Category

Energy Sector

Brief Energy: WTI Turn Inflection for Demand Downturn and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. WTI Turn Inflection for Demand Downturn
  2. Revisiting Mitr Phol Group: Erawan and Banpu
  3. RockRose-Viaro Deal: Trading Close to Terms
  4. Soechi Lines – Tear Sheet – Lucror Analytics
  5. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand

1. WTI Turn Inflection for Demand Downturn

Wti%20d

Crude Oil (CRUDE OIL COMDTY) rise off the April low with June new highs are are not being confirmed by the RSI for a case of bear divergence as the overlapping price has formed a rising wedge. Wedge patterns have a 70% probability of breaking lower with odds increasing on the back of divergence.

Divergence forms when momentum, buy volume and conviction deteriorate.

As virus cases climb, questions linked to demand will resurface.

42 resistance is a pivotal level; a rejection would set in motion a pullback to test and break the 38 near support and lower wedge level that will open up the downside.

2. Revisiting Mitr Phol Group: Erawan and Banpu

Breakeven%20hotel

We visited three companies in the Mitr Phol Group, namely hotel chain Erawan, the  and Thailand’s largest coal producer Banpu. This is a quick run-down.

  • Erawan reported net loss of Bt77m in Q1’20 and EBITDA contraction of 63% to Bt224m. The company closed its Thai hotels since April and Manila-based ones since May 19.
  • Cost cutting: The company plans to cut lease payments by 20-30% and also postpone debt repayments to the banks. They also plan to cut investments by 50%.
  • Banpu Power reported healthy EBITDA of Bt1.77bn (up 10% YoY) on the back of Bt1.84bn  (+5% YoY) buoyed by stronger demand for power and steam in China needed to operate hospitals. However, its one-time core power plant BLCP contributed a loss of Bt70m due to translation losses. The hidden crown jewel is Banpu NEXT, the renewable business, which just needs time to appreciated.
  • The parent company Banpu reported an EBITDA of US$134m, down 42% YoY, and earnings of Bt55m. The coal business, just like other energy segments (oil, gas), performed poorly, but Banpu made the most of it by negotiating down the price of Barnett in the United States, a deal that will be concluded towards the end of this year.

3. RockRose-Viaro Deal: Trading Close to Terms

Company%20overview

On 6th July, UK-based independent Oil & Gas company Rockrose Energy PLC (RRE LN) made an announcement that it had agreed to be acquired by physical energy trading group Viaro Energy in a Deal that values the company at a market cap of of GBP244mn.

The Transaction will be implemented by way of a Scheme of Arrangement. The Offer Price is GBP18.50/share and the consideration will be in the form of cash.

The Deal is conditional on receiving approval from RockRose Energy shareholders and is expected to complete in August 2020. 

In this insight, we look into the details of the transaction to evaluate the likelihood of this Deal completing. 

As usual, there is more below the fold. 

4. Soechi Lines – Tear Sheet – Lucror Analytics

We view Soechi Lines as “Very High Risk” on the LARA scale. This reflects the risks associated with: [1] its shipyard business, with reported delays in deliveries, low visibility of new contracts and weak cash flow; and [2] high capex for acquiring new vessels. Soechi’s FCF generation is poor. Moreover, there are event risks associated with vessel accidents and a breakdown in its relationship with Pertamina.

Positively, Soechi is the largest independent vessel owner/operator in Indonesia, behind the SOE Pertamina (rated Baa2/BBB). Pertamina is Soechi’s largest customer and accounts for c. 70% of its revenues. This customer concentration risk is somewhat mitigated by their four-decade-long symbiotic relationship. The shipping business is mainly conducted through long-term time charters, which provides some stability and visibility in terms of cash flow.

Our Credit Bias on Soechi is “Negative”, owing to its weaker than expected operating performance and high leverage. We expect FCF generation to be minimal. Moreover, we deem management to have a poor track record of communication.

We view Soechi’s corporate governance as “Weak” on the LAGA scale, mainly due to the: [1] family control (83% ownership) and family members (four brothers and two sisters) running the company; [2] ongoing related-party transactions; and [3] poor track record of investor communication and guidance.

5. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand

Crude’s ascent to four-month highs appears to have disregarded the chances of US oil demand recovery easing or even stalling as the coronavirus tightens its grip over large swathes of the country. 

The pandemic has been accelerating in at least 37 of the 50 US states, prompting many to roll back or put on hold some of their reopening measures.

It is still a “light touch” approach by most state governors and far removed from the “lockdowns” imposed earlier by the hard-hit countries in Europe and Asia. But that could result in the situation in the US festering for much longer.

Meanwhile, the pace of demand recovery in China and India, the second- and third-largest oil consumers after the US, is also poised to ease. 

A combination of slowing global oil demand recovery and OPEC+ readying to put more than 2 million b/d back in the market starting next month could stall supply-demand rebalancing. 

