Bank Tabungan Negara Persero (BBTN IJ) appears to have a nasty combination of high Special Mention Loans (SMLs) and elevated “past due but unimpaired Loans”.
The implication is that provisioning levels are insufficient in an environment of eroding asset quality.
But the bank continues to grow credit by around 20% YoY.
The bank is hugely exposed to the retail real estate market (91% of Loans).
In fact, the Indonesian Banking Sector is rife with high SMLs and in some cases elevated “past due but unimpaired Loans”.
SMLs are traditionally associated with Chinese under-reporting of underlying bad loans, and hence the production of a somewhat flattering Asset Quality picture.
Maybe, the health and valuation of the Indonesian Banking Sector needs to be reassessed with implications for IDR.
NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.
Exhibit 1: NextDecade adds Brent indexation to its commercial offering
Source: NextDecade Corporate Presentation February 2019
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Bank Tabungan Negara Persero (BBTN IJ) appears to have a nasty combination of high Special Mention Loans (SMLs) and elevated “past due but unimpaired Loans”.
The implication is that provisioning levels are insufficient in an environment of eroding asset quality.
But the bank continues to grow credit by around 20% YoY.
The bank is hugely exposed to the retail real estate market (91% of Loans).
In fact, the Indonesian Banking Sector is rife with high SMLs and in some cases elevated “past due but unimpaired Loans”.
SMLs are traditionally associated with Chinese under-reporting of underlying bad loans, and hence the production of a somewhat flattering Asset Quality picture.
Maybe, the health and valuation of the Indonesian Banking Sector needs to be reassessed with implications for IDR.
NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.
Exhibit 1: NextDecade adds Brent indexation to its commercial offering
Source: NextDecade Corporate Presentation February 2019
London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
There is still little awareness about the rising deflation risk
Interest in the trade war has subsided
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Bank Tabungan Negara Persero (BBTN IJ) appears to have a nasty combination of high Special Mention Loans (SMLs) and elevated “past due but unimpaired Loans”.
The implication is that provisioning levels are insufficient in an environment of eroding asset quality.
But the bank continues to grow credit by around 20% YoY.
The bank is hugely exposed to the retail real estate market (91% of Loans).
In fact, the Indonesian Banking Sector is rife with high SMLs and in some cases elevated “past due but unimpaired Loans”.
SMLs are traditionally associated with Chinese under-reporting of underlying bad loans, and hence the production of a somewhat flattering Asset Quality picture.
Maybe, the health and valuation of the Indonesian Banking Sector needs to be reassessed with implications for IDR.
NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.
Exhibit 1: NextDecade adds Brent indexation to its commercial offering
Source: NextDecade Corporate Presentation February 2019
Prabowo again squandered a chance in a debate to gain ground, as Widodo appeared more confident and in command. Prabowo’s incessant efforts to sow fear of foreigners does little to weaken his opponent. Widodo’s lead was intact as of late January, despite claims from two pollsters (Indomatrik, Median) who are demonstrably unreliable or even fraudulent. Lippo Group owner James Riady suffered repudiation: after having testified in court that he met the Bekasi District chief by coincidence and did not discuss his Meikarta project with her, KPK prosecutors played a phone recording that shows otherwise. BI has held rates steady, citing the current account deficit after a gaping January trade deficit. The government continues its efforts to sack more than 2,000 civil servants who are corruption convicts. Repsol discovered gas in South Sumatra.
Politics: The second of five debates in the presidential election marked another missed opportunity for Gerindra Chair Prabowo Subianto to gain ground on President Joko Widodo. Instead, the incumbent again landed blows that hurt the retired general, highlighting his unfamiliarity with e-commerce jargon and drawing attention to his land assets measuring 340,000 ha. For his part, Prabowo pointedly projected a conciliatory demeanor, perhaps to dispel perceptions that he is temperamental, but it squandered a chance to assail the incumbent and thereby persuade voters to opt for change. Prabowo adhered to form by advocating protectionism and expansion of state involvement in the economy. He used nearly every answer to disparage foreigners, which is an error: sowing suspicion of foreigners does little to weaken his opponent (Page 2) (Transcript translated by Ref Wkly, p. 8). Hard‑line Islamic groups convened again in Jakarta (p. 3).
