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20.10.2008 - MDM Comment: Market color, RUB, Trust, rating actions

Russian equity market is rebounding today along with the global markets. Russian bonds (both local and Eurobonds) remain quite illiquid and depressed. Not surprising as we are hearing of more EM credit hedge funds being closed. Below are key stories of this morning:

- RUB gained today against the basket by almost 1%, despite rumors and speculations about devaluation. Basically, things happened in line with what our economist Nikolay Kascheev said last week. It only took the Central Bank one step - to introduce limits on currency swaps - to stop speculators from building up massive long positions in the basket against RUB and force them to at least partially unwind those positions to get some ruble liquidity necessary for operations. We continue to believe that the Central Bank has muscles and committment not to let ruble weaken against the basket. Otherwise households and corporates will all move out of ruble, triggering an even more rapid depletion of FX reserves.

- The Central Bank is today launching its first 'unsecured lending' auction for which over 100 banks (rated B3/B- and above) are eligible. The regulator offers RUB700bn for 5 weeks. This money is due to offset lower volumes on 'currency swap' operations and MinFin's deposit auctions. Also, the Central Bank has again lowered its rating criteria for bonds on Lombard list. The new threshold is set at B3/B-.

- According to Vedomosti business daily, the Central Bank is looking for a buyer for Trust Banking group (Trust Investment Bank and National Bank Trust) amid liquidity crisis. The newspaper says that Alfa-bank (Ba1/BB) is a likely buyer of the entire group or at least its loan portfolio. We still stick to our view that no Russian bank inside top-50 will default on its bonds. TIBRU and NBTRU Eurobond issues were seen trading at around 70% price wise recently.

- S&P revised its outlook on Renaissance Capital Bank (B1/B-/B-) from 'Stable' to 'Negative'. The rating agency is refferring to more difficult operating environment and liquidity concerns. Vedomosti is writing today about the failure of a mulled equity deal between VTB and Renaissance Capital (the consumer finance arm). We believe that RenCap will resolve its liquidity issues via either asset sale or debt/equity deal. It is quite surprising that S&P is writing about shareholder support being one of key factors of the bank's credit profile and and the same time the rating agency is saying that it is not factoring shareholder support in RenCap's ratings.

- Fitch took Ukraine 1 notch to B+. Outlook is negative. Fitch sees heightened risks of a financial crisis unfolding in Ukraine. The downgrade of the sovereign rating triggered several negative rating actions in the corporate and banking universe.

20.10.2008 13:16
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