Page 100 - RusRPTJun20

“In Europe, airlines do not get direct subsidies. Instead, they are offered government loans and capital injections by states. Accounting for the differences in the size and cost structures, the European bailout came 40% above the Russian one. However, this generous support came at the expense of dilution risks for shareholders,” the bank added.
Aeroflot might get roughly RUB10bn out of this cash subsidy, according to VTBC estimates. “Given that we do not account for this at all in our model, it represents an upside risk to our valuation. Our 12-month target price of RUB85 implies a 17% gain.” The bank maintains its Hold recommendation for the stock.
The Russian sanitary agency, Rospotrebnadzor, has asked Russian airlines to leave 50% of seats unoccupied, ​in epidemiological recommendations published today. Other measures include disinfection of aircraft, and providing passengers with masks, gloves and antiseptics. We believe that the 50% seats restriction is unlikely to affect airlines in the next month. Carriers are presently flying with load factors below 30%. There are different views on the effect of the measures once demand restores. The Ministry of Transport believes they would increase average ticket prices to RUB 70k vs. the 2019 average of RUB 10k. The IATA suggested a 43-54% rise in the average ticket if the middle seat were kept empty. We calculate that if airlines could have a 65% PLF, but had to keep 50%, they could raise airfares by 30%. 30% lower costs due to lower fuel prices and leasing payments would offset this growth, in our view, so airfares would not exceed the level of 2019, but leaving airlines with no demand stimulation. We note that there are several factors that suggest such restrictions could be short lived. Russia is at an advanced stage of vaccine development, and the President has been informed of a September target date to have one registered. Considering similar restrictions, the European Union decided not to put them into force
9.1.4 ​Construction & Real estate sector news
Commercial real estate law on early rental contract termination approved by State Duma. ​The law on early rental contract termination has passed its third reading. The final version implies that it is only going to cover small and medium enterprises (SME), which have lost 50% of their turnover during the pandemic. Such tenants will have the right to demand a reduction in rent for a period of up to one year, if the respective agreement was concluded before the decision to introduce a high alert or emergency situation. If no agreement to reduce the rent or otherwise change the terms of the contract is reached within 14 business days, then the tenant is entitled to terminate the lease contract no later than 1 October 2020. At the same time, losses in the form of lost profits and those associated with early contract termination are not collected from the tenant. A security payment, if it was stipulated by the lease agreement and paid to the landlord, shall not be returned to tenants.
The real estate sector is going through unprecedented conditions, ​with key operating and sales activities locked down. In April, the sector could see volumes 70% y/y lower, as sales offices are closed and construction sites frozen in the Moscow Metropolitan Area. The MMA accounted for 17% of completions last year and 30-90% in the deals of developers, while the
100​ RUSSIA Country Report​ June 2020 ​ ​www.intellinews.com