2 2020 showing that in real terms it decreased by 15.1% YoY (seasonally adjusted data).
Full impact of lock-down of the economy due to Covid-19 pandemic is evidenced in Q2, so the drop is a result of decrease in household consumption expenditure, decrease in foreign investments, decrease in exports of goods and services and decelerated growth of general government spending.
The main contributor to GDP – final consumption – dropped by 10.1% as lock-down was effective in April and part of May and economy started to reopen at the end of May. Spring is usually start of summer season which was not evidenced this year due to restriction of travelling. Therefore, the largest part of final consumption, household expenditure decreased 14.0% YoY, while general government’s expenditure amounting to almost 1/3 of final consumption decelerated and grew slightly by 0.7% YoY. The halt in Croatia and global economies had a full impact on reduced household consumption that has in 1H decreased for 6.40% (at current prices), which could not be offset by higher general government spending that in the same period grew by 5.77% (at current prices).
Due to halt in the economy the investments were also stopped so gross fixed capital formation dropped by 14.1% YoY. This is strong difference to previous quarters when gross fixed capital formation observed growth rates which in turn had positive impact on GDP growth. Due to halt in international trade, the trend from previous quarter persisted so decrease both in imports and exports of goods and services was evidenced, by 28.1% and 40.6% respectively. Due to omission of start of summer tourist season, the decrease in exports of goods and services (-40.6%) was in majority driven by drop in exports of services of -67.4%. Export of services have in Q2 2020 accounted for 30% of total exports (vs. 52% in Q2 2019).
Croatian GDP, Real Growth Rates (%, YoY)*
*Quarterly Gross Domestic Product, seasonally adjusted real growth rates
Comparing Croatia to other EU countries, the drop in GDP in Q2 was somewhat higher in Spain (-22.1%), France (-19.1%), Italy (-17.3%) and Portugal (-16.3%), while it was somewhat lower in Belgium (-14.5%), Hungary (-13.5%), Austria (-13.3%), Slovakia (-12.1%) and Germany (-11.7%). Slovenia will publish its first estimate of Q2 2020 GDP today.
Due to Corona virus imposed government spending, developed countries have pushed public debt figures to the levels last seen in the years after World War 2.
According to the International Monetary Fund IMF advanced economies gross debt now amounts to 122.4% of global gross domestic product. While in 1946, it came to 124% of GDP. For example, United States gross public debt has in 1946 amounted to 121.1% of GDP, while now it stands at 131.07% of GDP. One of the countries most strongly hit by WWII – United Kingdom – in 1946 had its gross public debt at 269.8% of GDP, while today it is at level of 95.7%.
Advanced economies are fighting against pandemic caused by Covid-19 with government spending and slowing of economies, therefore this event can be compared to World War II era. Back then economies quickly recuperated and brought down their debt. Unites States had gross public debt ratio at 62.3% of GDP in 1956 due to strong growth in population and industrialisation. Also in ten years after WWII, United Kingdom had dwindled its gross public debt ratio to 143.8%. Since we are now witnessing reverse processes in advanced economies (decrease in population and outsourcing of industry) it is quite difficult to predict how long it will take for developed countries to bring down their debt.
Gross debt position (% of GDP)
Source: International Monetary Fund
According to IMF advanced economies are the following: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Korea, Republic of, Latvia, Lithuania, Luxembourg, Malta, Netherlands, New Zealand, Norway, Portugal, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom and United States.