Weekly Credit Risk Monitor /

Weekly Credit Risk Monitor

    Stuart Culverhouse
    Stuart Culverhouse

    Chief Economist & Head of Fixed Income Research

    Tellimer Research
    23 August 2018
    Published byTellimer Research

    In Focus: Grupo Kaltex – Weak Q2 results and liquidity issues, with costs still a challenge; reiterate Sell. 

    Grupo Kaltex (KLTXMX) reported weak Q2 results with increasing volumes and prices that were almost completely offset by increases in costs. The latter continue to be a challenge for the company despite its ability to pass costs on to end consumers.

    This led to EBITDA (in MXN) during Q2 being flat yoy: MXN344mn versus MXN343mn. In US$ terms, Q2 EBITDA was weaker than the previous year, due to the depreciation of the peso during the period. EBITDA in Q2 18 was US$17.7mn, compared with US$18.5mn a year ago.

    Perhaps most importantly, the company continued to show liquidity issues. Kaltex had planned to sell two pieces of land (one owned by the company and another owned by the Kalach family) in order to fund working capital needs. The failure to sell these pieces of land resulted in the owners injecting cUS$17mn (c80% of the value they expect to realise from the sale of one of those plots) in the form of a subordinated loan expected to be paid back with the proceeds from the sale of the land, when or if it happens.

    However, the fact that the owners had to find a way to fund the company’s working capital, and that they have to consider the sale of assets to do it in the future, is a worry to us.

    In terms of outlook, the company said during its Q2 conference call that it expects sales to reach MXN4.8bn in Q3 and MXN5.0bn in Q4 due to the back-to-school and the holiday seasons, respectively. 

    As for EBITDA, the company expects these numbers to be MXN320mn in Q3 and US$580mn in Q4, which, combined, and assuming an exchange rate of MXN between 18.5 and 19.0 per US$ (the assumption with which the company is working), should result in EBITDA for 2018 of cUS$80mn.

    Refinancing ahead. At these levels, and without any clear sign that the company will be able to increase its margins substantially in the years to come if input prices keep rising (something that appears to be supported by strong demand for both chemicals and energy), we believe the company will eventually be unable to fund its coupons and principal payments when the bonds come due in 2022 and will have to resort to a refinancing, hoping that there will be open capital markets available at that time.

    Reiterate Sell. Mainly because we do not see any substantial improvements in profitability and cash generation, and because we expect costs and liquidity to continue to be the company’s albatross in the years to come, we reiterate our Sell recommendation on Kaltex’s US$320mn, 8.875% bonds due 2022. The bonds currently trade at cUS$84.44 to yield c14.51% (G-Spread 1,181bps; Z-Spread 1,165bps).

    Recap of the week’s key credit developments

    Turkey (TURKEY): Moody’s downgraded Turkey to Ba3 from Ba2. The outlook on the new, lower rating is negative. 

    Nostrum Oil (NOGLN): Nostrum Oil, a Kazakh O&G company reported H1 18 financial results, with revenues down by 8.8% at US$192mn, EBITDA down by 6% to US$113mn and EBITDA margin of 60%. 

    O1 Properties (OPRORU): O1 Properties is seeking bondholders’ consent to waive the breach of the change of control covenant and to amend the documents to exclude change-of-control clauses after Riverstretch Trading & Investment Limited gained came into possession of 70% of class A shares and 58% of class B shares of the company. 

    Privatbank (PRBANK): Privatbank has asked the bondholder trustee to request the identities of its bondholders, and other information, including the amount of debt held. 

    Bank of Georgia (GEBGG): Bank of Georgia reported results for Q2. Net interest income was 16% higher than a year ago, at GEL186mn, and net fee and commission income rose by 21% to GEL38mn. 

    Halyk Savings Bank (HSBKKZ): Halyk reported net income of KZT24bn for Q2, down from KZT62bn in Q1 and from KZT40bn a year ago. The qoq decline primarily reflects impairment charges on non-financial assets and derecognition of tax losses at KKB. 

    Credit Bank of Moscow (CRBKMO): Credit Bank of Moscow reported net income of RUB11bn for H1. This was 10% higher than a year ago, reflecting improved net interest income and a significant decline in provisions.