IC Market Espresso 7 Feb 2019

Croatian 2019 Budget Deficit Covered Already
Croatian Ministry of Finance had a busy week, holding two large government debt auctions. In the first one it issued EUR 1.048bn of 455-days EUR-indexed T-bill at 0.00%. On the second one it issued EUR 500m of RHMF-O-222E, EUR indexed 3-year bond at 0.61% and tapped HRK 5bn of RHMF-O-297A at 2.41%. With this issuance, Croatia funded its deficit planned for 2019 and can go on autopilot until November when RHMF-O-19BA and CROATI 2019 USD mature.

Last week Croatian Ministry of Finance held two big auctions on which it issued EUR 1.048bn of RHMF-T-019X on Thursday and EUR 500m of new FX-linked paper RHMF-O-222E and tapped HRK 5bn of RHMF-O-297A on Friday. Meanwhile EUR 1.5bn of RHMF-T-906X matured today, meaning that Croatia already financed deficit for 2019 which was forecasted at HRK 4.2bn.

EUR 1.048bn worth RHMF-T-906X is 455 days paper which was issued at zero return, while book stood at EUR 1.34bn, reflecting bid to cover ratio of almost 130%. Just to put things into perspective, RHMF-T-906X that matured today was issued in summer 2017 and yielded 10bps. Meanwhile, Croatian central bank maintained its first FX-intervention in 2019 in which it bought EUR 450.3m @ 7.41686 placing more than HRK 3bn to the system that already faces surplus of more than HRK 35bn. As MinFin rolled only two thirds of FX treasury, banks received almost EUR 500m but bought FX-linked paper. However, that was payable in HRK meaning that euros were left at their balances which was most likely the main driver for the yesterday’s pressure on EURHRK. 

Talking about EURHRK, RHMF-O-222E is EUR-indexed paper and was issued in amount of EUR 500m which makes the paper third smallest in notional, after RHMF-O-222A and RHMF-O-327A. It has a coupon of 0.50% and was issued at 99.678 meaning that yielded 0.66%. At the start of the auction, bookrunners informed investors that paper could bring premium of 5-15bps on interpolated RHMF-O-203E and RHMF-O-227E but due to very low liquidity of mentioned papers it wasn’t an easy job to price the paper before the auction. Bid was strong here as well, with books being above EUR 1bn. Looking at the top 10 holders, one could see that the paper is mostly held by the banks, with top four holders having more than 75% of the issuance.

Third paper that was issued last week was actually tap of the longest Croatian LCY paper, RHMF-O-297A. MinFin issued HRK 5bn with books being above HRK 11bn, as very high level of HRK liquidity surplus pushes investors into the longer part of the curve. Paper was issued at 99.678 (2.41%) which was slightly below dealers’ bid although bookrunners pointed to a spread of 5-15bps, just at the start of the auction. On Monday paper was traded in a wide range of prices, from 99.678 up to 100.35, meaning that prices modestly decreased compared with bid and ask prices of dealers on Thursday, day before the auction.

Summing it all up, Croatian Ministry of Finance proved that it does not have any problems funding its needs domestically and it could run way larger deficits that could be financed at home. In case Ministry of Finance doesn’t decide to overhaul budget for 2019 or to pre-finance 2020 it could go on the autopilot until November when both RHMF-O-19BA and CROATI 2019USD mature. Until then, MinFin could just wait for credit rating agencies and expect positive assessment.

OMV Petrom Publishes Preliminary 2018 Results and Proposes RON 0.027 dps
In 2018, OMV’s sales increased by 16% YoY. EBITDA increased by 27% YoY and net income increased by 64% YoY. The company also proposed a dividend of RON 0.027 dps (8% dividend yield).

OMV Petrom published their preliminary 2018 results.

According to the report, their sales in 2018 have increased by 16% YoY, amounting to RON 22.5bn. The increase in sales was driven by higher commodity prices and electricity sales volumes, which was somewhat offset by lower sales volumes of gas and petroleum products. Of the total consolidated sales, Downstream Oil represents 76%, Downstream Gas represents 22% and Upstream 2%.

Meanwhile, their 2018 EBITDA amounts to RON 8.4bn, which represents a 27% increase YoY.

When looking at their EBIT, OMV Petrom observed a 59% increase YoY, amounting to RON 5.2bn. The growth was driven by above mentioned higher commodity prices and ongoing cost optimization. Next, their Upstream benefitted from better-realized prices and lower OPEX, depreciation and exploration expenses, offsetting the impact of production decline. The Downstream Oil result reflects their strong sales performance, partly compensating the effects of the refinery turnaround in Q2/18 and the lower refining margin.

Furthermore, net income amounted to RON 4bn, which is an increase of 64% YoY.

Source: InterCapital, Research

The investments for 2018 amounted to RON 4.3bn, mostly in Upstream, which is 44% higher YoY. The management notes that recent regulatory instability has led them to revise their growth investment plans, so they plan on lowering investments in 2019 to around RON 3.7bn, of which about 75% in Upstream.  They state that their focus remains on extracting the highest value from the existing Upstream portfolio, therefore they estimate the daily average production decline to be contained at around 5% YoY, excluding portfolio optimization.

Note that in 2018, the Romanian Government approved the Emergency Ordinance no. 114, which also impacts OMV Petrom. The main aspects impacting them include regulated gas and power pricing over a three-year period and an increased financial contribution applied to the gas and electricity turnover. The management of the company states that they are, at the moment, assessing the impact of it on their operations.

Turning our attention to the dividend policy, the company proposed a dividend of RON 0.027 per share, which is subject to the approval of the Supervisory Board at GMS in April 2019. This would mean a payout ratio of 38%, while, at the current share price, the dividend yield would be 8%.

Source: InterCapital, Research

*compared to the share price day before the dividend announcement

Digi to Offer Additional Notes Worth EUR 125m
The Additional Notes will be consolidated and treated as a single class with the existing EUR 350m 5% senior secured notes due 2023.

Digi published a document stating that they decided to offer additional EUR 125m 5% senior secured notes due 2023, to be consolidated and treated as a single class with the existing EUR 350m 5% senior secured notes due 2023. The Company issued the Original notes under the Indenture initially dated 26 October 2016 and supplemented on 8 June 2017 and 28 June 2018 which are currently listed on the official list and trading on the regulated market of the Irish Stock Exchange.

The Additional Notes will be consolidated and treated as a single class with the Original Notes. The minimum denomination of the Additional Notes will be, EUR 100,000, the same as Original Notes. Also, the Additional Notes will have identical terms and conditions in all respects as the Original Notes, including, without limitation, with respect to payments of interest, waivers, amendments, redemptions and offers to purchase.

Note that the additional notes will be offered solely to qualified institutional buyers or non-U.S. persons purchasing the Additional Notes outside the United States in reliance on Regulation S under the U.S. Securities Act.

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