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30.10.2006 - MDM Comment: Russia and CIS debt market

(for a pdf version of the Comment pls see enclosed file)
Sistema (1/-/+) is reportedly in talks with Goldman Sachs to sell a stake in MBRD (1/NR/B). We like the MBRD 2016_11 (YTW 9.50%) issue.  See page 2.
Brief: Founding shareholders/managers of WBD (B2/B+/NR) intend to sell around 10% of shares in the local market. We think the news has a slightly negative flavour, but unlikely to have any material impact on the credit profile of the company. Sale of shares by the management is never an encouraging sign. Also, market cap of WBD is likely to decline as the shares are being sold with a discount to the market price. The company’s cash flows will obviously be unaffected by the share sale.
Brief: RAO UES (+ S&P) has approved a USD2.1bln share sale of Mosenergo (/Pos S&P) in favour of Gazprom (1/-/). Gazprom has been for a while looking to obtain a controlling stake in the key generation utility in the Moscow region. It appears that certain obstacles threatening the deal have now been removed. As we understand the deal will be closed in 1H 2007 following certain corporate procedures. As a result Gazprom’s stake in Mosenergo will increase to around 51%, while RAO UES will reduce its holding from 52% to around 25%. Mosenergo is then likely to be upgraded by at least 2 notches. At the same time its rouble bonds already price in the move to a stronger parent as they trade almost flat to FGC-HydroOGK curve.
Russian Eurobonds traded up on Friday, following UST. Russia 30 added around ¼ and reached 112.0. In the corporate segment longer-dated Gazprom 34, Evraz 15 and Severstal 14 were among the top performers. Two new deals were closed on Friday – VTB priced its USD1.75bn 21 month FRN at LIBOR+60bp. Russian construction company Don-Stroi (NR) closed its debut 2-year CLN deal at 10.0%, cutting the size from initially planned USD175-200mln to USD150mln. The issue was priced around 75bp over another Russian construction major Mirax (NR). We think this is fair given lower financial transparency of Don-Stroi.
Ruble bonds: the market is still under pressure due to deteriorating rouble liquidity conditions. Overnight rates on Friday reached 8.5-9.0%. Banks borrowed some 84bln roubles at the Central Bank to support their liquidity position, which is a very significant amount. Surprisingly, the Central Bank hasn’t yet been forced to buy foreign currency. As we discussed in our previous comments, this may be a result of a speculative FX game pursued by Russia’s large banks, as well as a signal that we may be having a capital outflow due to lower oil price and weakened view on the rouble (see NDF chart on this page which is currently reflecting expectations that rouble will weaken against the basket of USD and EUR). Bond prices were relatively stable on Friday with very few sellers as liquidity pressure was partly offset by bullish sentiment in the Eurobonds.

PDF MDM FI Morning Comment 30.10.2006
Adobe Acrobat document, 138 Kb
20.02.2008 15:59
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