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31.10.2006 - MDM Comment: Russia and CIS debt market
(for a pdf version of the Comment pls see enclosed file)
NEWS, IDEAS AND COMMENTS
NKNK’s (B2/NR/B+) Board of Directors has approved a massive new share issue. If major shareholders approve the deal and participate in the new issue, we would view this as credit positive. However, other less creditor-friendly scenarios are also possible. SINEK’s (Ba1/NR/BB-) and TAIF’s (NR) credit profiles could also be affected. Page 2.
Brief: Minfin has proposed to increase budget expenditure in 4Q of 2006 by RUR160 billion. While this could spiral up inflation early next year, for the rouble bond market this should be a positive event, as additional expenditure will add to the rouble liquidity and result into lower short-term rates.
Brief: Uralsvyazinform (NR/BB-/B+) has received back dated tax claims of RUR600 mln for 2003-04. We remind that essentially all fixed-line telecoms in Svyazinvest group have already received similar claims. Experience (Dalsvyaz) shows that tax authorities will most likely prove they are right, but court trial may take up to 1.5-2 years. Also, the amount is insignificant for URSI, hence bondholders shouldn’t worry.
Brief: TMK (B2/B+/NR) has successfully completed IPO, having placed shares at the higher end of the price range. The holding company will raise around US$1.1bn, which would effectively mean that TMK will receive proceeds to redeem a large portion of its debt. We expect S&P to shortly revise its outlook on TMK (currently on Negative outlook), while Moody’s may actually upgrade the company (currently on Positive outlook). While good news seem to be already priced in, there could be some reaction to the rating actions.
Brief: WBD (B2/B+/NR) has bought a milk producer in Siberia. We estimate the price tag on the deal around USD20-30m. We believe this won’t have any material impact on WBD’s credit profile.
MARKET COLOR
Eurobonds: Russia 30 traded down yesterday, widening a couple basis points over UST. We remind that the planned massive USD24bn borrowing by Rosneft (Baa2/BB/BB+) could be one of the reasons behind spread widening. Activity in the corporate segment remains low. In the primary market the following issues are currently marketed: Sberbank (A2/NR/BBB) 5-year benchmark, Sibacadembank (B1/NR/B) and debut issue from Bank St-Petersburg (B1/NR/B).
Ruble bonds: the market is still under severe pressure from tightened liquidity conditions and high overnight rates (around 10%). Today is the last day of tax payments, and since tomorrow we expect the liquidity conditions to gradually improve. Trading activity is very low – investors don’t want to sell in anticipation of stronger market. Also, a lot of paper is collateralized under REPO operations.
