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18.11.2008 - MDM Comment: Market Color, Severstal's alarming earnings guidance

Russian equities are drifting downwards this morning, while Eurobonds are widening as global risk aversion trend continues. As usual, it is very quiet in ruble bonds; a big state-related buyer is seen in first tier paper, although its bids are not aggressive. Ruble overnight rates are off yesterday's highs, but shortage of liquidity is still there. Ruble is stable vs the bi-currency basket (30.68-30.70); short-term implied NDF rates are as high as 60-70%. The Central Bank spent approximately USD700 mn yesterday to protect ruble, which is not too much vs what we saw in the previous days.
The only noteworthy corporate story today is Severstal's (Ba2/BB) release of its 3Q08 results. They look very good with consolidated sales of USD18 bn, EBITDA margin of 27% and Net Debt only at around half of the annualized EBITDA. However, we would like to point out at two things spoiling the shiny picture. First, Severstal's full year EBITDA guidance looks quite alarming, as it implies only USD120-320 mn to be earned in 4Q vs USD4.98 bn EBITDA recorded for the first 9 months. Second, the company's board has again recommended an aggressive interim dividend, which brings the total volume of dividends for the 9 months to USD1.1 bn. We don't rule out that despite Severstal's currently strong credit metrics, the super-sensitive rating agencies react negatively to the dividend payouts (particularly given the poor earnings outlook).

18.11.2008 14:14
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