That would strain an already fragile OPEC/non-OPEC alliance. What if it breaks down again? We look at this and some other WILD CARDS in the oil market.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group
  2. Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds
  3. Snippets #41: New Thai-Coons of 2020, Mexican Oil
  4. Weekly Oil Views: Virus Surge in Parts of US Arrests Price Rally, but in Panic Mode

1. Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

2. Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds

Screen%20shot%202020 06 21%20at%201.15.01%20pm

Crude has recouped all the losses suffered in the week to June 12, when anxiety over a resurgent pandemic across the globe had prompted a sell-off across risk assets including oil. Brent vaulted above the $42/barrel mark on Friday, following a week of steady gains.

We said last week that we didn’t think the three-month high above $42 touched by Brent on June 5 was too rich, even as the benchmark was nearly $4 below that level. We were on the right track and are glad to have successfully foreshadowed last week’s return of confidence in global oil demand rebound.

So, what changed? The oil market transitioned from FEAR over “second waves” of the coronavirus forcing reopening economies back into debilitating lockdowns to FACTS over how countries are responding to new outbreaks. 

And the facts are that governments are avoiding blanket closure of economic activity. That’s as true for the wet market outbreak in Beijing as it is for a spike in daily case count in the US states of Florida, Arizona, California and Texas.

3. Snippets #41: New Thai-Coons of 2020, Mexican Oil

Song

Five interesting news/developments in Thailand that we highlight in this issue includes:

  • New Thai-Coons. Two new names that show up at the list’s lower tier this year are ACE founder Worachai Songmetha, a high-ranking police officer, and Mongkol Prakitchaiwattana, an investor with extensive holdings in the cosmetics business and KTC.
  • Striking Oil in Mexico. Amidst the oil crisis, PTTEP finds a new source in Mexico’s Salina Basin. With several partners and reduced competition, procuring rights seems easier than making the new venture pay off.
  • Intuch’s venture capital arm Invent invests in two new  startups, namely Datafarm and Igloo, an insurance service using AI and Big data.
  • Thai Airways bankruptcy. The national carrier is now under debt restructuring in bankruptcy court, and the planners are open to several drastic haircuts, benefits reduction, and external investments.
  • Thai power companies expand into LNG in recognition that the Gulf of Thailand and Myanmar has limited gas reserves. Pioneers include Gulf and B Grimm.

4. Weekly Oil Views: Virus Surge in Parts of US Arrests Price Rally, but in Panic Mode

Screen%20shot%202020 06 14%20at%204.13.46%20pm

The crude price rebound of recent weeks remains fragile. OPEC+ has done all it possibly can to restrain supply, and the remaining part of market rebalancing has to come from a recovery in global oil demand. 

However, as last week’s market panic over a surge in infection rates in some US states proved, a big question-mark continues to hang over the successful reopening of economies despite weeks of restrictions to beat the virus.

Not only are there major uncertainties around the risks of fresh outbreaks as countries gingerly exit pandemic restrictions, but also questions over the prudence or even the efficacy of re-imposing lockdowns. 

Governments are being forced to think on their feet and put in place strategies and tools for targeted control of flare-ups instead of deploying blunt measures. 

With last Thursday’s 8% slide in a single day, the oil market may have priced in the worst-case scenario with the virus spike in the US. As the affected states that were largely spared in the country’s original outbreak, it’s not actually a “second wave”. Plus, it may not prompt widespread halt to economic activity again.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Revisiting Mitr Phol Group: Erawan and Banpu and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Revisiting Mitr Phol Group: Erawan and Banpu
  2. RockRose-Viaro Deal: Trading Close to Terms
  3. Soechi Lines – Tear Sheet – Lucror Analytics
  4. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand
  5. Weekly Oil Views: $40 Floor Holds for Brent but Further Upside Limited

1. Revisiting Mitr Phol Group: Erawan and Banpu

Breakeven%20hotel

We visited three companies in the Mitr Phol Group, namely hotel chain Erawan, the  and Thailand’s largest coal producer Banpu. This is a quick run-down.

  • Erawan reported net loss of Bt77m in Q1’20 and EBITDA contraction of 63% to Bt224m. The company closed its Thai hotels since April and Manila-based ones since May 19.
  • Cost cutting: The company plans to cut lease payments by 20-30% and also postpone debt repayments to the banks. They also plan to cut investments by 50%.
  • Banpu Power reported healthy EBITDA of Bt1.77bn (up 10% YoY) on the back of Bt1.84bn  (+5% YoY) buoyed by stronger demand for power and steam in China needed to operate hospitals. However, its one-time core power plant BLCP contributed a loss of Bt70m due to translation losses. The hidden crown jewel is Banpu NEXT, the renewable business, which just needs time to appreciated.
  • The parent company Banpu reported an EBITDA of US$134m, down 42% YoY, and earnings of Bt55m. The coal business, just like other energy segments (oil, gas), performed poorly, but Banpu made the most of it by negotiating down the price of Barnett in the United States, a deal that will be concluded towards the end of this year.

