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09.07.2008 - MDM Comment: Russia and CIS debt market





Home Credit and Finance Bank (Ba3/B+) is in the news today for two reasons. First, Kommersant business daily reported that the bank is facing allegations from the Anti-Monopoly Watchdog (FAS) regarding certain “hidden” commissions in its consumer loan programs. The newspaper article suggests that the regulatory move is similar to the pressure that Russian Standard Bank (Ba2/BB-) faced a year ago.
We don’t rule out that HCFB may ultimately have to follow RSB’s path and cancel the commissions completely, which will inevitably damage its margins and profitability.
However, we note that this won’t undermine the core credit strengths of HCFB’s profile – strong parent support and overcapitalization.
The latter can be seen in the banks’ 1Q08 IFRS report, which has been released this morning and is in fact the second reason why HCFB is in the news today. The total capital adequacy ratio of HCFB at the end of the reporting period stood at a comfortable 19.8%. The report also looks quite shiny in all other important aspects. Unlike its competitors who have experienced stagnation due to funding challenges, HCFB continues to increase its loan book (+7% in 1Q). Profitability ratios are also improving (ROAE up almost 300bp to 18.7%) on the back of better margins, as well as economies of scale. The bank’s liquidity profile is acceptable with short-term assets exceeding respective liabilities and a EUR 900 mn line available from the parent PPF Group.
We don’t rule out some selling in HCFB bonds today on the back of the Kommersant report. However, we don’t recommend panicking and believe that any spread widening by more than 50bp should be viewed as perhaps a buying opportunity.
Eurobonds: Very quiet in the secondary market with wide bid/offer spreads. No news yet on the progress in new deals from Severstal (Ba2/BB), TMK (Ba3/BB-) and Bank St.Petersburg (Ba3/B+). Newswires reported that Transneft (A2/BBB+) may come to the market with a new bond issue later this month.
Ruble bonds: Flat trading with light volumes. Investors are mainly focused on multiple new issue proposals and new coupons on outstanding bonds. Today Russian Railways (A3/BBB+) will sell its new 3-year RUB 20 bn issue. This is the largest jumbo corporate RUB deal placed publicly. The coupon was set at 8.50%. The bond is one of the first issues placed at MICEX that was done through a book-building exercise (vs. open auction). Also, the Central Bank has again allowed RUB to appreciate nominally against the basket. This time by 0.3%. Money market conditions remain quite benign.

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21.07.2008 13:13
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