PDF - RZB

No 76
October 2014
The Prime Minister and Economy Minister
repeatedly voice that IMF deal will be signed
soon
Revision of the Budget Law 2014 brought budget
gap widening due to weak tax revenues flow
and overshooting in the subsidies
Weak
economic
sentiment
and
exports
slowdown supported EUR/RSD depreciation
The NBS maintained key rate at 8.5% amidst
elevated external risks
Content
Serbia
Monthly Economic Report
Highlights………………….………………………………………………………...............3
Forecasts ………………..…………………………………………………………..............4
Real economy………….……………………...…………………………….....................5
Subdued industry sentiment backed by weak FIAT
…production and frail external demand
External position ……………………………………………………………………………..6
Exports slowdown backed by frail external
…demand and limited access to credits
Budget…………….……………………………………………………………………………..7
Poor budget revenues planning and higher subsidies
…to SOE’s, drove budget gap revision upwards
Public Debt................................................................................................8
Investors impatient to see new IMF deal, as the
..yields remaining almost untouched
Monetary Policy&Inflation……………………………………………………..………….9
The key rate intact at 8.5% for a fourth time in a row
…inflation reignited by fruit prices
Exchange Rate…………………………………………………..…………………………..10
Steady EUR/RSD depreciation intended to support
.. exports and tax revenues growth
Events calendar……………..……………………………………………………………….11
Appendix………………………..…………………………………………………………….12
Research Universe…………………………..………………………………………………13
Acknowledgements………………………………………………………………………..14
Disclaimer…………..…………………………………………………………………………15
2
Highlights
Highlights
Credit ratings (LCY)
S&P
Moody's
ST LT Outlook ST LT Outlook ST
B
BB-
Negative n.a. B1
Stable
B
Highlights
Fitch
LT Outlook
B+
Stable
Source: S&P, Fitch, Moody’s, Raiffeisen
RESEARCH
Key rate and inflation
2011
16
2012
2013
2014
16
%
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
Inflation, yoy, %
Key rate (r.h.s.)
0
Source: NBS, Raiffeisen RESEARCH
Exchange rate
121.0
1.60
1.55
1.50
1.45
1.26
1.40
1.35
Foreca
128
125
122
119
116
113
110
107
104
101
98
95
92
89
86
83
80
77
74
2011
1.30
1.25
1.20
1.15
1.10
2012
2013
EUR/RSD
2014
2015
EUR/USD (r.h.s.)
Source: NBS, Raiffeisen RESEARCH
 Amidst the gloomy economic perspective and deteriorating fiscal
ratios, investors remained on long positions in the local debt, yet
the new T-bills supply did not attract much interest, apart from the
surprisingly superb appetite for the 10Y RSD T-bills. The market is
waiting for the new IMF deal, which in this stage is considered as
an anchor, given the hesitant cabinet approach as regards the
pace of the public sector reforms execution. Yields remained
steady as the investors are still crediting the adoption of the new
legislative and the start of the privatisation of the SOE’s.
 Revision of the Budget Law on 2014 brought expected widening in
the budget gap from initially planned RSD 182.5 bn to RSD 224.8
bn. Tax revenues were not realistically planned as, despite the fact
that the country had nice growth in 2013, a large part of the
economy was in recession, thus lacking the capacity to deliver tax
revenues, a fact that was not taken into account by the cabinet
during the budget planning. Concerning the budget expenditures,
we assume that the subsidies’ overshooting might have been
created from gvt-sponsored lending, but are prone to think that a
large part was channeled to those public companies whose
privatization failed (i.e. steel producer Zelezara Smederevo).
 NBS remained as an anchor on the jittery local market, deciding to
maintain the key rate at 8.5% for a fourth time in a row, due to
the elevated global and local fiscal risks, while weakening
EUR/RSD drift. The depreciation sentiment has been triggered
firstly by the diluted risk appetite by non-resident investors for the
local debt due to the delay in the public sector reforms
implementation and Ukraine/Russia conflict. Nevertheless, the
weakening drift that has continued during October is fundamentalsdriven, more precisely a slowdown in exports and, in general, a
weakened economy sentiment.
Serbia
Analysts:
Raiffeisen banka a.d. Belgrade
Ljiljana Grubic
(Economic Research Specialist)
[email protected]
RBI Vienna
Martin Stelzeneder, CEFA
[email protected]
2009 2010 2011 2012 2013 Current 2014f 2015f
29.0
28.0
31.5
29.6
32.0
n/a
32.4
32.8
-3.1
0.6
1.4
-1.0
2.6
-1.1
-0.5
1.0
Industrial output (% yoy, Aug/14)
-12.6
2.5
2.1
-2.9
5.5
-13.1
-3.0
1.5
Unemployment rate (Q2/14, % avg.)
16.1
19.2
23.0
23.9
22.1
20.3
22.0
23.0
5.1
Nominal GDP (EUR bn)
Real GDP (Q2/14 flesh estimate, % yoy)
Gross nominal wages (% yoy, Sept/14)
8.8
7.5
11.1
8.9
5.7
2.8
-3.3
Consumer prices (% yoy, Sept/14)
6.6
10.3
7.0
12.2
2.2
2.1
5.0
5.0
Budget deficit (% of GDP,non-cons)
-3.4
-3.7
-4.2
-5.7
-4.8
n.a.
-6.5
-6.0
Public debt (% of GDP, Sept/14)
34.0
43.5
47.0
59.9
63.0
68.3
69.8
74.7
External debt (% of GDP, Aug/14)
77.7
84.9
76.7
86.9
80.8
80.6
80.3
84.8
Current account balance (EUR bn, Jan-Aug/14)
-1.9
-1.9
-2.9
-3.6
-2.1
-1.2
-1.8
-2.2
Current account balance (% of GDP)
-6.6
-6.7
-9.2
-12.3
-6.5
n/a
-5.6
-6.7
Trade balance (EUR bn, Jan-Aug/14)
-4.9
-4.6
-5.2
-5.3
-3.8
-2.6
-3.2
-3.3
-17.0
-16.3
-16.4
-18.0
-12.0
n/a
-9.9
-10.1
Trade balance (% of GDP)
Official FX reserves (EUR bn, Sept/14)
10.6
10.0
12.1
10.9
11.2
10.9
11.9
12.3
Source: NBS, Statistical Office of Serbia, MoF, Raiffeisen RESEARCH Cut of data October 24th 7 p.m. (CET)
3
Forecasts
Serbia Monthly Economic Report
Key economic figures and forecasts
Economic activity
2009 2010 2011 2012 2013 Current 2014f 2015f
Nominal GDP (EUR bn)
29.0
28.0
31.5
29.6
32.0
n.a.