Surveys: In the July 2014 election, the Center for Strategic Development and Policy Studies (Puskaptis) performed a Quick Count survey of ballot‑station results that declared Prabowo the winner, and the Association of Polling Firms (Persepsi) ousted Puskaptis from its ranks. But the head, Hasan Yazid, has re‑emerged as the founder of Indomatrik, another purported polling firm. Yazid claims to have findings showing Prabowo’s support on par with Widodo’s. Along with supposed findings from another obscure agency, Median, this is injecting confusion into perceptions of the presidential election. In fact, two reputable agencies determined in late January that Widodo’s lead was intact (p. 4).
Justice: In the Meikarta‑Lippo bribery scandal, prosecutors dispute the testimony provided in court last month by group owner James Riady (p. 5). Information Minister Rudiantara faced questioning from the Election Oversight Agency (Bawaslu) for having jested, in an event with ministry personnel, about preferences for presidential tickets (p. 7).
Policy News: Cabinet members are preparing measures that will finally force regional officials to sack civil servants convicted of corruption (p. 7).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
Energy: Spain’s Repsol announced the largest gas discovery in 18 years – a reservoir in Musi Banyuasin, South Sumatra measuring two trillion cubic feet (p. 8).
Economics: Bank Indonesia (BI) kept its benchmark rate unchanged at 6.0% (p. 9).
Appendix: The presidential candidates debated the topics of infrastructure, the environment and natural resources on 17 February (transcript and analysis, p. 9).
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The presidential race is unchanged as data from a premier polling firm, SMRC, shows a 26 percentage point lead for Widodo. Thus far only one poll has shown a narrow lead — 12 percent, according to Kompas — but until other data corroborates this, it appears to be an outlier that does not change the outlook. Widodo is heavily touting the MRT opening, but provincial leaders are struggling to set a tariff rate — it will therefore still be free when it opens for public use on 25 March. The Religion Ministry appointments-graft scandal threatens to implicate the minister. Trade acrimony with the EU is escalating. West Java Governor Ridwan Kamil, a 2024 presidential contender, garnered negative publicity for appointing relatives. Legislators and stakeholders are clamoring for government progress on a draft Bill on Personal Data Protection.
Politics: Eager to maximize advantages from the imminent commercial start of Jakarta’s Mass Rapid Transit (MRT) line, President Joko Widodo claimed credit for having made a “political decision” to take on the project’s cost. In fact, the magnitude of those costs to the province remains unclear: three days from the start of operations, policymakers have yet to set the tariff for riders (Page 2). The corruption scandal enveloping the Islamic United Development Party (PPP) – at the worst possible time in the election cycle – could further depress the clout of Islamic interests in the next parliament (p. 3). West Java Governor Ridwan Kamil invited criticism by appointing two relatives to a high-profile Development Acceleration Team (TAP) under his aegis (p. 4).
Surveys: The large lead for President Joko Widodo appears intact, based on findings from three recent polls, although one reputable agency produced divergent results. Widodo has a lead of at least 19 percentage points according to three surveys in late February and March: in addition to the Survey Network (LSI) and Alvara Research (discussed in recent Ref Wkly editions), new data has emerged from Saiful Mujani Research and Consulting (SMRC) placing Widodo’s margin over Prabowo at 26 percentage points. A poll conducted simultaneously by Kompas measured the lead at only 12 percentage points – but until other polling corroborates this, it constitutes an outlier that lacks significance. In any event, even if Widodo’s lead has shrunk as much as Kompas claims, he would still enjoy a comfortable cushion (p. 4).
Justice: Religion Minister Lukman Saefuddin is under scrutiny after investigators discovered Rp600 million in cash in his office desk drawer. Meanwhile, former PPP Chair Romahurmuziy failed to appear for questioning as a suspect (p. 7).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
Policy News: Public officials clamored for a long-awaited Bill on Protecting Personal Data (RUU PDP) (p. 8). Energy Minister Ignatius Jonan welcomed a parliamentary suggestion to subsidize the higher-octane petroleum product Pertamax, rather than Premium – but he remained noncommittal about implementation (p. 9).