2. RockRose-Viaro Deal: Trading Close to Terms

Company%20overview

On 6th July, UK-based independent Oil & Gas company Rockrose Energy PLC (RRE LN) made an announcement that it had agreed to be acquired by physical energy trading group Viaro Energy in a Deal that values the company at a market cap of of GBP244mn.

The Transaction will be implemented by way of a Scheme of Arrangement. The Offer Price is GBP18.50/share and the consideration will be in the form of cash.

The Deal is conditional on receiving approval from RockRose Energy shareholders and is expected to complete in August 2020. 

In this insight, we look into the details of the transaction to evaluate the likelihood of this Deal completing. 

As usual, there is more below the fold. 

3. Soechi Lines – Tear Sheet – Lucror Analytics

We view Soechi Lines as “Very High Risk” on the LARA scale. This reflects the risks associated with: [1] its shipyard business, with reported delays in deliveries, low visibility of new contracts and weak cash flow; and [2] high capex for acquiring new vessels. Soechi’s FCF generation is poor. Moreover, there are event risks associated with vessel accidents and a breakdown in its relationship with Pertamina.

Positively, Soechi is the largest independent vessel owner/operator in Indonesia, behind the SOE Pertamina (rated Baa2/BBB). Pertamina is Soechi’s largest customer and accounts for c. 70% of its revenues. This customer concentration risk is somewhat mitigated by their four-decade-long symbiotic relationship. The shipping business is mainly conducted through long-term time charters, which provides some stability and visibility in terms of cash flow.

Our Credit Bias on Soechi is “Negative”, owing to its weaker than expected operating performance and high leverage. We expect FCF generation to be minimal. Moreover, we deem management to have a poor track record of communication.

We view Soechi’s corporate governance as “Weak” on the LAGA scale, mainly due to the: [1] family control (83% ownership) and family members (four brothers and two sisters) running the company; [2] ongoing related-party transactions; and [3] poor track record of investor communication and guidance.

4. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand

Crude’s ascent to four-month highs appears to have disregarded the chances of US oil demand recovery easing or even stalling as the coronavirus tightens its grip over large swathes of the country. 

The pandemic has been accelerating in at least 37 of the 50 US states, prompting many to roll back or put on hold some of their reopening measures.

It is still a “light touch” approach by most state governors and far removed from the “lockdowns” imposed earlier by the hard-hit countries in Europe and Asia. But that could result in the situation in the US festering for much longer.

Meanwhile, the pace of demand recovery in China and India, the second- and third-largest oil consumers after the US, is also poised to ease. 

A combination of slowing global oil demand recovery and OPEC+ readying to put more than 2 million b/d back in the market starting next month could stall supply-demand rebalancing. 

That would strain an already fragile OPEC/non-OPEC alliance. What if it breaks down again? We look at this and some other WILD CARDS in the oil market.

5. Weekly Oil Views: $40 Floor Holds for Brent but Further Upside Limited

Screen%20shot%202020 06 29%20at%2012.03.14%20pm

Amid the fog of uncertainties surrounding the trajectory of the coronavirus pandemic, at least two things are starting to become clear:

  1. We are not going to obliterate the virus any time soon.
  2. Lockdowns are expensive and may have outlived their purpose.

The world is slowly getting used to a “new normal”, which at this point means learning to live with the pandemic. 

That’s as true for countries seeing new “hotspots” as they emerge from lockdowns, as it is for those still in the first wave of the pandemic. 

What that means for global oil demand is that the V-shaped rebound from the April nadir is now likely to give way to a far gentler slope.

That translates to range-bound prices. While a tight supply-demand balance, thanks to the deep OPEC+ cuts, holds a $40/barrel floor under Brent, the upside is likely to be limited.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds
  2. Snippets #41: New Thai-Coons of 2020, Mexican Oil
  3. Weekly Oil Views: Virus Surge in Parts of US Arrests Price Rally, but in Panic Mode
  4. Morning Views Asia: 21Vianet Group, Car Inc, Powerlong Commercial Management Holdings

1. Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds

Screen%20shot%202020 06 21%20at%201.15.01%20pm

Crude has recouped all the losses suffered in the week to June 12, when anxiety over a resurgent pandemic across the globe had prompted a sell-off across risk assets including oil. Brent vaulted above the $42/barrel mark on Friday, following a week of steady gains.

We said last week that we didn’t think the three-month high above $42 touched by Brent on June 5 was too rich, even as the benchmark was nearly $4 below that level. We were on the right track and are glad to have successfully foreshadowed last week’s return of confidence in global oil demand rebound.

