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09.10.2008 - MDM Comment: ALLIBK, RCCF, MIRAX, RUSNEF, inflation


Russian local equity market is 'unexpectedly' open for trading today. Stocks bounced back so aggressively in the morning that trading has been halted for 1 hour. Dynamics in local bonds is pretty much unchanged. Many sellers around in search for liquidity, hence plenty of excellent bargains for the ones with cash. RUB is holding up a little better today (basket 30.37), so that the Central Bank doesn't have to back local currency as intensively as in the recent days (approx USD15 bn has been sold by the CBR during the last 5 working days, according to our FX dealers). Perhaps RUB strength is coming from both the "coordinated rate cut" and the USD weakness in the FOREX market.


- Alliance Bank (Ba2/BB-) published 1H08 IFRS results yesterday and held an investor call. Optically the bank appears to be in good shape, with some excess capital, significant liquidity cushion, and no detrimental outflows on the funding side. However investors seem to be concerned that the loan book quality is worse than indicated by NPL and provisioning ratios, while deposit base may get eroded. Otherwise the seriously distressed price and yield levels on ALLIBK Eurobonds cannot be explained.

 - Renaissance Capital Bank (B1/NR/B-) has been put on Negative Watch by Fitch on liquidity concerns. According to Vedomosti business newspaper, the bank is reportedly negotiating a partial sale of its car loan portfolio, with VTB being a likely buyer. We think that the bank will resolve its liquidity issues through an asset sale and/or support from related Renaissance Capital group, which is now co-owned by cash-rich UNEXIM group. Short-dated RCCF issues are trading around 30% yield wise.

- Mirax is holding an investor/analyst meeting today. Let's see what the company has to say on its current financial standing and outlook. Optically the company is in good shape, with Debt/EBITDA ratio not exceeding 1.5x. We understand that investors' areas of concern are related to Mirax's contingent liabilities and the company's ability to generate positive operating cash flow going forward as real estate market conditions in Russia are deteriorating. The local bond of Mirax is trading at 30-40% of par (maturity in Sept 09). We suspect that the company is not buying it back since it needs to address debts with shorter maturity in the first place.

- Federal Tax Service no longer attempts to nationalize Russneft's shares as its last lawsuit has been recalled (Source: Reuters). We think that this increases the chances of ownership transfer from Russneft's former shareholders to Basic Element group being legitimated/finalized. Russneft's RUB7 billion bond is trading around 90% price wise and has a put in December 2008. This issue used to be one of the popular distressed debt plays in Russia until the entire market effectively became distressed.

- Inflation in Russia in the first week of October reached 0.2%, according to the Federal Statistics Agency. This is lower vs the same period last year (0.5%). We continue to see consumer price growth in Russia slowing down on the back of credit squeeze and expect Russia's fiscal and monetary policy in the coming months to be very dovish/supportive.

09.10.2008 12:21
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