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16.04.2008 - MDM Comment: Russia and CIS debt market

Eurobonds: RUSSIA 30 is trading inside 170bp spread wise this morning after a sell-off in UST. No major activity in corporates. Evraz is due to announce a price-talk on the deal, which is currently marketed. We wouldn’t rule out some downward pressure in longer-dated corporate issues once the price-talk is announced.
Ruble bonds: Sentiment in local bonds is increasingly positive as more people realize that quarterly VAT payments won’t create any major liquidity squeeze in the system. The news-flow regarding the state support of the banking system continues. MinFin appears to be ready to launch its first auction of budget cash sale to banks. Higher rated banks will bid for 4-week money; the floor for rates will be set at 7%. State Utilities Corp and Pension Fund continue to push for their cash to be placed at commercial banks. Quite a few 2nd tier names will make new bond offerings this week. The effective tenor is still restricted to 1 year as people fear long duration.
Moody’s has resolved the review of its Evraz rating (Ba2) by revising its outlook to “Negative”. The rating agency acknowledges that M&A deals announced by Evraz so far will not push its “Net Debt/pro forma EBITDA” beyond 1.5x. However, Moody’s is concerned with risks related to integration of new assets, potential new acquisitions and refinancing. While we don’t necessarily agree with Moody’s decision, we note that the outlook revision may add to the selling pressure in EVRAZ 15.
Bank Saint Petersburg (Ba3/NR/B) has reported strong 2007 IFRS results. The bank, which has strong ties with the City of St.Petersburg administration, doubled its assets in 2007. The growth was achieved due to a successful IPO as well as an apparent migration of deposit base from other banks in the region. Interest and profitability margins have slightly deteriorated but still look fine. We are neutral on the bank’s STPETE ’09 (9.7%) and STPETE 17_12 (13%) issues. We note that the bank will very likely be upgraded by Fitch in the coming weeks.
Eurochem (NR/BB-BB-) has reported strong 2007 IFRS results. The strong pricing environment for fertilizers has boosted the company’s revenues (RUB74bn; +38%) and EBITDA margin (30% vs 22% in 2006). The company showed a strong positive free cash flow and accumulated a cash position which exceeds its outstanding debt. While we very much like the credit profile of Eurochem, we are not particularly attracted by its EUCHEM 12 Eurobond issue (8.3%).

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16.04.2008 14:12
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