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13.11.2008 - MDM Comment: TMK, Banks, RASPAD, Inflation, PIK, color

Russian equities are again drifting lower, while bonds are little changed after Wednesday’s sell-off. The MICEX re-opened, then closed and then re-opened again, which of course does not do much for its credibility. The ruble is stable, although the Central Bank of Russia (CBR) sold another USD2.5 bn of reserves yesterday. Its reserves were depleted by USD9bn last week (to 475bn) – expect an even deeper plunge this week.

Below are our key news and comments for today:
1.       TMK (Ba3/B+) secured three loans totaling RUB5.5 bn (USD200 mn) from VTB for 1 year. Another RUB1.5 bn is being discussed (Source: Interfax). We view this as yet another argument to buy the deeply undervalued TRUBRU 09 (YTM 78%) issue on reduced refinancing risks and stronger relationships with a major state bank. The new loans will mature after the bond.
2.       Some 30 Russian banks have applied to VEB for RUB90 bn in subordinated ruble loans. Applicants include Alfa Bank (Ba1/BB), URSA (Ba3/NR/B+), Transcreditbank (Ba1/BB) and TRUST (B1). (Source: Vedomosti). We welcome the news, as it signals that shareholders of Russian banks have the ability and willingness to support their banks, and that the banks’ capital base will soon be strengthened. In order to receive a subordinated loan from VEB, a bank has to be rated at B3/B- or above and receive at least the same size loan from its shareholders. VEB’s loans would not exceed 15% of a bank’s tier 1 capital.
3.       Rosneft (Baa1/BBB-) and Transneft (A2/BBB+) have so far failed to agree on USD25 bn loans with the Chinese government. According to media reports, the Chinese wanted ‘too much’ in terms of interest rate, guarantees and non-financial benefits (incl. oilfield licenses). We are somewhat disappointed, as the deal would have been very important for Russia from a macro perspective, proving, as it would have, that the corporate sector is able to raise foreign debt in this difficult environment. However, according to Kommersant, the negotiations are likely to continue and may well succeed given it was approved at the highest levels.
4.       Inflation in Russia in the first week of November reached 0.2%, a 50% y-o-y drop. We believe that the deceleration of CPI growth is a natural result of the credit squeeze, which, in our view, should afford the CBR and government to pursue an ultra-dovish fiscal and monetary policy.
5.       Raspadskaya has decided to cut its dividend by four times on the back of a challenging operating outlook. We believe that this is very good news for the bondholders of the company. We view Raspadskaya as having a rock solid credit profile, which has low leverage (<1x) and plenty of headroom in profit margins (EBITDA margin over 50%). RASPAD 12 Eurobond is trading below 50% pricewise, offering a yield of 33%.
6.       PIK, one of Russia’s biggest developers, received a five notch downgrade from Fitch (from BB- to CCC) on liquidity concerns. The company is reportedly in dispute with one of its key clients, the City of Moscow. The latter is delaying a USD1 bn payment on a signed contract, trying to push PIK for a 12% discount. While PIK does not have bonds outstanding, other Russian developers with similar profile (like SU-155) do. However, given the opacity of the decision-making of government bodies, we think it is too early to speculate on how things will develop and whether one should apply the same logic to all companies.

14.11.2008 10:25
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