13.10.2008 - MDM Comment: Regulatory actions; Retailers; Banks; Markets

It has not been a bad morning for the Russian markets. Equities are down over 1%, but this should be viewed as an achievement given that equity trading was halted through entire Friday, when markets elsewhere got smashed. The EUR/USD basket is trading slightly below the Central Bank's offer (30.40), which gives a hope that the pace of capital flight and depletion of FX reserves is slowing, and that the ruble is not under severe attack. Eurobonds opened very lazily, with empty screens and even the Russia 30 trading very wide (89.0/91.75) after the massive widening during Friday’s carnage.

We have a few interesting pieces of macro and corporate news today, which we discuss below. 

1. Alexey Ulyukaev, the first deputy chief of the Central Bank of Russia (CBR), made some encouraging statements this morning. First, he said that a rate cut cannot be ruled out. Second, he announced that the list of assets accepted for refinance at the Central Bank has been significantly widened. Now banks can repo not only loans to a limited number of top corporates, but also loans issued to unitary enterprises (the legal form of some state-owned companies) as well as agricultural companies. Furthermore, the qualifying rating threshold for bonds on the repo list has been lowered from B1/B+ to B2/B. Mr. Ulyukaev also said that the Central Bank has no intention to widen its corridor for the currency basket. We believe that coupled with prime-minister Vladimir Putin’s Friday statements concerning VEB's purchases of equities/bonds of state-owned corporates/banks starting as soon as this week, the news should definitely provide cheer for the local market.

2. Russian business daily Vedomosti led today with a story on new statistics released by the CBR that imply Russian companies and banks will have to repay almost USD160 billion of external debt by the end of 2009. We believe this is a very misleading way to look at things. The CBR statistics include all liabilities of all residents, so the figure is seriously polluted with debts due from Russian subsidiaries of foreign banks and corporates. We estimate that by 2009FYE only about USD70 billion is due to be repaid by truly Russian corporates and banks in the form of syndicated loans and Eurobonds. Factoring in some non-public deals such as bilaterals, trade finance, repos etc., we believe that the fair estimate would perhaps be around USD100 bn – clearly nowhere near USD160 bn.

3. The government has reportedly ‘recommended’ that Sberbank and VTB more actively help Russian retailers with refinancing. According to Russian business daily Kommersant, the government held a meeting with retailers, following which the state banks received a list of nine companies to work with (X5, Magnit, DIXY, Seventh Continent, Viktoria, Mosmart, Lenta, O'Key, Holiday). Reportedly, the list may be expanded in the future. We take the news as positive, but note that it is not yet a given that Sberbank and VTB have both the willingness and ability to quickly execute the recommendation. Most of the aforementioned retail companies have ruble bonds outstanding, and many trade at very distressed levels.

4. Many corporates are cutting back their capex plans. The most recent reports of this kind concerned Svyazinvest telecoms (Uralsvyazinform, Southern Telecom, Sibirtelecom and 4 more), X5 Retail and Kopeyka. In our view, a reduction in investment appetite is a must that all corporates should enact if they are to successfully survive the current financial tsunami.

5. S&P revised its outlooks for 13 Russian banks from ‘Stable’ to ‘Negative’. The only banks to escape the outlook revision were state-controlled, foreign-controlled, already had ‘Negative’ outlook by Friday, or were not covered by S&P. Moody's in turn said on Friday that it does not see state support as something that could trigger positive rating actions with regard to Russian banks. We hope that going forward rating agencies apply a responsible approach and do not turn themselves into a detrimental force, exasperating the crisis.