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29.08.2008 - MDM Comment: Interim Reports; Deposit Auction; Sistema; bank sale

A number of Russian companies presented their 1H08 IFRS results yesterday and this morning, including Evraz (Ba2/BB-), X5 (B1/BB-), Gallery Group (Caa1/B-), Integra Group (NR) and Bank Vozrozhdenie (Ba3/BB-). We did not find anything exciting in the released financials from a credit perspective, and definitely nothing that could trigger a name-specific price move in the bonds.
Instead we would like to draw your attention to an interesting deposit auction that took place yesterday. One of the state-controlled development institutions (Fund ZhKH) placed RUB20 bn in deposits at Russia's largest banks on a competitive basis. The auction was oversubscribed and three-month cash was allocated at 10.95%, while the winners of 12-month deposits had to offer 12.37%.
The public announcement of the auction results has immediately triggered analyst calls to further re-price the ruble bonds of Russian financial institutions, as well as the broader market. We only partially agree with this, as we take into account the following considerations: First, deposit money is commission-free, and second, banks are trying to diversify away from wholesale capital markets in their funding structure, hence ceteris paribus they are willing to pay more for deposits vs. bonds.
To conclude our brief comment, we note that S&P raised Sistema and its subsidiary MTS one notch to "BB", highlighting solid financial and operating performance. Also, China's ICBC is reportedly finalizing the acquisition of Rosevrobank (B1), a mid-sized Russian bank. The rumored price tag of USD800-850, or almost a 4X multiple to equity value, suggests that it is definitely not a distressed asset liquidation – a good sign for the Russian banking sector.

29.08.2008 13:39
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