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17.11.2008 - MDM Comment: Color, Mosoblast, Trust, puts

Russian equities are 5% lower today on average, perhaps adjusting themselves for the late Friday plunge in the US. Nothing exciting is seen in Eurobonds or local bonds. Interesting moves were in ruble this morning - as banks felt liquidity shortage and local overnight rates were as high as 30%, some were forced to sell fx positions and that's why we saw ruble stronger by 5-10 kopeyks for a couple hours. Now the basket is back to 30.70. The Central Bank will be offering some RUB900 bn this week to banks at its unsecured lending auctions. This in fact is not too much given that the banks will have to return over 800bn before the end of this month to the Central Bank, MinFin and the state-controlled Housing&Utilities Corp (deposits and loans raised earlier are maturing). And we are also due to see intense tax-related outflows in the next two weeks, so there will likely be quite a shortage of rubles...
Below are our key "news and comments" for today:
- Back on Tuesday last week we reported that 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. Now according to Vedomosti daily, a regional court ruled to put a temporary ban on executing at least one put until the hearings take place. We believe that the news is a big warning not only to Inprom's bondholders, but to the entire ruble bond market, as the majority of Russian local bonds are trading to puts. Now investors will have to require additional risk premium for the paper with a put vs a vanilla bond trading to maturity, particularly when the issuer is a weak credit with poor corporate governance, which may choose to destroy its reputation in the capital markets for the sake of resolving immediate liquidity problems.
- BNP Paribas (Aa1/AA+) is reportedly considering acquisition of Trust (B1) banking group (Source: Vedomosti, Kommersant). According to Kommersant daily, Trust representative labelled the information as "another market rumor". We think that Trust and BNP have likely spoken to each other, but given very high execution risks with regard to any M&A these days, particularly in the banking sector, we would recommend not to factor this in when trading TIBRU 09 and NBTRU 10 Eurobonds. Both issues are offering high double-digit yields.
- Two issuers related to Moscow oblast (B1/B) have successfully repaid their ruble bonds last week - Mosoblgaz and Klinsky rayon (municipality within Mosoblast). We perceive this as good news signalling that the regional administration has both committment and ability to refinance the significant amounts of short-term debt of its own as well as its subsidiaries. Earlier Mosoblast was subject to multi-notch downgrades on liquidity concerns. There is in excess of RUB100 bn of public debt related to the Moscow oblast administration.

17.11.2008 15:58
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