32.4
32.8
GDP per capita (EUR tsd)
4.0
3.8
4.3
4.1
4.5
n.a.
4.5
4.6
Real GDP (Q2/14 flesh estimate, % yoy)
-3.5
1.0
1.6
-1.5
2.6
-1.1
-0.5
1.0
Industrial output (% yoy, Aug/14)
-12.6
2.5
2.1
-2.9
5.5
-13.1
-3.0
1.5
Unemployment rate (Q2/14, % avg.)
16.1
19.2
23.0
23.9
22.1
20.3
22.0
23.0
Wages
Monthly average gross wages (EUR, Sept/14)
469.9 460.9 517.3 507.7
536.2 511.6 501.3 506.0
Gross nominal wages (% yoy, Sept/14)
8.8
7.5
11.1
8.9
5.7
2.8
-3.3
5.1
Prices
Consumer prices (% yoy, Sept/14)
6.6
10.3
7.0
12.2
2.2
2.1
5.0
5.0
Consumer prices (% avg, Jan-Sept/14)
8.2
6.3
11.3
7.8
7.8
2.1
5.5
5.5
Public sector
Budget deficit (% of GDP,non-cons)
-3.4
-3.7
-4.2
-5.7
-4.8
n.a.
-6.5
-6.0
Public debt (EUR bn, Sept/14)
9.8
12.2
14.8
17.7
20.1
22.1
22.6
24.5
Public debt (% of GDP, Sept/14)
34.0
43.4
47.0
59.9
62.9
68.3
69.8
74.7
External sector
External debt (EUR bn, Aug/14)
22.5
23.8
24.1
25.7
25.8
26.1
26.0
27.8
External debt (% of GDP, Aug/14)
77.7
85.1
76.7
86.9
80.8
80.6
80.3
84.8
Current account balance (EUR bn, Jan-Aug/14)
-1.9
-1.9
-2.9
-3.6
-2.1
-1.2
-1.8
-2.2
Current account balance (% of GDP)
-6.6
-6.7
-9.1
-10.7
-4.9
n/a
-5.6
-6.7
Trade balance (EUR bn, Jan-Aug/14)
-4.9
-4.6
-5.2
-5.3
-3.8
-2.6
-3.2
-3.3
Trade balance (% of GDP)
-17.0 -16.3
-16.4
-17.9
-12.0
n/a
-9.9
-10.1
Official FX reserves (EUR bn, Sept/14)
10.6
10.0
12.1
10.9
11.2
10.9
11.9
12.3
Official FX reserves (% of GDP, Sept/14)
36.6
35.7
38.3
36.8
35.0
33.6
36.8
37.5
Net foreign direct investment (EUR bn, Jan-Aug/14)
1.4
0.9
1.8
0.2
0.8
0.8
1.1
1.0
Net foreign direct investment (% of GDP)
4.7
3.1
5.8
0.7
2.4
n.a.
3.4
3.0
Interest rates
NBS key rate* (% avg, Jan-Sept/14)
13.2
9.3
11.6
10.1
11.0
9.0
9.0
8.3
NBS key rate* (% eop, Sept/14)
9.5
11.5
9.8
11.3
9.5
8.5
8.5
8.0
3M BELIBOR* (% avg, Jan-Sept/14)
14.4
10.9
12.9
11.7
10.1
8.3
8.5
7.2
Exchange rates
EUR/RSD* (eop, Sept/14)
95.89 105.49 104.64 113.70 115.00 118.85 121.00 123.00
EUR/RSD* (avg, Jan-Sept/14)
93.94 103.00 101.97 113.00 113.22 116.22 117.16 122.00
USD/RSD* (eop, Sept/14)
66.96 78.73 80.61 86.25
83.13 93.62 96.03 106.96
USD/RSD* (avg, Jan-Sept/14)
67.38 77.61 73.26 87.93
85.13 85.88 87.43 101.67
EUR/USD* (eop, Sept/14)
1.43
1.34
1.30
1.30
1.36
1.26
1.26
1.15
EUR/USD* (avg, Jan-Sept/14)
1.39
1.33
1.40
1.30
1.33
1.36
1.34
1.20
*Cut off data October 24th 7 p.m. (CET)
Source: NBS, Statistical Office of Serbia, MoF, Raiffeisen RESEARCH
4
Real economy
Subdued industry sentiment backed by weak FIAT
…production and frail external demand
Industrial production (%, yoy and mom)
2010
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
-16
2011
2012
2013
2014
Industrial production (yoy %)
Industrial production, seasonally adjusted
(r.h.s. mom %)
Source: Statistical Office of Serbia, Raiffeisen RESEARCH
Key industry performance (%, yoy)
Jan-11
%
35
Jan-12
Jan-13
Jan-14
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
Electricity, gas&water supply yoy
Mining&quarrying yoy
Manufacturing yoy
-40
Source: Statistical Office of Serbia, Raiffeisen RESEARCH
Key sectors performance (%, yoy)
600
500
400
350
300
250
200
300
150
200
100
100
0
50
0
-50
-100
-100
jan.12 jun.12 nov.12 apr.13 sep.13 feb.14 jul.14
oil production
chemicals
car production (r.h.s.)
basic pharmaceutical products
Source: Statistical Office of Serbia, Raiffeisen RESEARCH
As per seasonally adjusted data, industrial production
maintained a volatile mood in August as falling by 0.3%
mom (July: +0.2 mom), despite the fact that manufacturing
increased by 0.7% mom (July/14: +1.1% mom), the latter, in
our view, being supported by the government-sponsored
lending program. Also, in annual terms, industrial production
nosedived by 13.1% yoy mostly being underpinned by the
electricity, gas, steam and air-conditioning supply (-39.8%
yoy) as well as mining & quarrying (-23.8% yoy), which both
suffered excessive damages in the mid-May floods. The key
input for electricity production is coal produced in the flooded
Tamnava-Zapadno Polje open-pit coal mine. The coal mine is
still working with half of its capacity, whilst the project of
pumping out the water from the mine is to be carried out in
cooperation with the World Bank in Q4/2014. Until then,
the lacking electricity volumes are met via imports.