Infrastructure: Jakarta’s governor rejected suggestions from provincial legislators that the MRT should be free, or at least free for Jakarta residents (p. 10).
International: Policymakers denounced the European Union (EU) for allegedly discriminating against biodiesel from crude palm oil (CPO). The planned Comprehensive Partnership Agreement with Europe (IEU‑Cepa) could be at risk (p. 11).
The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.
US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.
All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.
On Petrus
Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.
Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.
On Sand Grove/Coro
Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.
Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.
Trading Tight – Upside Less Assured
Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.
The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.
INVESTMENT VIEW: The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia. As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR).
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NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.
Exhibit 1: NextDecade adds Brent indexation to its commercial offering
Source: NextDecade Corporate Presentation February 2019
Prabowo again squandered a chance in a debate to gain ground, as Widodo appeared more confident and in command. Prabowo’s incessant efforts to sow fear of foreigners does little to weaken his opponent. Widodo’s lead was intact as of late January, despite claims from two pollsters (Indomatrik, Median) who are demonstrably unreliable or even fraudulent. Lippo Group owner James Riady suffered repudiation: after having testified in court that he met the Bekasi District chief by coincidence and did not discuss his Meikarta project with her, KPK prosecutors played a phone recording that shows otherwise. BI has held rates steady, citing the current account deficit after a gaping January trade deficit. The government continues its efforts to sack more than 2,000 civil servants who are corruption convicts. Repsol discovered gas in South Sumatra.
Politics: The second of five debates in the presidential election marked another missed opportunity for Gerindra Chair Prabowo Subianto to gain ground on President Joko Widodo. Instead, the incumbent again landed blows that hurt the retired general, highlighting his unfamiliarity with e-commerce jargon and drawing attention to his land assets measuring 340,000 ha. For his part, Prabowo pointedly projected a conciliatory demeanor, perhaps to dispel perceptions that he is temperamental, but it squandered a chance to assail the incumbent and thereby persuade voters to opt for change. Prabowo adhered to form by advocating protectionism and expansion of state involvement in the economy. He used nearly every answer to disparage foreigners, which is an error: sowing suspicion of foreigners does little to weaken his opponent (Page 2) (Transcript translated by Ref Wkly, p. 8). Hard‑line Islamic groups convened again in Jakarta (p. 3).
Surveys: In the July 2014 election, the Center for Strategic Development and Policy Studies (Puskaptis) performed a Quick Count survey of ballot‑station results that declared Prabowo the winner, and the Association of Polling Firms (Persepsi) ousted Puskaptis from its ranks. But the head, Hasan Yazid, has re‑emerged as the founder of Indomatrik, another purported polling firm. Yazid claims to have findings showing Prabowo’s support on par with Widodo’s. Along with supposed findings from another obscure agency, Median, this is injecting confusion into perceptions of the presidential election. In fact, two reputable agencies determined in late January that Widodo’s lead was intact (p. 4).
Justice: In the Meikarta‑Lippo bribery scandal, prosecutors dispute the testimony provided in court last month by group owner James Riady (p. 5). Information Minister Rudiantara faced questioning from the Election Oversight Agency (Bawaslu) for having jested, in an event with ministry personnel, about preferences for presidential tickets (p. 7).
Policy News: Cabinet members are preparing measures that will finally force regional officials to sack civil servants convicted of corruption (p. 7).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
Energy: Spain’s Repsol announced the largest gas discovery in 18 years – a reservoir in Musi Banyuasin, South Sumatra measuring two trillion cubic feet (p. 8).
Economics: Bank Indonesia (BI) kept its benchmark rate unchanged at 6.0% (p. 9).
Appendix: The presidential candidates debated the topics of infrastructure, the environment and natural resources on 17 February (transcript and analysis, p. 9).
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.
Exhibit 1: NextDecade adds Brent indexation to its commercial offering
Source: NextDecade Corporate Presentation February 2019
Prabowo again squandered a chance in a debate to gain ground, as Widodo appeared more confident and in command. Prabowo’s incessant efforts to sow fear of foreigners does little to weaken his opponent. Widodo’s lead was intact as of late January, despite claims from two pollsters (Indomatrik, Median) who are demonstrably unreliable or even fraudulent. Lippo Group owner James Riady suffered repudiation: after having testified in court that he met the Bekasi District chief by coincidence and did not discuss his Meikarta project with her, KPK prosecutors played a phone recording that shows otherwise. BI has held rates steady, citing the current account deficit after a gaping January trade deficit. The government continues its efforts to sack more than 2,000 civil servants who are corruption convicts. Repsol discovered gas in South Sumatra.