So, what changed? The oil market transitioned from FEAR over “second waves” of the coronavirus forcing reopening economies back into debilitating lockdowns to FACTS over how countries are responding to new outbreaks. 

And the facts are that governments are avoiding blanket closure of economic activity. That’s as true for the wet market outbreak in Beijing as it is for a spike in daily case count in the US states of Florida, Arizona, California and Texas.

2. Snippets #41: New Thai-Coons of 2020, Mexican Oil

Song

Five interesting news/developments in Thailand that we highlight in this issue includes:

  • New Thai-Coons. Two new names that show up at the list’s lower tier this year are ACE founder Worachai Songmetha, a high-ranking police officer, and Mongkol Prakitchaiwattana, an investor with extensive holdings in the cosmetics business and KTC.
  • Striking Oil in Mexico. Amidst the oil crisis, PTTEP finds a new source in Mexico’s Salina Basin. With several partners and reduced competition, procuring rights seems easier than making the new venture pay off.
  • Intuch’s venture capital arm Invent invests in two new  startups, namely Datafarm and Igloo, an insurance service using AI and Big data.
  • Thai Airways bankruptcy. The national carrier is now under debt restructuring in bankruptcy court, and the planners are open to several drastic haircuts, benefits reduction, and external investments.
  • Thai power companies expand into LNG in recognition that the Gulf of Thailand and Myanmar has limited gas reserves. Pioneers include Gulf and B Grimm.

3. Weekly Oil Views: Virus Surge in Parts of US Arrests Price Rally, but in Panic Mode

Screen%20shot%202020 06 14%20at%204.13.46%20pm

The crude price rebound of recent weeks remains fragile. OPEC+ has done all it possibly can to restrain supply, and the remaining part of market rebalancing has to come from a recovery in global oil demand. 

However, as last week’s market panic over a surge in infection rates in some US states proved, a big question-mark continues to hang over the successful reopening of economies despite weeks of restrictions to beat the virus.

Not only are there major uncertainties around the risks of fresh outbreaks as countries gingerly exit pandemic restrictions, but also questions over the prudence or even the efficacy of re-imposing lockdowns. 

Governments are being forced to think on their feet and put in place strategies and tools for targeted control of flare-ups instead of deploying blunt measures. 

With last Thursday’s 8% slide in a single day, the oil market may have priced in the worst-case scenario with the virus spike in the US. As the affected states that were largely spared in the country’s original outbreak, it’s not actually a “second wave”. Plus, it may not prompt widespread halt to economic activity again.

4. Morning Views Asia: 21Vianet Group, Car Inc, Powerlong Commercial Management Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: RockRose-Viaro Deal: Trading Close to Terms and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. RockRose-Viaro Deal: Trading Close to Terms
  2. Soechi Lines – Tear Sheet – Lucror Analytics
  3. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand
  4. Weekly Oil Views: $40 Floor Holds for Brent but Further Upside Limited
  5. Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group

1. RockRose-Viaro Deal: Trading Close to Terms

Share%20price%20performance

On 6th July, UK-based independent Oil & Gas company Rockrose Energy PLC (RRE LN) made an announcement that it had agreed to be acquired by physical energy trading group Viaro Energy in a Deal that values the company at a market cap of of GBP244mn.

The Transaction will be implemented by way of a Scheme of Arrangement. The Offer Price is GBP18.50/share and the consideration will be in the form of cash.

The Deal is conditional on receiving approval from RockRose Energy shareholders and is expected to complete in August 2020. 

In this insight, we look into the details of the transaction to evaluate the likelihood of this Deal completing. 

As usual, there is more below the fold. 

2. Soechi Lines – Tear Sheet – Lucror Analytics

We view Soechi Lines as “Very High Risk” on the LARA scale. This reflects the risks associated with: [1] its shipyard business, with reported delays in deliveries, low visibility of new contracts and weak cash flow; and [2] high capex for acquiring new vessels. Soechi’s FCF generation is poor. Moreover, there are event risks associated with vessel accidents and a breakdown in its relationship with Pertamina.

Positively, Soechi is the largest independent vessel owner/operator in Indonesia, behind the SOE Pertamina (rated Baa2/BBB). Pertamina is Soechi’s largest customer and accounts for c. 70% of its revenues. This customer concentration risk is somewhat mitigated by their four-decade-long symbiotic relationship. The shipping business is mainly conducted through long-term time charters, which provides some stability and visibility in terms of cash flow.

Our Credit Bias on Soechi is “Negative”, owing to its weaker than expected operating performance and high leverage. We expect FCF generation to be minimal. Moreover, we deem management to have a poor track record of communication.

We view Soechi’s corporate governance as “Weak” on the LAGA scale, mainly due to the: [1] family control (83% ownership) and family members (four brothers and two sisters) running the company; [2] ongoing related-party transactions; and [3] poor track record of investor communication and guidance.

3. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand

Crude’s ascent to four-month highs appears to have disregarded the chances of US oil demand recovery easing or even stalling as the coronavirus tightens its grip over large swathes of the country. 

The pandemic has been accelerating in at least 37 of the 50 US states, prompting many to roll back or put on hold some of their reopening measures.

It is still a “light touch” approach by most state governors and far removed from the “lockdowns” imposed earlier by the hard-hit countries in Europe and Asia. But that could result in the situation in the US festering for much longer.

Meanwhile, the pace of demand recovery in China and India, the second- and third-largest oil consumers after the US, is also poised to ease. 

A combination of slowing global oil demand recovery and OPEC+ readying to put more than 2 million b/d back in the market starting next month could stall supply-demand rebalancing. 

That would strain an already fragile OPEC/non-OPEC alliance. What if it breaks down again? We look at this and some other WILD CARDS in the oil market.

4. Weekly Oil Views: $40 Floor Holds for Brent but Further Upside Limited

Screen%20shot%202020 06 29%20at%2012.03.14%20pm

Amid the fog of uncertainties surrounding the trajectory of the coronavirus pandemic, at least two things are starting to become clear:

  1. We are not going to obliterate the virus any time soon.
  2. Lockdowns are expensive and may have outlived their purpose.

The world is slowly getting used to a “new normal”, which at this point means learning to live with the pandemic. 

That’s as true for countries seeing new “hotspots” as they emerge from lockdowns, as it is for those still in the first wave of the pandemic. 

What that means for global oil demand is that the V-shaped rebound from the April nadir is now likely to give way to a far gentler slope.

That translates to range-bound prices. While a tight supply-demand balance, thanks to the deep OPEC+ cuts, holds a $40/barrel floor under Brent, the upside is likely to be limited.

5. Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Jio Bags More Foreign Investors; What’s Next? and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Jio Bags More Foreign Investors; What’s Next?

1. Jio Bags More Foreign Investors; What’s Next?

Image 50843003961591595532930

  • Reliance Industries announced last week that it will sell another 3.94% stake in Jio Platforms to Mubadala, Abu Dhabi Investment Authority and Silver Lake. Abu Dhabi’s second-largest sovereign investor, Mubadala has agreed to buy a 1.85% stake in Reliance’s Jio Platforms for approximately INR91bn while Abu Dhabi Investment Authority (ADIA) has agreed to acquire a 1.16% stake in Jio Platforms for INR56.8bn (US$750m).
  • In addition, Reliance Industries also announced that Silver Lake, who had already invested INR56.6bn on Jio Platforms for a stake of 1.15%, has agreed to invest an additional INR45bn increasing its stake from 1.15% to 2.08%.
  • With stake sales to Mubadala and ADIA, Jio now has seven foreign investors and with Silver Lake’s subsequent investment, the company has so far raised INR978.4bn through the sale of 21.06% of the total shares of Jio Platforms.
  • The long list of Jio Platforms’ foreign investors have offered the company with a higher and ever-increasing valuation. The latest stake sale to ADIA values the company at around INR4,900bn, 12.3% higher than the company’s valuation post Facebook’s investment in April which valued the company at INR4,362bn.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Soechi Lines – Tear Sheet – Lucror Analytics and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Soechi Lines – Tear Sheet – Lucror Analytics
  2. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand
  3. Weekly Oil Views: $40 Floor Holds for Brent but Further Upside Limited
  4. Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group
  5. Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds

1. Soechi Lines – Tear Sheet – Lucror Analytics

We view Soechi Lines as “Very High Risk” on the LARA scale. This reflects the risks associated with: [1] its shipyard business, with reported delays in deliveries, low visibility of new contracts and weak cash flow; and [2] high capex for acquiring new vessels. Soechi’s FCF generation is poor. Moreover, there are event risks associated with vessel accidents and a breakdown in its relationship with Pertamina.

Positively, Soechi is the largest independent vessel owner/operator in Indonesia, behind the SOE Pertamina (rated Baa2/BBB). Pertamina is Soechi’s largest customer and accounts for c. 70% of its revenues. This customer concentration risk is somewhat mitigated by their four-decade-long symbiotic relationship. The shipping business is mainly conducted through long-term time charters, which provides some stability and visibility in terms of cash flow.

Our Credit Bias on Soechi is “Negative”, owing to its weaker than expected operating performance and high leverage. We expect FCF generation to be minimal. Moreover, we deem management to have a poor track record of communication.

We view Soechi’s corporate governance as “Weak” on the LAGA scale, mainly due to the: [1] family control (83% ownership) and family members (four brothers and two sisters) running the company; [2] ongoing related-party transactions; and [3] poor track record of investor communication and guidance.

2. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand

Crude’s ascent to four-month highs appears to have disregarded the chances of US oil demand recovery easing or even stalling as the coronavirus tightens its grip over large swathes of the country. 