Manufacturing was also performing poorly (-3.8% yoy), due
to repeatedly weak vehicles production (-37.3% yoy), a trend
that started in May 2014. Continual drop in the FIAT vehicles
production can be contributed to disruption in the functioning
of the Beograd-Bar (Montenegro) railway route due to floods
but could also be owed to the slowdown in the exports
demand, as exports are evidencing deterioration in the past
three months. Also, the frail mood was observed with food (3.1% yoy) and beverages (-5.7% yoy) as well. In eight
months of 2014, industrial production fell by 4.3% ytd
(8M/13: +5.3% ytd), predominantly bolstered by FIAT
vehicles production which in Jan-Aug/14 grew only
moderately by 4% ytd (8M/14: +218% ytd). Though most of
the industries had rather weak performance despite the ongoing government subsidy program, there are some outliers
like oil production (+13.7% ytd), wood and wood products
(+20.1% ytd), basic metals (+6.0% ytd) and food (+3.5%
ytd). While the weak credit supply being cut after the
expiration of gvt-sponsored lending will undermine industry in
2015, in the mid-term, the breath of oxygen will come from:
a) carrying out structural reforms via enactment of the Labour,
Privatisation, Pension Insurance and Bankruptcy Law and b)
running infrastructural projects, (the rail and road routes,
mostly the ones being wrecked during the mid-May floods).
Given the poor state of infrastructure, those projects are the
government’s priority, which is why the National Investment
Committee was set up, tasked to define the financial plans for
infrastructural projects that will be presented to potential
investors/donors. Currently, the major project is the
reconstruction of three Corridor 10 railway sections (65.7 km
in length) and procurement of 27 diesel-powered trains, both
financed from the USD 800 mn Russian loan for railway
modernization. Also, talks were launched with two Chinese
companies on the Corridor 11 highway concession deal
(Timisoara, Romania via Vrsac, Belgrade and Pozega in Serbia
and Podgorica in Montenegro to the Adriatic port of Bari).
5
External position
Industry,
Wages and Unemployment
Exports slowdown backed by frail external
…demand and limited access to credits
The current account gap evidenced a decline, supported by
nice exports sentiment, despite the somewhat weaker
I. CURRENT ACCOUNT
-1,078.0
-1,233.0
-12.6%
remittances flow. FDIs growth was a bit restrained, possibly
1. Goods and services
-2,327.0
-2,558.0
-9.0%
1.1. Exports
9,394.0
8,868.0
5.9%
because the investors were waiting for the new reform
1.2. Imports
11,722.0
11,426.0
2.6%
2. Primary income
-743.0
-783.0
-5.1%
package as well as outcome of the flood’s donor conference.
3. Secondary income
1,992.0
2,108.0
-5.5%
This was also the rationale behind the weaker portfolio
II. CAPITAL ACCOUNT
2.0
12.0
-116.7%
III Financial account, net (-capital
investments flow (-69.2% yoy), though behind the last year’s
inflow, +capital outflow)
-834.0
-1,079.0
-22.7%
1. Direct investments - net
-769.0
-785.0
-2.0%
portfolio investments growth stands the Eurobonds placement.
1.1. Abroad
77.0
160.0
-51.9%
1.2. In reporting country (Serbia)
846.0
943.0
-10.3%
However the banks de-leveraging process continued (+14.9%
2. Portfolio investments - net
-302.0
-980.0
-69.2%
yoy) probably due to stubbornly high non-performing loans
2.1. Assets
5.0
55.0
-90.9%
2.2. Liabilities
309.0
1,034.0
-70.1%
and very weak economy sentiment. Fortunately, the corporate
3. Financial derivatives
-3.0
1.0
-400.0%
2.1. Assets
-2.0
-4.0
-50.0%
de-leveraging was cut compared to 2013 (8M/14: -79.9%
2.2. Liabilities
1.0
-5.0
-120.0%
3. Other investments
705.0
707.0
-0.3%
yoy), whilst NBS and the government was settling the due
3.1. Assets
619.0
474.0
30.6%
debts. We view that the current account financing won’t be an
3.2. Liabilities
-86.0
-234.0
-63.2%
4. Reserves Assets (- increase)
-465.0
-22.0
2013.6%
issue this year largely because of still stable exports and
IV. ERRORS AND OMISSIONS - net
242.0
149.0
62.4%
remittance flow. Weakening exports growth in 8M/14
Source: NBS, Raiffeisen RESEARCH
(+4.9% yoy) vs 8M/13 (+23.7% yoy) were flavoured by the
Exports and imports growth (yoy, %)
slowdown in FIAT exports (8M/14: +2.8% yoy). We expect
that FIAT production slowdown is of temporary nature and is
attributed by dysfunction in the Belgrade-Bar railway, weaker
external demand due to global market uncertainties and the
full production capacity being reached in 2013. Again, on the
positive note is the diversification of the exports products
portfolio as five products generated 79.0% of the total
exports, compared to the 8M/13, when only FIAT exports
created 59.6% of the new exports volumes. These products
are as follows: cereals (25.8%), iron and steel (16.7%),
electrical machinery (14.6%), fruits (13.6%) and vehicles
(8.4%). Imports growth slowed down further in 8M/14
(+1.5% yoy) compared to 8M/13 (+2.7% yoy), due to weak
investment and retail demand for imported goods. We do not
expect that energy imports in the winter months, being
supported by the cut in the coal mine production, will widen
Source: Statistical Office of Serbia, Raiffeisen RESEARCH
the foreign trade gap dramatically due to the weak industry
New exports volumes in Jan-Aug (EUR mn) sentiment and the first hints on the higher winter temperatures.
Also, we are not assured when and to what extent will be
exercised the agreed import quota of Serbian-made Fiat 500L
cars and relaxing in the import regime for Serbian-made
cheese and cheese spreads, the both being agreed on the
recent Mr Putin visit to Serbia. As per Mr Vucic if the
agreements reached are realized, ‚Serbia’s annual
agricultural exports to Russia can grow from USD 130 mn to
USD 500 mn in a very short time‛. The dairy companies
Mlekara in Subotica, Imlek and Beocapra were directly
allowed to export to Russia and its customs union with Belarus
and Kazakhstan, yet the cabinet at the same time cut by 5%
the duty on import of live pigs (up to 50 kg) from the EU.
Given lagging exports, the gvt wants to play at the sanctions
that Russia introduced on agriculture products imports from EU
and other western countries, but is also eager to keep good
relations with its key export market, European Union.