Politics: The second of five debates in the presidential election marked another missed opportunity for Gerindra Chair Prabowo Subianto to gain ground on President Joko Widodo. Instead, the incumbent again landed blows that hurt the retired general, highlighting his unfamiliarity with e-commerce jargon and drawing attention to his land assets measuring 340,000 ha. For his part, Prabowo pointedly projected a conciliatory demeanor, perhaps to dispel perceptions that he is temperamental, but it squandered a chance to assail the incumbent and thereby persuade voters to opt for change. Prabowo adhered to form by advocating protectionism and expansion of state involvement in the economy. He used nearly every answer to disparage foreigners, which is an error: sowing suspicion of foreigners does little to weaken his opponent (Page 2) (Transcript translated by Ref Wkly, p. 8). Hard‑line Islamic groups convened again in Jakarta (p. 3).
Surveys: In the July 2014 election, the Center for Strategic Development and Policy Studies (Puskaptis) performed a Quick Count survey of ballot‑station results that declared Prabowo the winner, and the Association of Polling Firms (Persepsi) ousted Puskaptis from its ranks. But the head, Hasan Yazid, has re‑emerged as the founder of Indomatrik, another purported polling firm. Yazid claims to have findings showing Prabowo’s support on par with Widodo’s. Along with supposed findings from another obscure agency, Median, this is injecting confusion into perceptions of the presidential election. In fact, two reputable agencies determined in late January that Widodo’s lead was intact (p. 4).
Justice: In the Meikarta‑Lippo bribery scandal, prosecutors dispute the testimony provided in court last month by group owner James Riady (p. 5). Information Minister Rudiantara faced questioning from the Election Oversight Agency (Bawaslu) for having jested, in an event with ministry personnel, about preferences for presidential tickets (p. 7).
Policy News: Cabinet members are preparing measures that will finally force regional officials to sack civil servants convicted of corruption (p. 7).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
Energy: Spain’s Repsol announced the largest gas discovery in 18 years – a reservoir in Musi Banyuasin, South Sumatra measuring two trillion cubic feet (p. 8).
Economics: Bank Indonesia (BI) kept its benchmark rate unchanged at 6.0% (p. 9).
Appendix: The presidential candidates debated the topics of infrastructure, the environment and natural resources on 17 February (transcript and analysis, p. 9).
China implements coal import caps specifically targeting Australian producers
Unclear as to how widespread these restrictions will eventually be
Thermal and metallurgical coal exports affected
Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP
Actions appear to be a response to blocking Huawei bidding for the 5G network
Recent Chinese cyber-attacks harden Australian Government’s resolve
Expect similar Chinese measures (in time) to be applied to other commodities and industries
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Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.
The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.
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The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.
US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.
All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.
On Petrus
Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.
Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.
On Sand Grove/Coro
Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.
Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.
Trading Tight – Upside Less Assured
Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.
The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.
INVESTMENT VIEW: The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia. As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR).
A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.
4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.
Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously.
The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL.
4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18.
The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.
The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.
After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates.
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US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.
All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.
On Petrus
Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.
Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.
On Sand Grove/Coro
Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.
Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.
Trading Tight – Upside Less Assured
Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.
The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.
INVESTMENT VIEW: The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia. As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR).
A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.
4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.
Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously.
The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL.
4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18.
The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.
The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.
After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates.
New York based activist investor firm Starboard Value has been intricately involved in shaping the fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.
In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.
On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer.
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Prabowo again squandered a chance in a debate to gain ground, as Widodo appeared more confident and in command. Prabowo’s incessant efforts to sow fear of foreigners does little to weaken his opponent. Widodo’s lead was intact as of late January, despite claims from two pollsters (Indomatrik, Median) who are demonstrably unreliable or even fraudulent. Lippo Group owner James Riady suffered repudiation: after having testified in court that he met the Bekasi District chief by coincidence and did not discuss his Meikarta project with her, KPK prosecutors played a phone recording that shows otherwise. BI has held rates steady, citing the current account deficit after a gaping January trade deficit. The government continues its efforts to sack more than 2,000 civil servants who are corruption convicts. Repsol discovered gas in South Sumatra.