The pandemic has been accelerating in at least 37 of the 50 US states, prompting many to roll back or put on hold some of their reopening measures.

It is still a “light touch” approach by most state governors and far removed from the “lockdowns” imposed earlier by the hard-hit countries in Europe and Asia. But that could result in the situation in the US festering for much longer.

Meanwhile, the pace of demand recovery in China and India, the second- and third-largest oil consumers after the US, is also poised to ease. 

A combination of slowing global oil demand recovery and OPEC+ readying to put more than 2 million b/d back in the market starting next month could stall supply-demand rebalancing. 

That would strain an already fragile OPEC/non-OPEC alliance. What if it breaks down again? We look at this and some other WILD CARDS in the oil market.

3. Weekly Oil Views: $40 Floor Holds for Brent but Further Upside Limited

Screen%20shot%202020 06 29%20at%2012.03.14%20pm

Amid the fog of uncertainties surrounding the trajectory of the coronavirus pandemic, at least two things are starting to become clear:

  1. We are not going to obliterate the virus any time soon.
  2. Lockdowns are expensive and may have outlived their purpose.

The world is slowly getting used to a “new normal”, which at this point means learning to live with the pandemic. 

That’s as true for countries seeing new “hotspots” as they emerge from lockdowns, as it is for those still in the first wave of the pandemic. 

What that means for global oil demand is that the V-shaped rebound from the April nadir is now likely to give way to a far gentler slope.

That translates to range-bound prices. While a tight supply-demand balance, thanks to the deep OPEC+ cuts, holds a $40/barrel floor under Brent, the upside is likely to be limited.

4. Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

5. Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds

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Crude has recouped all the losses suffered in the week to June 12, when anxiety over a resurgent pandemic across the globe had prompted a sell-off across risk assets including oil. Brent vaulted above the $42/barrel mark on Friday, following a week of steady gains.

We said last week that we didn’t think the three-month high above $42 touched by Brent on June 5 was too rich, even as the benchmark was nearly $4 below that level. We were on the right track and are glad to have successfully foreshadowed last week’s return of confidence in global oil demand rebound.

So, what changed? The oil market transitioned from FEAR over “second waves” of the coronavirus forcing reopening economies back into debilitating lockdowns to FACTS over how countries are responding to new outbreaks. 

And the facts are that governments are avoiding blanket closure of economic activity. That’s as true for the wet market outbreak in Beijing as it is for a spike in daily case count in the US states of Florida, Arizona, California and Texas.

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Brief Energy: Weekly Oil Views: Virus Surge in Parts of US Arrests Price Rally, but in Panic Mode and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Weekly Oil Views: Virus Surge in Parts of US Arrests Price Rally, but in Panic Mode
  2. Morning Views Asia: 21Vianet Group, Car Inc, Powerlong Commercial Management Holdings
  3. Weekly Oil Views: Brent Vaults over $42 on Latest OPEC+ Deal but Limited Headroom
  4. Jio Bags More Foreign Investors; What’s Next?

1. Weekly Oil Views: Virus Surge in Parts of US Arrests Price Rally, but in Panic Mode

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The crude price rebound of recent weeks remains fragile. OPEC+ has done all it possibly can to restrain supply, and the remaining part of market rebalancing has to come from a recovery in global oil demand. 

However, as last week’s market panic over a surge in infection rates in some US states proved, a big question-mark continues to hang over the successful reopening of economies despite weeks of restrictions to beat the virus.

Not only are there major uncertainties around the risks of fresh outbreaks as countries gingerly exit pandemic restrictions, but also questions over the prudence or even the efficacy of re-imposing lockdowns. 

Governments are being forced to think on their feet and put in place strategies and tools for targeted control of flare-ups instead of deploying blunt measures. 

With last Thursday’s 8% slide in a single day, the oil market may have priced in the worst-case scenario with the virus spike in the US. As the affected states that were largely spared in the country’s original outbreak, it’s not actually a “second wave”. Plus, it may not prompt widespread halt to economic activity again.

2. Morning Views Asia: 21Vianet Group, Car Inc, Powerlong Commercial Management Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

3. Weekly Oil Views: Brent Vaults over $42 on Latest OPEC+ Deal but Limited Headroom

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The OPEC/non-OPEC alliance decided on June 6 to extend its current deep production cuts to July instead of tapering them by 2 million b/d as envisaged under the April 12 deal. 

The decision, likely a compromise between a hawkish Saudi Arabia keen to accelerate market rebalancing and a dovish Russia loathe to giving US shale another shot in the arm, represents a small victory for the newfound harmony between the de facto OPEC and non-OPEC leaders.

However, major quota violations by some members, prominently Iraq and Nigeria, came in for some extra stern scrutiny this time around and the issue could rear its head as a destabilising influence within the alliance.