Source: Statistical Office of Serbia, Raiffeisen RESEARCH
CA gap and financing
in EUR mn
Jan-Aug/14
Jan-Aug/13
14/13 yoy
6
Budget
Poor budget revenues planning and higher subsidies
to SOE’s, drove budget gap revision upwards
Non-consolidated
budget, RSD mn
deviation
Planned
2014
2014
revision
in %
in RSD mn
TOTAL REVENUES
929,942.0
897,165.2
-3.5%
-32,776.8
Tax revenues
802,400.0
759,352.0
-5.4%
-43,048.0
47,800.0
58,000.0
430,000.0
227,600.0
29,500.0
9,500.0
43,700.0
66,152.0
398,000.0
211,200.0
31,000.0
9,300.0
-8.6%
14.1%
-7.4%
-7.2%
5.1%
-2.1%
-4,100.0
8,152.0
-32,000.0
-16,400.0
1,500.0
-200.0
122,342.0
130,313.2
6.5%
7,971.2
5,200.0
7,500.0
44.2%
2,300.0
Personal income taxes
Corporate income taxes
VAT
Excises
Custome duties
Other taxes
Non-tax revenues
Donations
TOTAL EXPENDITURES
1,112,501.7 1,121,926.1
0.8%
9,424.4
Current expenditures 1,039,278.2 1,063,779.3
2.4%
24,501.1
Wages and salaries
Goods and services
Interest payment
Subsidies
LRG transfers**
Social transfers***
Social protection
Other expenditures
272,076.2
96,144.5
114,004.3
80,816.0
71,655.4
280,167.2
107,054.3
17,360.2
263,530.8
98,716.9
112,451.3
93,736.0
74,134.8
280,585.6
110,769.1
29,854.8
-3.1%
2.7%
-1.4%
16.0%
3.5%
0.1%
3.5%
72.0%
-8,545.4
2,572.4
-1,553.0
12,919.9
2,479.4
418.4
3,714.8
12,494.6
Capital expenditures
51,850.1
46,341.7
-10.6%
-5,508.4
3,911.9
4,186.0
7.0%
274.1
21,373.4
11,805.1
-44.8%
-9,568.3
-182,559.7
-224,760.9
23.1%
-42,201.2
of which NIP
Net lending
BUDGET BALANCE
Source: Ministry of Finance, Raiffeisen RESEARCH
Budget development (RSD mn, %)
2008 2009 2010 2011 2012 2013 2014
1,200
% 0%
RSD mn
1,000
-1%
800
-2%
600
-3%
400
-4%
200
-5%
0
-200
-400
Revenues (RSD mn)
Expenditures (RSD mn)
Budget deficit (RSD mn)
Budget gap/GDP (r.h.s., %)
-6%
-7%
Source: Ministry of Finance, Raiffeisen RESEARCH
Cum. expenditure growth* (RSD mn)
400
350
RSD mn
300
250
200
150
100
50
0
‘
*2009-2014 period , Social trans. relates to pensions
Source: Ministry of Finance, Raiffeisen RESEARCH
There is an apparent traditional pattern in the budget
preparation including: a) at least one budget revision and b)
poor tax revenues planning being the major trigger for the
revision, at the least this being the case in the past three
years. When the initial version of the Budget Law for 2014
was passed in December 2013, we emphasized that the tax
revenues were not realistically planned as, despite the fact
that the country had nice growth in 2013 (GDP: +2.6%
yoy), a large part of the economy was in recession, thus
lacking the capacity to deliver tax revenues, a fact that was
not taken into account by the cabinet during the budget
planning. Concerning the budget expenditures, we assume
that the subsidies’ overshooting might have been created
from gvt-sponsored lending, but are prone to think that a
large part was channeled to those public companies whose
privatization failed (i.e. steel producer Zelezara
Smederevo). Further, we do not quite understand what
stands behind the overshooting of other expenditures.
Though the overall picture is not upbeat, it should be borne
in mind at the same time that the government restrained
spending in the past two years (cum. expenditure growth
RSD 46.1 bn), compared to RSD 329.6 bn in 2009-2012
period. Also, the budget revision will include the cut in the
public wages and pension over RSD 25 ths in the range of
10%-25%, that will take effect on November 1st.
Though one should prize the courage needed to exercise
such a tough measure, on the other hand, the measure by
itself will not be sufficient to stabilize the budget deficit
deterioration. We maintain that critical measure that would
substantially facilitate fiscal ratios stabilization is to close
down 100-200 of the state-owned enterprises (SOEs) in the
restructuring, given that around EUR 700-800 mn are spent
annually for SOEs, while most of those companies are
constantly in the loss zone, having no competitive product,
nor access to exports markets. Further introductions of the
pay grades in the remaining SOEs and public administration
would significantly cut the public wages allotments.
Apart from public wages/cuts, we still miss which other
measures the government will implement in stabilizing the
fiscal ratios and maintain that the new set of measures will
be revealed within the budgeting process for 2015. Rather
firm standing of the Economy Minister, Mr. Vujovic, that
Serbia will conclude an arrangement with the International
Monetary Fund (IMF) by the end of 2014, could be a signal
that the cabinet will be opting for rather deep and wide
reforms from 2015 that have been advocated by the IMF in
the past two years since the deal was frozen, with the
wages/pension cut just being the first step within this
process. As per Mr. Vujovic, the reforms will be executed in
the next three years, but the toughest being implemented in
2015.
Industry,
Wages and Unemployment
Public debt
Investors impatient to see new IMF deal, as the
..yields remaining almost untouched
Debt rising on the local market (EUR mn)
700
350
300
600
250
200
500
150
400
100
300
50
200
-50
0
-100
100
-150
Jul-14
Sep-14
May-14
Jan-14
Mar-14
Sep-13
Nov-13
Jul-13
May-13
Jan-13
-200
Mar-13
0
Due T-bills (EUR mn)
Sold T-bills, nominal value (EUR mn)
Total new volume (EUR mn, r.h.s.)