Politics: The second of five debates in the presidential election marked another missed opportunity for Gerindra Chair Prabowo Subianto to gain ground on President Joko Widodo. Instead, the incumbent again landed blows that hurt the retired general, highlighting his unfamiliarity with e-commerce jargon and drawing attention to his land assets measuring 340,000 ha. For his part, Prabowo pointedly projected a conciliatory demeanor, perhaps to dispel perceptions that he is temperamental, but it squandered a chance to assail the incumbent and thereby persuade voters to opt for change. Prabowo adhered to form by advocating protectionism and expansion of state involvement in the economy. He used nearly every answer to disparage foreigners, which is an error: sowing suspicion of foreigners does little to weaken his opponent (Page 2) (Transcript translated by Ref Wkly, p. 8). Hard‑line Islamic groups convened again in Jakarta (p. 3).
Surveys: In the July 2014 election, the Center for Strategic Development and Policy Studies (Puskaptis) performed a Quick Count survey of ballot‑station results that declared Prabowo the winner, and the Association of Polling Firms (Persepsi) ousted Puskaptis from its ranks. But the head, Hasan Yazid, has re‑emerged as the founder of Indomatrik, another purported polling firm. Yazid claims to have findings showing Prabowo’s support on par with Widodo’s. Along with supposed findings from another obscure agency, Median, this is injecting confusion into perceptions of the presidential election. In fact, two reputable agencies determined in late January that Widodo’s lead was intact (p. 4).
Justice: In the Meikarta‑Lippo bribery scandal, prosecutors dispute the testimony provided in court last month by group owner James Riady (p. 5). Information Minister Rudiantara faced questioning from the Election Oversight Agency (Bawaslu) for having jested, in an event with ministry personnel, about preferences for presidential tickets (p. 7).
Policy News: Cabinet members are preparing measures that will finally force regional officials to sack civil servants convicted of corruption (p. 7).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
Energy: Spain’s Repsol announced the largest gas discovery in 18 years – a reservoir in Musi Banyuasin, South Sumatra measuring two trillion cubic feet (p. 8).
Economics: Bank Indonesia (BI) kept its benchmark rate unchanged at 6.0% (p. 9).
Appendix: The presidential candidates debated the topics of infrastructure, the environment and natural resources on 17 February (transcript and analysis, p. 9).
Petrus (again) highlighted the premature termination of the Fortuna licence. Ophir announced a $300mn non-cash impairment in early January following the denial of the license extension for the Fortuna project in Equatorial Guinea (EG), having previously written down $310mn back in September. Ophir had invested ~US$700mn in the licence. Petrus accused Schrader of dropping the ball after the departure of CEO Nick Cooper in April 2018, who held key businesses relationships in EQ.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.
Furthermore, Petrus reckons no marketing effort has been for the Mexican license and the 20% ownership in Blocks 1 & 2 in Tanzania, which together have low-end value of $60mn (£0.065/share). Petrus added that Schrader had not actively solicited and considered alternative offers from other buyers; together with stonewalling demands for Ophir to return capital to shareholders.
Petrus signed off its latest salvo with a cordial “This is your final reminder to preserve and build value. We reserve all our legal rights in this situation“.
Further stirring the pot is alternative hedge fund Sand Grove, who has increased its exposure, via cash-settled derivatives, to 17.28% (as at13 February), up from 6.79% on the 1st February. I have heard, but yet to confirm, there are other shareholders seeking to disrupt this Offer. Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
Trading marginally through terms. Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears tenuous.
Medco has the option to switch into a Takeover Offer, which in theory could be conditional on a 50% acceptance level, if Medco was in any way inclined to maintain Ophir’s listing. And a switch to a Tender Offer with a reduced shareholder condition, may further flesh out an alternative bidder to come over the top.
Ophir appears a worthwhile punt up at or just below terms. The next key event is the expected issuance of the Scheme booklet on the 28 February.
Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.
The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.
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