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28.11.2008 - MDM Comment: Ruble, TRUST, RBC, SEVERSTAL

The key event in the Russian financial markets today was another weakening of the ruble against the bi-currency basket, again by one percentage point. In order to soften pressure on reserves, the Central Bank made its move amid the peak of the tax payments and also combined it with a 100bp increase in key rates. Yesterday the regulator spent ‘only’ USD600-700 mn to protect ruble. News from India and Thailand, as well as reports about the BlueBay EM fund closure is of course not doing anything to improve investor appetite for risky assets.
We also believe investors will be interested to know that esteemed economist Nouriel Roubini, who is famed for his prescient predictions of the credit crisis and has been labeled by some ‘Dr. Doom’ for his uncommonly bearish outlook, is in Moscow today and is scheduled to speak on Bloomberg TV at 12.30 London time.
Below are our key stories and comments for today:
1. Moody’s downgraded National Bank Trust (NB Trust) from B1/Stable to B2/Stable, despite potential synergies from the bank’s merger with Trust Investment Bank, a deal which was completed this week. Moody’s cites to a significant deposit outflow, as well as the likely deterioration of its asset quality. We would like to make two points: First, Moody’s argues that funding from the Central Bank accounted for about a quarter of NB Trust’s liabilities as of mid-November. Second, the ratings agency outlines a scenario in which the bank could be acquired by a stronger entity. Perhaps Moody’s knows something about respective negotiations, which have been rumored recently.
2. RBC Information Systems (CCC) announced that it had secured a short-term ‘extension’ of a USD45 mn loan from Barclays Capital, which was due to be redeemed earlier this week. We perceive this as a bad sign to RBC creditors (two bonds and one USD CLN are outstanding). The previously cash-rich RBC made some rather untimely investments in Russian equities in the third quarter which resulted in losses and liquidity problems. S&P had previously written that the company should have had enough cash to repay the Barclays Capital loan; however, it now appears that a build-up in receivables has put additional pressure on RBC’s liquidity position. The hope now is that RBC recovers some of its investments and reduces its working capital. There is intense local speculation that either Gazprom’s media arm or Metalloinvest could acquire RBC.
3. Moody’s revised its rating outlook on Severstal (Ba2) to ‘Negative’ on a weaker operating and financial outlook. Still, Moody’s notes that Severstal maintains a solid credit profile, supported by a substantial cash position and committed lines, as well as flexibility in its investment program. Moody’s believes that Severstal’s debt/EBITDA ratio will not rise beyond 2.5X (around 1X at 3Q08). We hope that Severstal significantly reduces its dividend payouts, which have been pretty impressive so far.

28.11.2008 15:03
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