Source: Ministry of Finance, Raiffeisen RESEARCH
RSD mn
2012
2013
revised
revised
2014
2014
revised
NET FINANCING
-203,574 -178,343 -182,560
-224,761
Income from financial assets sale and borrowing
562,676 630,943 662,604
742,679
Treasury bills sold on the local market (dinar and FX)
360,900
330,000
330,000
450,000
Eurobonds issued in dinar and FCY (market value)
92,300
221,250
68,535
149,925
109,476
77,345
264,069
141,625
2,348
0
1,129
Expenditure for purchase of fin. assets and debt repayment
359,058 435,939 479,940
460,398
328,158 433,443 463,583
428,573
Borrowings from foreign gvt's. int org and local banks
Sale of fixed assets
Annuity repayments
local banks
273,798
340,176
384,720
345,073
foreign creditors
38,831
68,517
37,777
36,100
guarantees
15,529
24,750
41,086
47,400
30,900
2,496
16,357
31,825
Expenses for the finanacial assets supply
financial stability
21,316
capital increase Postal Savings bank
21,316
capital increase Dunav insurance
4,800
financial assets
469
Gross financing needs
-593,532 -616,779 -678,857
-716,983
Funding sources
579,337 631,047 662,604
800,062
Budget spending funding (T-bills, eurobonds, borrowings)
Change on th account
562,676
630,943
662,604
742,679
44
16,661
104
57,383
Source: Ministry of Finance, Raiffeisen RESEARCH
RSD yield curve
13.0
11.0
9.0
3M ago
7.0
2M ago
current
5.0
3M
6M 53W 24M 36M 5Y
7Y
10Y
The appetite for the debt issued by the Ministry of Finance
remained diluted during September and October as investors
were in a ‚sit and wait position‛, waiting for any hint whether
a new IMF arrangement would be signed. The fact that the
wages and pensions cuts would be included under the revision
of the Budget Law for 2014 was welcomed by the investors’
community, however, it did not disperse concerns the investors
have as regards the reforms pace. The government’s hesitation
in delivering the core measures (wages/pension cuts, shutting
down unprofitable SOEs, etc.) has brought a bit of a confusion
with the investors’ community what stands behind the
authorities’ reluctance to promptly embark on reforms, given
the undisputed mandate being supported by the increasing
popularity of the leading Serbian Progressive Party (SNS), this
being confirmed in the most recent surveys. We maintain that
the government’s hesitation as regards the public sector
reforms implementation has less to do with potential decision
on giving up on reforms, but has much more to do with their
concern that the fast pace would move the economy into
severe recession, not to mention the anxieties as regards the
response of the involved stakeholders. Still, we could agree
that the reform pace is rather deliberate, given the high costs
of keeping alive fallen SOE’s and state-owned banks and the
fact that these costs are still not included in the Budget, but will
be included in the public debt
The Finance Minister voiced that IMF mission should arrive in
early November for talks on fresh arrangement and discussion
on the Law on budget for 2015 and that ‚he believes talks
with the IMF will be successfully completed in the last days of
November or at the beginning of December‛. Further, the
details on the new budget allegedly have been confirmed with
the IMF. The IMF deal being again on the table have relaxed
investors somewhat, as after a very calm sentiment in the past
two months, there was very strong rebound in the risk appetite
for the 10Y RSD Min.Fin. T-bills, as the bid to cover ratio came
at 1.27. Interestingly, non-residents were again on the market
and we assume that the long-term horizon during which the
country might enter the EU, while the structural and public
sector reforms supporting sound fundamentals could be the
investment rationale. The yield came at 12.99%.
The budget deficit financing for 2014 has been secured,
whereas the Public Debt Management is striving to collect the
funding for 2015 ahead of expected FED key rate hikes. So,
next to EUR 1.5 bn tranche under the EUR 2.5 United Arab
Emirates loan (this being a new figure under the revision vs
EUR 3bn initially planned), the new Eurobonds issue is
planned (revised to EUR 1.24 bn instead of the initially
planned EUR 0.56 bn), altogether increasing the liquidity
reserves for H1/2015.
Source: Ministry of Finance, Raiffeisen RESEARCH
8
Monetary policy
& inflation
The key rate intact at 8.5% for a fourth time in a row
…inflation reignited by fruit prices
Total and core CPI, food prices (yoy, %)
2011
35.0
2012
2013
2014
16.0
30.0
14.0
25.0
12.0
20.0
10.0
15.0
8.0
10.0
5.0
0.0
-5.0
-10.0
6.0
Food and non–alcoholic
beverages, yoy
CPI yoy (r.h.s.)
4.0
2.0
CPI excluding energy, food,
alcohol and tobacco yoy (r.h.s.)
0.0
Source: Statistical Office of Serbia, Raiffeisen RESEARCH
Reverse repo auctions and avg
weighted rate (EUR mn, %)
Source: NBS, Raiffeisen RESEARCH
NBS's interest rates (%)
Key policy rate - 1w repo
Deposit facility interest rate
8.50
6.00
Lending facility interest rate
11.00
NBS's interest rates forecast (%)
Dec-2014f
Mar-2015f
June-2015f
8.50
8.50
8.50
CPI targets (%)
2014
4.0% +/- 1.5 pp
4.0% +/- 1.5 pp
2015
2016
4.0% +/- 1.5 pp
Benchmark rates (%)
FED
0.00-0.25
ECB
0.05
Bank of England
0.50
National Bank of Swiss
0.00-0.25
Money market interest rates forecasts (%)
Dec-2014f
Mar-2015f
June-2015f
BELIBOR
LIBOR CHF
3M
3M
7.30
7.20
7.00
0.00
0.00
0.00
EURIBOR
3M
6M
0.10
0.10
0.15
0.20
0.20
0.25
Source: NBS, Bloomberg, Raiffeisen RESEARCH, Cut off October
245th 7 p.m. (CET)
The August deflation drift (-0.2% mom) was replaced by the
inflation recovery in September (+0.7% mom), the sentiment
being ignited by the hike in the fruits prices (+12.0% mom).
Still, the inflation reading remained below the targeted range
(4% +/- 1.5pp) attaining 2.1% yoy and 2.3% ytd. The
absence of inflationary pressure is a result of the ongoing
recession in the country (GDP flash estimate Q2/14: -1.1%
yoy) which greatly undermines private demand. Moreover, the
pending fiscal consolidation will add to the weak state
demand, whereas the cut in credit supply, after the expiration
of the government subsidy program, will undermine investment
demand. On the other hand, inflation has remained below the
central banks’ targets in most of the advanced economies as
an indication of continued substantial economic slack. The
NBS expects CPI to return to its targeted range by the end of
2014, despite the delay in the expected hike of electricity
prices. The recovery in the inflation growth in Q4/2014 will
be supported by the low base and waning dis-inflationary
impact that was driven in the past period from the low food
production costs. As anticipated by the market, the Executive
Board (EB) of the National Bank of Serbia (NBS) decided on
its October key rate setting meeting to keep the key rate intact
at 8.5% for the fourth time in a row. In comments on this
decision, the EB stressed that ‚internal and external
environment risks require further cautious attitude in managing
the monetary policy‛. The NBS did not provide any forward
guidance this time, yet emphasised that consistent
implementation of structural and public sector reforms will
increase the risk appetite for Serbian risk, which would, in
turn, positively reflect on the country’s risk premium and thus
support the resistance to external risks. We welcome the
cautious NBS’ attitude and repeat that we expect the key rate
will remain intact at the level of 8.5% until Q1 2015. The
higher interest rate environment will be supported by
increased global risks, primarily led by the diluted risk
appetite for the CEE debt market due to the Ukraine/Russia
conflict and, on the other hand, an expected earlier hike in the
FED key rate that will lead to withdrawal of capital from the
riskier markets to the Western home markets. The geopolitical
risks, together with the local risks (i.e. slower economic
recovery in the EU and Serbia and bloated fiscal risks), will
impact the volatile exchange rate sentiment, both factors
weighing on the NBS preference to maintain a watchful
attitude in the period ahead. Despite the weak economy
sentiment, the NBS is prone on reviving the credit supply by
cutting the repo supply volumes, rather than cutting the key
rate that is now a function of exchange rate volatility stabiliser.
