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12.03.2008 - MDM Comment: Russia and CIS debt market

(for a pdf version of the Comment pls see enclosed file)
Eurobonds: We see low liquidity in corporate bonds, generally a cautious stance and no reaction to the news regarding Russia’s rating outlook revision by S&P. RUSSIA 30 spread has tightened to 177bp on the back of a rally in UST triggered by FED actions. Two quasi-sovereign banks – Russian Agricultural Bank (A3/BBB+) and Transcreditbank (Ba1/BB) – are on the road marketing potential new deals in CHF and USD, respectively.
Ruble bonds: Selling in liquid bonds continues, despite the fact that money market conditions are yet relatively benign. Investors are concerned about the new issuance overhang as well as likely liquidity problems at the end of March and in April (tax payments, capital outflow) . Bond yields across all sectors are updating their historical highs. MinFin will today try to place RUB 25bn worth of long-dated OFZs amid fears of long duration. The auctions may fail as they did last week. Investors are buying only short-dated papers with a specific focus on those from the Central Bank’s Lombard list. There are a few new ruble issues currently marketed. For instance, a Baa2/BB+ rated subsidiary of SocGenRusfinance Bank – is offering a ruble bond with a 10-12% price talk, which gives another indication of the depth of the ongoing re-pricing (a year ago Rusfinance would have paid less than 8%).
Brief: Following the Russia’s sovereign rating outlook revision, S&P revised rating outlook on the City of Moscow (BBB+/Positive), leaving the rest of the Russian quasi-sovereign issuer ratings (including Gazprom and VTB) unchanged. We believe that S&P will think for another 6-12 months before taking Russia to the A-category. Fitch, in our view, is likely to follow the same path. Moody’s still maintains Russia at Baa2, hence there is room for an upgrade before moving into A-category.
Brief: Evraz (Ba3/BB-) is reportedly looking to buy a pipe-making division of a US-based Ipsco for up to USD5bn (Source: Vedomosti). Since those are just rumors and we yet don’t know any details of the potential transaction, it is perhaps too early to discuss its credit implications for Evraz. It is worth mentioning though, that previously Evraz always managed to preserve its ratings, despite numerous M&A-deals. Still, we do not rule out some selling in EVRAZ 15 issue on the back of the news.
Brief: Second tier consumer goods/retail companies – Holiday and Unimilk – have reportedly sold or are looking to sell some equity to funds to support balance sheets. Local bonds of both companies are quite illiquid, trading in the 11-13% range. We don’t view those as attractive, despite credit-positive news.

PDF MDM FI Morning Comment 12.03.2008
Adobe Acrobat document, 93 Kb
13.03.2008 13:31
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