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26.10.2006 - MDM Comment: Russia and CIS debt market

Brief: Rosneft (Baa2/BB/BB+) plans to raise USD24bn in short-term loans from foreign banks to finance buy-out of YUKOS assets which are currently on sale under bankruptcy procedures (Source: Dow Jones, Vedomosti). We believe that such a massive new supply of Russia’s quasi-sovereign risk may push banks to sell their exposure to Russian sovereign or other quasi-sovereign names or buy CDS, which may result into a short-term spread widening.
Brief: President Putin during his public q&a session said that he is encouraging to speed up the process of consolidation of Russia’s aircraft construction companes into United Aircraft Corporation. Mr. Putin criticized both the government and companies involved for delays. We believe that the likely acceleration of the process is good news for the bondholders of MiG (NR), Irkut (B1 Moody’s) and other companies (NPO Saturn (NR), Salut (NR)) that are due to shape UAC, since following the consolidation likelihood of government support with regard to these companies is likely to increase.
Brief: Fitch revised Ukraine(Ba3/BB-/BB-)’s outlook from “Stable” to “Positive” and subsequently took a similar rating action with regard to 5 banks. Fitch highlights Ukraine’s solid economic growth supported by rising investment and consumption. Fitch also notes Ukraine’s ability to absorb gas price increases, improved political environments and strength of fiscal numbers. We think that Fitch’s action is an important signal for many investors to start gradually revising their negative credit views on Ukraine.
Brief: In a separate rating action Fitch placed Naftogaz “B+” rating on CreditWatch “Negative”, questioning ability of the gov-t to pass through offtake gas price onto end-consumers and support Naftogaz with cash injections in case of need. We tend to agree with Fitch that Naftogaz’s financial performance is likely to remain very poor, but think that the state will provide necessary support in order to avoid a public default of Ukraine’s larget corporate.
Eurobonds: another quiet day on Wednesday in anticipation of the FOMC decision. This morning the bonds traded up to reflect the upward move of UST following the release of FOMC comments. Russia 30 is maintaining its spread at around 106-108bp.
Ruble bonds: ruble bonds remained under pressure from high overnight rates and tight liquidity conditions. The amount of cash in the banking system dropped by RUR61bn and reached 403bn, while there are more tax payments before the end of month. The Central Bank is still avoiding currency interventions in FX market. We may see the reversal of the trend only at the beginning of next week, when liquidity conditions are expected to improve. Intense new issuance from corporates continues. Gazprom (Baa1/BBB-/BBB) announced two new rouble issues.

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20.02.2008 15:59
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