By that, the NBS is expecting that the surplus of new liquidity
in the banking sector would be channelled to new credits, as
most banks have topped their limits for investments into the
state debt issuance. The next rate-setting meeting will be held
on November 13, 2014.
EMBIG
Exchange
& FX
rate
Rate
Steady EUR/RSD depreciation intended to support
.. exports and tax revenues growth
EUR/RSD volatility (in dinars)
2012
600
2013
2014
EUR mn
in dinars
400
5.5
5.0
4.5
4.0
200
3.5
3.0
0
2.5
2.0
-200
1.5
1.0
-400
0.5
-600
C/A gap (EUR mn)
New RSD MinFin T-bills (EUR mn)
NBS FX interventions (EUR mn)
EUR/RSD fluctuation in dinars (r.h.s.)
0.0
Source: Bloomberg, Raiffeisen RESEARCH
FX forecasts (end of period)
Dec-14
Mar-15
EUR/USD
EUR/CHF
EUR/JPY
USD/JPY
1.26
1.21
136
108
1.23
1.21
135
110
EUR/GBP
EUR/PLN
EUR/HUF
EUR/CZK
0.78
4.15
315
27.6
0.77
4.15
315
27.5
EUR/RON
EUR/HRK
EUR/RUB
4.45
7.68
47.9
4.4
7.7
48.5
EUR/RSD
USD/RSD
121.0
123.0
122.0
96.0
100.0
101.7
Dec-2014f
Mar-2015f
June-2015f
EUR/RSD Bloomberg consensus
eop
October
Mean
119.5
Median
119.5
Highest
118.5
Lowest
120.1
November
119.9
119.9
118.0
122.0
Though most of the CEE currencies maintained depreciation
drifts throughout September and October, there is an apparent
stabilisation sentiment, as the investors priced in global risks,
stemming from the slowdown in the EU economic recovery
and change in the US Central Bank’s monetary policy from
Q1/2015. Nevertheless, in the case of Serbia, this is not
quite so, as prolonged depreciation of the local currency
against the euro will be on the table until the end of the year.
The depreciation sentiment has been triggered firstly by the
diluted risk appetite by non-resident investors for the local debt
due to the delay in the public sector reforms implementation,
but was followed by the Ukraine/Russia conflict. Nevertheless,
the weakening drift that has continued during October is
fundamentals-driven, more precisely a slowdown in exports
and, in general, a weakened economy sentiment.
There were and will be temporary EUR/RSD appreciation
episodes until the end of 2014, but they will be carried by
one-off developments, like the visit of the Russian President
Vladimir Putin and his attendance at the military parade
organised on the occasion of celebrating the country’s
liberation in the Second World War. During his visit, Serbian
and Russian officials signed seven documents, including an
agreement on defence industry cooperation, an agreement on
the mutual protection of classified information, an agreement
on readmission and a protocol on its implementation, next to
the agreement that Russia will import a certain quota of
Serbian-made Fiat 500L cars, as well as a relaxation of the
Russian import regime for Serbian-made cheese and cheese
spreads. However, despite maintaining good relations with
the Russian Federation, the Prime Minister repeated that
Serbia would not give up on its EU membership path.
Actually, the government is hoping that the opening of the first
negotiation chapter will take place by spring 2015 at the
latest, as a large number of the accession chapters have been
screened, while the country received a positive Progress
Report by the EU in October this year. However, the
weakening EUR/RSD sentiment will prevail in Q4/2014,
being hammered by the expected recessions this year (GDP
estimate: -0.5% yoy), slower exports enlargement and
alteration in the FX intervention policy by the National Bank of
Serbia. The FX intervention volume per one session is far
below the ones that have been exercised in H1/2014 and the
rationale behind is to encourage the exports growth via steady
depreciation, so to compensate for the low exports volume.
We still maintain our new EUR/RSD forecast at 121 for the
end of 2014 and expect this level will not be breached, the
assumption being supported by the fact that the authorities will
use the EUR 1 bn tranche under the EUR 2.5 bn United Arab
Emirates loans, to finance the budget gap in December. Also,
depreciation in real terms will be around 3%, which is pretty
much acceptable in terms of the impact on the economy.
Source: Bloomberg, Raiffeisen RESEARCH
10
Events calendar
Events
calendar
Serbia Monthly Economic Report
Events calendar for the upcoming month
Date of
Refferent
Covered by Raiffeisen Research
Published
publishing
period
via report
by
Recent development
Sept-14
Aug-14 July-14
Industrial production (% yoy)
31-Oct-14
Sep-14
Short Note, Monthly Economic
Statistical Office
Real GDP growth (flesh estimate, % yoy)
31-Oct-14
-13.1
flesh Q2/14 Q1/14
Q3/14
-1.1
Unemployment rate survey (%)
31-Oct-14
n.a.
0.1
Q3/14 Q2/14
Aug-14
-13.0
Q4/13
3.0
Q1/14
n.a.
20.3
20.8
Statistical Office
n.a
-333.3
-419
Alert, Monthly Economic
NBS
8.5
8.5
8.5
Short Note, Monthly Economic
Statistical Office
2.1
1.5
2.1
Monthly Economic
NBS
10.9
10.9
10.1
Short Note, Monthly Economic
Finance Ministry
68.3
67.6
64.7
Monthly Economic
NBS
n.a.
80.6
74.7
Monthly Economic
NBS
n.a.
