MARKET SIGNALS 06.30.2020
IDEA #1: Petropavlovsk PLC
On June 23, 2020, S&P upgraded the rating of the gold mining company Petropavlovsk PLC from B- to B with a "stable" outlook. "The upgrade is a recognition of the progress made by the company in several key areas, including ensuring strong operating performance, following its strategy, and reducing its debt burden," S&P notes. "We expect that Petropavlovsk will continue to show stable results in 2020-2021 due to the stabilization of operations and favorable gold prices," the press release said.
According to the agency’s forecast, Petropavlovsk will maintain the net debt to EBITDA ratio at the target level (below 2x), as well as maintain an acceptable level of liquidity, including through active refinancing of bonds with maturity in 2022.
The company's Eurobond yield maturing in 2022 pretty steadily declined throughout 2019 (see the chart below), reaching 5.0% at the end of February this year. It is curious that now it is about the same value (5.2%), however, the credit spread of the issue expanded from February 24, 2020 from 375 to 501 bp. item, which looks illogical given the gold that has risen in price since then. In this regard, we expect a decrease in the yield of the Petropavlovsk Eurobonds with maturity in November 2022 to levels below 5%.
Alexey Shternshis
Joint Managing Director
Capital Pi