Non-OPEC Mexico, which had already secured an exception with a lower than its fair share of reduction in the April deal, has virtually exited the alliance, refusing to curtail its output beyond the end of June. That could prompt more non-OPEC collaborators to drive a hard bargain over the size of their cuts or walk out in the coming months. 

Tough tests lie ahead for OPEC. Major among them will be deciding how and when to taper their cuts so as to avoid giving US shale another shot in the arm.

4. Jio Bags More Foreign Investors; What’s Next?

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  • Reliance Industries announced last week that it will sell another 3.94% stake in Jio Platforms to Mubadala, Abu Dhabi Investment Authority and Silver Lake. Abu Dhabi’s second-largest sovereign investor, Mubadala has agreed to buy a 1.85% stake in Reliance’s Jio Platforms for approximately INR91bn while Abu Dhabi Investment Authority (ADIA) has agreed to acquire a 1.16% stake in Jio Platforms for INR56.8bn (US$750m).
  • In addition, Reliance Industries also announced that Silver Lake, who had already invested INR56.6bn on Jio Platforms for a stake of 1.15%, has agreed to invest an additional INR45bn increasing its stake from 1.15% to 2.08%.
  • With stake sales to Mubadala and ADIA, Jio now has seven foreign investors and with Silver Lake’s subsequent investment, the company has so far raised INR978.4bn through the sale of 21.06% of the total shares of Jio Platforms.
  • The long list of Jio Platforms’ foreign investors have offered the company with a higher and ever-increasing valuation. The latest stake sale to ADIA values the company at around INR4,900bn, 12.3% higher than the company’s valuation post Facebook’s investment in April which valued the company at INR4,362bn.

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Brief Energy: Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand
  2. Weekly Oil Views: $40 Floor Holds for Brent but Further Upside Limited
  3. Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group
  4. Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds
  5. Snippets #41: New Thai-Coons of 2020, Mexican Oil

1. Weekly Oil Views: Crude Hits 4-Month Highs, May Get a Reality Check from Demand

Crude’s ascent to four-month highs appears to have disregarded the chances of US oil demand recovery easing or even stalling as the coronavirus tightens its grip over large swathes of the country. 

The pandemic has been accelerating in at least 37 of the 50 US states, prompting many to roll back or put on hold some of their reopening measures.

It is still a “light touch” approach by most state governors and far removed from the “lockdowns” imposed earlier by the hard-hit countries in Europe and Asia. But that could result in the situation in the US festering for much longer.

Meanwhile, the pace of demand recovery in China and India, the second- and third-largest oil consumers after the US, is also poised to ease. 

A combination of slowing global oil demand recovery and OPEC+ readying to put more than 2 million b/d back in the market starting next month could stall supply-demand rebalancing. 

That would strain an already fragile OPEC/non-OPEC alliance. What if it breaks down again? We look at this and some other WILD CARDS in the oil market.

2. Weekly Oil Views: $40 Floor Holds for Brent but Further Upside Limited

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Amid the fog of uncertainties surrounding the trajectory of the coronavirus pandemic, at least two things are starting to become clear:

  1. We are not going to obliterate the virus any time soon.
  2. Lockdowns are expensive and may have outlived their purpose.

The world is slowly getting used to a “new normal”, which at this point means learning to live with the pandemic. 

That’s as true for countries seeing new “hotspots” as they emerge from lockdowns, as it is for those still in the first wave of the pandemic. 

What that means for global oil demand is that the V-shaped rebound from the April nadir is now likely to give way to a far gentler slope.

That translates to range-bound prices. While a tight supply-demand balance, thanks to the deep OPEC+ cuts, holds a $40/barrel floor under Brent, the upside is likely to be limited.

3. Morning Views Asia: Fosun International, Glenmark Pharmaceuticals, Modernland Realty, Softbank Group

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

4. Weekly Oil Views: Market Moves past Fear of Virus Wave as Demand Rebounds

Screen%20shot%202020 06 21%20at%201.15.01%20pm

Crude has recouped all the losses suffered in the week to June 12, when anxiety over a resurgent pandemic across the globe had prompted a sell-off across risk assets including oil. Brent vaulted above the $42/barrel mark on Friday, following a week of steady gains.

We said last week that we didn’t think the three-month high above $42 touched by Brent on June 5 was too rich, even as the benchmark was nearly $4 below that level. We were on the right track and are glad to have successfully foreshadowed last week’s return of confidence in global oil demand rebound.

So, what changed? The oil market transitioned from FEAR over “second waves” of the coronavirus forcing reopening economies back into debilitating lockdowns to FACTS over how countries are responding to new outbreaks. 

And the facts are that governments are avoiding blanket closure of economic activity. That’s as true for the wet market outbreak in Beijing as it is for a spike in daily case count in the US states of Florida, Arizona, California and Texas.

