Research & Insights #47

Russia’s Central Bank holds rates unchanged

On 16 February, 2024, the Bank of Russia decided to maintain its key rate at 16%. “Current inflationary pressures have eased compared to the autumn months, but remain elevated,” the institution stated. According to its forecasts, annual inflation should fall to 4.0-4.5% in 2024 and then stabilise at a level close to 4%, compared with 7.4% at present. Governor Elvira Nabiullina pointed out that the public’s growing propensity to save, against a backdrop of high returns on cash deposits, combined with a slowdown in consumer activity and lower demand for imports, was beginning to create conditions for more balanced growth. The Bank of Russia has improved its economic growth forecast for 2024 from 0.5-1.5% to 1.0-2.0%. The International Monetary Fund expects the Russian economy to grow by 2.6% this year.

EU says no need to extend Ukrainian gas transit deal

The European Commission wants to put an end to the transit of Russian natural gas through Ukraine. According to Kadri Simson, European Commissioner for Energy, there is no need to extend the contract between Moscow and Kyiv, which expires at the end of this year. Countries receiving gas from Ukraine (Austria, Italy and Slovakia) will be able to be supplied from other sources, said Ms. Simson. Russian gas flows to Europe currently stand at around 12 billion m3 per year, or 10-15% of pre-war levels. Ukraine and Russia do not appear ready to renew the transit agreement at present. The last operational pipeline will then be the TurkStream pipeline system, one of whose two 15.75 billion m3 per year sections is destined for the European market.

Polymetal about to sell Russian assets due to sanctions

Polymetal is set to sell its Russian mining and metallurgical activities to Mangazeya Plus. Subject to shareholder approval, the transaction is valued at US$ 3.69 billion, the company said. After the outbreak of war in Ukraine, Polymetal transferred its domicile from Jersey, then considered an unfriendly jurisdiction by the Russian authorities, to Kazakhstan in order to unblock international payments from Russia. Analysts at Tinkoff Investments said the deal valued the assets at an EV/EBITDA multiple of 2.5 times, implying a “significant discount” to current Russian peer multiples and the group’s historical average multiple of around 8 times. Following the sale, Polymetal’s annual production will be around 500,000 ounces of gold equivalent per year, compared with 1.7 million in 2023.

Gazprom suffers collapse in sales to Europe

Gazprom’s EBITDA is expected to have fallen in 2023  by almost 40% to around 2.2 trillion roubles (US$ 24.3 billion), compared with 3.6 trillion rubles in 2022. These poor financial results reflect one of the fundamental events caused by the war in Ukraine: the restructuring of European gas markets. The Gazprom business, which includes oil and power generation, used to benefit greatly from gas exports to Europe. In 2022, these exports had almost halved to 101 billion cubic meters compared to the previous year. Prices have collapsed from the peaks reached in the early days of the war. Gazprom’s oil business, Gazprom Neft, has become the company’s main source of revenue, contributing 36% of revenues and 92% of net income in the first half of 2023. Sergey Vakulenko, former head of strategy at Gazprom Neft, described the group’s situation as “not great, not terrible”, insisting that “the company is not yet on the verge of collapse”.

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