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30.05.2008 - MDM Comment: Russia and CIS debt market
(for a pdf file pls see attachment)
SECONDARY MARKET COLOR AND PRIMARY DEALS
Eurobonds: In the secondary market we see some interest seen in the short- and medium-term bonds of Russian banks (URSAP, PROMBK, ROSBNK, RUSB). At the long end of the corporate curve, bond prices are softer following a continued rise in UST yields. TMENRU bonds are underperforming on the back of another wave of bad news about disagreements among TNK-BP shareholders and regulatory pressures on the company. We believe that now may be a good time to buy the TMENRU-GAZPRU spread as bad news concerning TNK-BP is usually followed by speculation about its takeover by Gazprom and respective spread tightening.
Ruble bonds: Generally flat and quiet market, with some bids appearing in second tier corporate and banking paper. Statements from the Central Bank’s officials about the likely further tightening of the monetary policy appear to be partially priced in, and also somewhat balanced by mild money market conditions and other statements of the regulator about the possibility of nominal ruble appreciation vs. the bi-currency basket. The Central Bank’s head said yesterday that the regulator’s bid/offer spread for the basket (currently 29.61-29.96) will very gradually widen.
NEWS, IDEAS AND COMMENTS
Russian Standard Bank (Ba2/BB-/BB-) CEO has made some comments with regard to the bank’s strategy going forward (Source: Prime-TASS). We perceive the statements as supportive for the bonds. The bank plans to slow down expansion and grow at 30-35% rate per year (in terms of assets) vs. a CAGR in 2004-2006 of over 100%. Russian Standard will focus on credit cards and cash loans with no immediate plans to go into mortgages. On the funding side, the key focus will be on strengthening the deposit base; syndicated loans and securitizations are also part of the plan for 2008. Bond issuance plans are very modest – a new RUB5 bn bond is possible in Sept-Oct 08 with no intentions to place new vanilla Eurobonds.
Novorossiysk port (Ba1/BB+) and X5 (B1/BB-) reported strong 1Q08 IFRS results, both showing good top line growth and a decline in leverage in terms of “Net Debt / EBITDA” to 1.6x and 2.6x, respectively. We are neutral on both the NOVORO 12 (7.75%) Eurobond issue and the ruble bond of X5 (9.7%).
Standard & Poor’s raised the ratings of Eurochem by one notch to BB, citing the positive pricing environment on fertilizers as a key factor behind the improved strength of the company’s credit profile. The EUCHEM 12 issue went higher yesterday following the rating news.
