Page 15 - FSUOGM Week 12

FSUOGM
FSUOGM
less than 1% of GDP in 2020 from a 5.3% of GDP surplus in 2019, Russia’s external finances are very robust, with the central bank’s foreign exchange reserves (excluding gold) covering 90% of total external debt as of the end of 2019, compared with 55% in 2014,” Moody’s calculated.
In addition, Russia’s fiscal rule, which helps to reduce the economic volatility stemming from fluctuations in oil prices, has allowed the sovereign to rebuild its fiscal savings. The National Welfare Fund amounted to 11.2%
of GDP as of March 19, 2020 following the transfer of 2019 oil revenues and will help to cover any oil revenue shortfall and preserve Russia’s strong fiscal position, the agency believes.
Russia is also among the sovereigns with more flexible exchange rate arrangements, including Kazakhstan, Angola and, in principle, Azerbaijan, with currency depreciation mitigating the revenue shock when converted into domestic currency, although at the expense of increased debt to GDP because of valuation effects.
Russia’s Rosneft to launch
buyback programme on low
market
Russia’s largest oil producer state-controlled Rosneft is re-launching the share buyback programme announced back in August 2018, and is planning to acquire up to
$2bn worth of shares on the currently weak market.
As reported by bne IntelliNews, the management boards of Russian blue chips are actively acquiring the shares of their companies, as the prices have tanked on the combination of coronavirus (COVID-19) pandemic and the drop in oil prices. More share buybacks are likely to follow from cash- flow solid commodity companies.
Rosneft will finance the buyback with free cash flow, while not changing the 2020 guidance for FCF. To compare, Rosneft made
$2bn in FCF in 2Q19 alone. BCS Global Markets sees revision of the buyback as “justified under current conditions,” and estimates that Rosneft may repurchase circa 5% of shares with the guided amount of $2bn.
The buyback is seen as supporting the name and additional yield in the future (besides
8.2% 12-month forecast dividend yield), BCS GM believes, seeing the news as positive
and reiterating the Buy recommendation on Rosneft with target price of $7 and 104% estimated upside.
Rosneft adopted the buyback as part of its 2018 investment makeover, when it pledged to cut debt, limit the investment programme and shed non-profile assets. The company also raised its dividend payout to 50% of IFRS profit.
Russia counts potential
damage as Urals oil sinks
to $19
The spot price of Russian Urals blend oil supplied to Northwestern Europe dropped by 22% to $18.64 per barrel, its lowest
level since 2002, Vedomosti daily reported citing Argus Media. The dive in the price is attributed to the information that shipments of Urals from Baltic ports planned for April 1-5 increased by 25% to 2mn barrels daily.
As reported by bne IntelliNews, Russia could be caught between a rock and a hard place with the double impact of the coronavirus (COVID-19) pandemic and an unfolding oil price war after the collapse of the OPEC+ oil output deal.
Russia’s Finance Ministry estimated that
at Urals’ price of $17.4 per barrel the Russian budget could miss up to $3.3bn monthly. Urals usually trades at a discount to benchmark Brent oil and follows its price movements.
Vedomosti cites a forecast by Goldman Sachs that sees the COVID-19 pandemic slashing demand for oil by 1.1mn barrels daily and dropping the Brent price to $20 per barrel in 2Q20, recovering to $30 and $40 in 3Q20
and 4Q20 respectively. Full recovery to $50 is anticipated by the end of 2021.
Finance Minister Anton Siluanov expects the federal budget to be short of RUB3tn ($36.9bn) of oil and gas revenues in 2020 due to low oil prices, Reuters reported on March 18.
“(COVID-19) is shrinking the
entire segments of the economy such as transportation, tourism, SMEs. This spills over to other sectors, such as luxury consumer goods, including cars. Currently the situation is not developing in the best way and we are diverging from the macroeconomic targets,” Siluanov is quoted as saying.
Previously Siluanov predicted a RUB2tn loss for the budget to result in 0.9% of GDP deficit, to be covered with a RUB600bn injection
from the sovereign National Welfare Fund.
The budget was planned at $57 per barrel oil price, RUB65.7 to US dollar currency rate, and RUB876bn or 0.8% of GDP surplus.
Analysts of Gazprombank estimated that given a $30 per barrel oil price and average RUB75 per $ rate, the missing revenues
will amount to RUB2tn, with the deficit of RUB800bn or 0.9% of GDP. Raiffeisenbank analysts expect a budget deficit of RUB1.5-3tn, depending on the oil price.
Kazakhstan to consider tax breaks for oil firms
Kazakhstan is set to consider tax breaks for oil companies in order to ensure stability in the industry, Deputy Energy Minister Aset Magauov said on March 18.
Kazakhstan’s oil industry, the main driver of the country’s economic growth, will likely be harmed by weak world oil prices that collapsed after OPEC and Russia failed to reach an agreement on cutting oil output earlier in the month. Kazakh authorities are now eyeing cost-cutting measures.
Included will be breaks on the minerals extraction tax and additional measures such as subsidised loans, according to Magauov.
Week 12 26•March•2020
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