-75.0
-128.0
Monthly Economic
NBS
n.a
15.5
15.5
External trade deficit (EUR mn)
31-Oct-14
Sep-14
Short Note, Monthly Economic
NBS Executive Board session (Key interest rate, % eop)
13-Nov-14
CPI (% yoy)
12-Nov-14
Oct-14
NBS FX reserves (EUR bn)
until 15-Nov-14
Oct-14
Public debt (% to GDP)
until 15-Nov-14
Oct-14
External debt (% to GDP)
20-Nov-14
Sep-14
Current account deficit (EUR mn)
20-Nov-14
Sep-14
Banking industry (total credits, EUR bn)
28-Nov-14
Oct-14
11
Appendix
Appendix
Serbia Monthly Economic Report
Key definitions and abbreviations
Abbreviations
NBS – National Bank of Serbia
CA – current account MoF – Ministry of Finance yoy – year on year
BELIBOR – Belgrade Interbank Offered Rate
ST – short term
VAT – Value Added Tax
mom– month on month
BEONIA – Belgrade Overnight Index Average LT – long term
PIT – Personal Income Tax ytd – year to date
LRG transfers – Local Regional Government transfers
Notes
GDP – Starting from Q1/2011 Serbian Statistical Office started to issue GDP calculated under the new National Accounts
Methodology. The main changes under the methodology are as follows: 1) new statistical classification of economic activities
(KD 2010) harmonised with Eurostat standards 2) a shift from fixed base (2002) calculation to calculation at previous year
prices and 3) revision of indicators used for calculation at constant prices.
Wages – From January 2009 the new methodology takes into account also entrepreneurs’ wages. For seasonally adjusted
growth mom by sub-sectors of manufacturing source is Macroeconomic analyses and trend and conjuncture barometer. For the
dynamic analysis of wages, we use dinar terms so to avoid impact of FX rate volatility on growth rates. Also, growth is in
nominal terms.
Survey on the unemployment rate - From 2014, the unemployment survey is undertaken on a sample of 10,000
households (2013: 8,700) and will be deployed on a quarterly basis. Thus, the results will be published as before, in April and
October, with an additional new survey that will be published in July. Employed persons are those who performed at least one
hour of work in the week and were paid (in money or in kind), as well as persons who were employed, but who had been
absent from work in that week. Therefore, the survey does not take into account the formal status of the person being
interviewed, rather, the employment status of the person is determined on the basis of actual activity practiced in the week.
Budget – Pursue to the Budget Law, 82% of total social transfer refers to the pensions.
The balance of payments (BoP) - The BoP for 2012, 2013 and 2014 were adjusted to ensure alignment of Serbia’s BoP
and IIP statistics with the changes in the official methodological concept of the IMF and the EU arising from the transition to
BPM6. The application of BPM6 is mandatory for both, EU member states and the countries in the process of EU accession. The
major change occurred with the FDI’s disclosure as they now include: reclassification of inter-company lending (excl. financial
institutions that stay within other investments) from other investments and reinvested earnings. Further, portfolio investments have
been increased under the new methodology as reinvested earnings of investment funds were included in this position. Change of
the sign convention: negative balance means a net capital inflow while positive balance means a net capital outflow.
.Consumer price index (CPI) Since January 2009, CPI is
used as official inflation measure. Additionally, it is used as
deflator in national accounts and turnover, for salaries and
wages adjustment, pensions, social benefits, for adjustment
of values in business and private agreements, etc. CPICOICOP is defined as the measure of the average change of
prices of the fixed basket of goods and services, which is
purchased by households and which aims to satisfy the
households’ needs. Purchasing of the second – hand goods,
remuneration in kind, life insurance and gifts are excluded.
This list also excludes imputed rent, outlays for investments
(dwellings, land, etc.) and outlays for lottery games. Goods
are all products excluding services (cleaning, sawing and
repairs of clothing and footwear, rents, maintenance and
repair of the dwelling, public utility services except
household water supply, services in respect of health,
transport and personal transport equipment, communication,
recreation and culture, education, insurance, personal care
and other services. List of products is regularly updated so as
to preserve its representative characteristics regarding
Official CPI weights in 2014 (in %)
Food and non – alcoholic beverages
35.00
Alcoholic beverages and tobacco
7.73
Clothing and footwear
4.56
Housing, water, electricity, gas and other fuels
12.93
Furniture, household equipment, routine maintenance
3.91
Health
6.18
Transport
12.39
Communication
5.07
Recreation and culture
4.47
Education
1.20
Restaurants and hotels
2.42
Miscellanous goods and services
4.14
structure of consumption and consumers’
Core inflation is an indicator
determined prices that do not display
volatility. It excludes regulated prices,
products and fruit and vegetables.
habits.
measuring market
high and seasonal
prices of petroleum
12
Research Universe
Appendix
Research
Universe
RBRS Research
Appendix
Reports Schedule 2014
Report
Summary
Published
Issued by
ad hoc
RBRS
upon data publishing schedule
RBRS
monthly, 3rd week in month
RBRS
annually, Q3
RBI
quarterly, at the start of quarter
RBI
annually
RCB
quarterly/semi-annually
RCB
ad hoc
RCB
ad hoc
RBRS
Alert
Short note on the latest most important events
Short Economic Note
Short note on development of key macro-economic data
Serbia Economic Report
Major macroeconomic indicators
Strategy Serbia
Political, macroeconomical and equity overlook
CEE Strategy
Political, macroeconomical, equity and debt market overview in CEE region
CEE Banking Report
Banking industry in CEE region I, Key banking stock's updates II
Company Report and Update
Full company coverage including target price&recommendation
Company News and First Impression
Short comments on the new published important corporate actions
Company Profile
Teaser with short company's data for BelexLine's members
13
Acknowledgment
Acknowledgement
Appendix
Appendix
Raiffeisen banka a.d.
Djordja Stanojevica 16, 11070 New Belgrade, www.raiffeisenbank.rs
Treasury and Investment Banking Division
Branko Novakovic (Head), Tel: +381 11 2207 131
Research
Email: [email protected]
Tel: +381 11 2207 178
Ljiljana Grubic (Economic Research Specialist),
Email: [email protected]
Investment Banking Department
Milan Milekic (Head), Tel: +381 11 2207 571
Email: [email protected]
Treasury and Investment Banking Division
Joko-Lola Tomic (Deputy Head), Tel: +381 11 2207 145
Email: [email protected]
Capital Markets Department
Aleksandra Maksimovic (Head), Tel: +381 11 2207 142
Email: [email protected]
Brokerage
Uros Bulovic (Senior broker), Tel: +381 11 2207 141
Email: [email protected]
Custody Sales
Ivana Novakovic (Head), Tel: +381 11 2207 572
Email: [email protected]
14
Acknowledgement
Disclaimer
Appendix
Disclaimer Financial Analysis
Publisher: Raiffeisen Bank International AG
Supervisory authority: Austrian Financial Market Authority (FMA)
This document is for information purposes and may not be reproduced or distributed to other persons. This document constitutes neither a solicitation
of an offer nor a prospectus in the sense of the Austrian Capital Market Act (KMG) or the Stock Exchange Act or any other comparable foreign law.
