11.11.2008 - MDM Comment: Ruble, Put-options at threat, WBD, Banks, Color

The ruble is the biggest story today. Sergey Ignatyev, the chairman of the Central Bank of Russia (CBR), said late yesterday that he does not rule out some ruble weakness. This morning the regulator moved its offer for the basket from 30.40 to 30.70. We see risks that a 1% weakening will not relieve the downward pressure on the ruble but, on the contrary, will actually increase speculative bets, as those shorting the ruble will only bulk up their positions in expectation of further devaluation. Our FX traders are reporting that today the CBR may already have sold around USD4 bn to protect ruble vs. only USD250-300 mn yesterday. An additional concern is that the general population may also become more alarmed, which may feed through to the stability of the banks’ deposit base and fan the flames of capital outflow.

Mr. Ignatyev’s comments were made after a meeting with Prime Minister Vladimir Putin, which was also attended by representatives from VTB, VEB, Gazprombank, Bank of Moscow, RussAgr, Alfa Bank and MDM, as well as the enforcement ministries. Mr. Putin warned Russia-based banks that the use of liquidity received from the Ministry of Finance or CBR for foreign currency purchases will not be appreciated by the regulators.

Russian equities are lower today; very quiet in Eurobonds due to a holiday in the US; in ruble bonds we see some selling pressure (potentially due to the ruble weakness story) in short-dated second tier bonds; at the same time, a big buyer is noticeable in the longer-dated high-grade bonds. We suspect it could be VEB.

Below are our key stories and comments for today:

1. Minority shareholders of Inprom (NR), one of Russia’s biggest metal traders, have filed a lawsuit claiming that the put options on Inprom’s two ruble bonds were approved with violations and are therefore invalid (Source: Finam). We suspect that the shareholders are acting in the interests of Inprom itself (to relieve liquidity pressure on the company) and view this as a signal of weak corporate governance and as an attempt to violate bondholders’ rights. A court ruling in favour of the company may trigger another wave of panic among investors, as the majority of Russian local bonds are trading to puts.

2. Moody’s revised its outlook on milk and juice producer Wimm-Bill-Dann (Ba3) from “Stable” to “Negative”. From the wording of Moody’s press-release it is quite clear that the rating agency is quite constructive on WBD and that the move is more precautionary in nature, explained by significant portion of short-term debt.

3. Fitch revised its outlook on 12 Russian state-controlled and foreign-owned banks to “Negative”, following a similar move on the sovereign rating the day before.

11.11.2008 14:08