5. Snippets #41: New Thai-Coons of 2020, Mexican Oil

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Five interesting news/developments in Thailand that we highlight in this issue includes:

  • New Thai-Coons. Two new names that show up at the list’s lower tier this year are ACE founder Worachai Songmetha, a high-ranking police officer, and Mongkol Prakitchaiwattana, an investor with extensive holdings in the cosmetics business and KTC.
  • Striking Oil in Mexico. Amidst the oil crisis, PTTEP finds a new source in Mexico’s Salina Basin. With several partners and reduced competition, procuring rights seems easier than making the new venture pay off.
  • Intuch’s venture capital arm Invent invests in two new  startups, namely Datafarm and Igloo, an insurance service using AI and Big data.
  • Thai Airways bankruptcy. The national carrier is now under debt restructuring in bankruptcy court, and the planners are open to several drastic haircuts, benefits reduction, and external investments.
  • Thai power companies expand into LNG in recognition that the Gulf of Thailand and Myanmar has limited gas reserves. Pioneers include Gulf and B Grimm.

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Brief Energy: Morning Views Asia: 21Vianet Group, Car Inc, Powerlong Commercial Management Holdings and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Morning Views Asia: 21Vianet Group, Car Inc, Powerlong Commercial Management Holdings
  2. Weekly Oil Views: Brent Vaults over $42 on Latest OPEC+ Deal but Limited Headroom
  3. Jio Bags More Foreign Investors; What’s Next?
  4. Weekly Oil Views: US-China Tensions Unlikely to Snuff Out Crude’s Rally

1. Morning Views Asia: 21Vianet Group, Car Inc, Powerlong Commercial Management Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

2. Weekly Oil Views: Brent Vaults over $42 on Latest OPEC+ Deal but Limited Headroom

Screen%20shot%202020 06 07%20at%205.24.13%20pm

The OPEC/non-OPEC alliance decided on June 6 to extend its current deep production cuts to July instead of tapering them by 2 million b/d as envisaged under the April 12 deal. 

The decision, likely a compromise between a hawkish Saudi Arabia keen to accelerate market rebalancing and a dovish Russia loathe to giving US shale another shot in the arm, represents a small victory for the newfound harmony between the de facto OPEC and non-OPEC leaders.

However, major quota violations by some members, prominently Iraq and Nigeria, came in for some extra stern scrutiny this time around and the issue could rear its head as a destabilising influence within the alliance.

Non-OPEC Mexico, which had already secured an exception with a lower than its fair share of reduction in the April deal, has virtually exited the alliance, refusing to curtail its output beyond the end of June. That could prompt more non-OPEC collaborators to drive a hard bargain over the size of their cuts or walk out in the coming months. 

Tough tests lie ahead for OPEC. Major among them will be deciding how and when to taper their cuts so as to avoid giving US shale another shot in the arm.

3. Jio Bags More Foreign Investors; What’s Next?

Image 50843003961591595532930

  • Reliance Industries announced last week that it will sell another 3.94% stake in Jio Platforms to Mubadala, Abu Dhabi Investment Authority and Silver Lake. Abu Dhabi’s second-largest sovereign investor, Mubadala has agreed to buy a 1.85% stake in Reliance’s Jio Platforms for approximately INR91bn while Abu Dhabi Investment Authority (ADIA) has agreed to acquire a 1.16% stake in Jio Platforms for INR56.8bn (US$750m).
  • In addition, Reliance Industries also announced that Silver Lake, who had already invested INR56.6bn on Jio Platforms for a stake of 1.15%, has agreed to invest an additional INR45bn increasing its stake from 1.15% to 2.08%.
  • With stake sales to Mubadala and ADIA, Jio now has seven foreign investors and with Silver Lake’s subsequent investment, the company has so far raised INR978.4bn through the sale of 21.06% of the total shares of Jio Platforms.
  • The long list of Jio Platforms’ foreign investors have offered the company with a higher and ever-increasing valuation. The latest stake sale to ADIA values the company at around INR4,900bn, 12.3% higher than the company’s valuation post Facebook’s investment in April which valued the company at INR4,362bn.

4. Weekly Oil Views: US-China Tensions Unlikely to Snuff Out Crude’s Rally

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The Trump administration’s retaliatory measures against Beijing over the new security law in Hong Kong, announced on May 29, steered clear of escalating the trade war between the US and China, prompting a relief rally in crude.

Benchmark Brent prices jumped 43% in May, with WTI notching an even more spectacular 88% surge. 

However, with the near impossibility of China being able to keep its promise of doubling imports from the US this year and possibly even in 2021, the trade tensions are going to lurk just under the surface. 

Meanwhile, the upcoming OPEC/non-OPEC meeting to decide on the producers’ collective output policy beyond June, could become another major test of the alliance’s cohesion. The ghost of the disastrous Mar 6 meeting, which unleashed a brutal price war, still hovers over the market. What could one expect from the ministers this time?

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