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09.06.2008 - MDM Comment: Russia and CIS debt market
(for a pdf file pls see attachment)
SECONDARY MARKET COLOR AND PRIMARY DEALS
Eurobonds: The primary market appears to be the only source of excitement, as activity in the secondary market remains muted. We expect to hear details of the new issues from HCFB and AK BARS today. We assume these two deals to be priced early this week, as Russia goes on a long weekend after Wednesday. Other banks that have announced intentions to issue Eurobonds in the coming weeks are Sberbank (A2/BBB+), Promsvyazbank (Ba2/B+) and Transcredit Bank (Ba1/BB). High yield names are also appearing on the radar (developer KD Group, rated B- by S&P, announced a debut CLN deal).
Ruble bonds: Relatively flat and quiet secondary market trading. Money market conditions remain benign. The new issuance pipeline is building very quickly as corporates and banks rush to offer new bonds before sentiment turns down again and/or investors leave on vacations. The upcoming new issues include bonds from Russian Agricultural Bank, Renaissance Credit, NOMOS Bank, Bank Zenit, MTS, VimpelCom, X5 Retail, Bank MIA and some others. We see value at looking into new deals, as well as those bonds in the secondary market approaching put option dates (at least a dozen bonds each week). Respective issuers are announcing new coupons for subsequent periods, usually trying to persuade investors to keep holding the bonds. In essence, this is very much similar to re-issuance, so one may be able to find good yield pick-ups in such bonds.
NEWS, IDEAS AND COMMENTS
Gazprom (A3/BBB) has cancelled its takeover of SUEK (NR) and, reportedly, will not acquire any equity in TNK-BP (Baa2/BB+). According to Russian newspapers, the key reason for the widely discussed deals not taking place is the position of the Russian government. These reports coincide with important statements made by Russian vice-premier Igor Shuvalov at the International Economic forum in St. Petersburg last weekend. Among other things, Mr. Shuvalov said that the presence of the state in the economy will be restricted (Source: Vedomosti, Kommersant, RBC Daily). In terms of immediate trading implications, we do not rule out some further widening of the TMENRU-GAZPRU spread, although the spread is already close to its historical highs. SUEK’s only outstanding bond issue, SUEK 08 CLN (6.0%), has been largely bought back by the issuer, and the remainder matures in October 2008, so no reaction is due to be seen there. We believe though that the news is important in a broader context, as there is a relatively wide range of bonds (particularly RUB-denominated) trading on expectations of takeovers by the government or state-controlled corporates. Those expectations will now likely be adjusted.