An investment decision in respect of a security, financial product or investment must be made on the basis of an approved, published prospectus or
the complete documentation for the security, financial product or investment in question, and not on the basis of this document.
This document does not constitute a personal recommendation to buy or sell financial instruments in the sense of the Securities Supervision Act.
Neither this document nor any of its components shall form the basis for any kind of contract or commitment whatsoever. This document is not a
substitute for the necessary advice on the purchase or sale of a security, investment or other financial product. In respect of the sale or purchase of
securities, investments or financial products, your banking advisor can provide individualised advice which is suitable for investments and financial
products.
This analysis is fundamentally based on generally available information and not on confidential information which the party preparing the analysis
has obtained exclusively on the basis of his/her client relationship with a person.
Unless otherwise expressly stated in this publication, RBI deems all of the information to be reliable, but does not make any assurances regarding its
accuracy and completeness.
In emerging markets, there may be higher settlement and custody risk as compared to markets with established infrastructure. The liquidity of
stocks/financial instruments can be influenced by the number of market makers. Both of these circumstances can result in elevated risk in relation to
the safety of investments made on the basis of the information contained in this document.
The information in this publication is current, up to the creation date of the document. It may be outdated by future developments, without the
publication being changed.
Unless otherwise expressly stated (http://www.raiffeisenresearch.at/specialcompensation), the analysts employed by Raiffeisen Bank International
AG are not compensated for specific investment banking transactions. Compensation of the author or authors of this report is based (amongst other
things) on the overall profitability of RBI, which includes, inter alia, earnings from investment banking and other transactions of RBI. In general, RBI
forbids its analysts and persons reporting to the analysts from acquiring securities or other financial instruments of any enterprise which is covered by
the analysts, unless such acquisition is authorised in advance by RBI’s Compliance Department.
RBI has put in place the following organisational and administrative agreements, including information barriers, to impede or prevent conflicts of
interest in relation to recommendations: RBI has designated fundamentally binding confidentiality zones. Confidentiality zones are typically units
within credit institutions, which are delimited vis-à-vis other units by organisational measures covering the exchange of information, because
compliance-relevant information is continuously or temporarily handled there. Compliance-relevant information may fundamentally not leave a
confidentiality zone and is to be treated as strictly confidential in internal business operations, including interaction with other units. This does not
apply to the transfer of information necessary for usual business operations. Such transfer of information is limited, however, to what is absolutely
necessary (need-to-know principle). The exchange of compliance-relevant information between two confidentiality zones may only occur with the
involvement of the Compliance Officer.
SPECIAL REGULATIONS FOR THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND (UK):
This document does not constitute either a public offer in the meaning of the Kapitalmarktgesetz („KMG‚) nor a prospectus in the meaning of the
KMG or of the Börsegesetz. Furthermore this document does not intend to recommend the purchase or the sale of securities or investments in the
meaning of the Wertpapieraufsichtsgesetz. This document shall not replace the necessary advice concerning the purchase or the sale of securities or
investments. For any advice concerning the purchase or the sale of securities of investments kindly contact your RAIFFEISENBANK. Special regulations
for the United Kingdom of Great Britain and Northern Ireland (UK): this publication has been either approved or issued by Raiffeisen Bank
International AG (RBI) in order to promote its investment business. Raiffeisen Bank International AG, London Branch is authorised by the Austrian
Financial Market Authority and subject to limited regulation by the Financial Conduct Authority (‚FCA‛). Details about the extent of our regulation by
the Financial Conduct Authority are available from us on request. This publication is not intended for investors who are Retail Customers within the
meaning of the FCA rules and should therefore not be distributed to them. Neither the information nor the opinions expressed herein constitute or are
to be construed as an offer or solicitation of an offer to buy (or sell) investments. RBI may have affected an Own Account Transaction within the
meaning of FCA rules in any investment mentioned herein or related investments and or may have a position or holding in such investments as a
result. RBI may have been, or might be, acting as a manager or co-manager of a public offering of any securities mentioned in this report or in any
related security.
SPECIFIC RESTRICTIONS FOR THE UNITED STATES OF AMERICA AND CANADA: This document may not be transmitted to, or distributed within,
the United States of America or Canada or their respective territories or possessions, nor may it be distributed to any U.S. person or any person
resident in Canada, unless it is provided directly through RB International Markets (USA) LLC, a U.S. registered broker-dealer (‘RBIM’), and subject to
the terms set forth below.
SPECIFIC INFORMATION FOR THE UNITED STATES OF AMERICA AND CANADA: This research document is intended only for institutional investors
and is not subject to all of the independence and disclosure standards that may be applicable to research documents prepared for retail investors.
This report was provided to you by RB International Markets (USA) LLC, a U.S. registered broker-dealer (‘RBIM’), but was prepared by our non-U.S.
affiliate, Raiffeisen Bank International AG (RBI). Any order for the purchase or sale of securities covered by this report must be placed with RBIM. You
can reach RBIM at 1133 Avenue of the Americas, 16th Floor, New York, NY 10036, 212-600-2588. This document was prepared outside the
United States by one or more analysts who may not have been subject to rules regarding the preparation of reports and the independence of
research analysts comparable to those in effect in the United States. The analyst or analysts who prepared this research (i) are not registered or
qualified as research analysts with the Financial Industry Regulatory Authority (FINRA) in the United States, and (ii) are not allowed to be associated
persons of RBIM and are therefore not subject to FINRA regulations, including regulations related to the conduct or independence of research
analysts.
The opinions, estimates and projections contained in this report are those of RBI only as of the date of this report and are subject to change without
notice. The information contained in this report has been compiled from sources believed to be reliable by RBI, but no representation or warranty,
express or implied, is made by RBI or its affiliated companies or any other person as to the report’s accuracy, completeness or correctness. Securities
which are not registered in the United States may not be offered or sold, directly or indirectly, within the United States or to U.S. persons (within the
meaning of Regulation S under the Securities Act of 1933 [the ‘Securities Act’]), except pursuant to an exemption under the Securities Act. This report
does not constitute an offer with respect to the purchase or sale of any security within the meaning of Section 5 of the Securities Act and neither shall
this report nor anything contained herein form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. This report
provides general information only. In Canada it may only be distributed to persons who are resident in Canada and who, by virtue of their
exemption from the prospectus requirements of the applicable provincial or territorial securities laws, are entitled to conduct trades in the securities
described herein.
If any term of this Disclaimer is found to be illegal, invalid or unenforceable under any applicable law, such term shall, insofar as it is severable from
the remaining terms, be deemed omitted from this Disclaimer; it shall in no way affect the legality, validity or enforceability of the remaining terms.
15
`