01.12.2008 - MDM Comment: Automakers, TRUBRU, GALCAP, RBC

Not such a heartening start to the month today, as yet another round of gloomy economic data is published across the world, and US Treasury yields test uncharted waters at new historical lows. Russian equities are drifting lower. The Eurobond and local bond markets are looking particularly dull and illiquid after some gains last week. The ruble is trading at its new level against the basket (31.30). Last Friday the Central Bank of Russia spent some USD2 bn of reserves. The CBR has now introduced foreign currency accounts for banks as part of its efforts to restrain capital outflow. Up until now local financial institutions have been mostly using international banks to deposit their foreign currency cash balances.

Below are our key news and comments for today:

1. Russian state-controlled banks have started issuing loans to local automakers (AvtoVAZ, Sollers, Tagaz), while TMK’s foreign-currency loan application is reportedly being considered now by VEB. The TRUBRU issues have been trading up in the recent days and we still see value there. We note that GAZ, the big Russian automaker owned by Oleg Deripaska’s Basic Element Group, is not yet on the list of companies that have been approved for loans at state banks. GAZ’s ruble bond is trading around 300-400% yield to a put in February 2009. We believe that GAZ will eventually be bailed out as well.

2. Gallery Capital (Caa1/B-), one of Russia’s largest outdoor advertisers, reported neutral 3Q08 results. The company’s leverage is still very high (debt/EBITDA around 6X), while its business and financial outlook are not particularly bright, as the ad market is being savaged by the current crisis. Gallery’s credit profile is, however, underpinned by a favourable capital structure (long-term bond, subordinated PIK loan and equity), with almost zero short-term debt.

3. RBC Information Systems was downgraded to “SD” and then moved to “CC” as the extension of its Barclays Capital loan was viewed as a forced restructuring (perhaps, fairly). At the same time, Vedomosti has published a story that UBS was hired as a consultant to coordinate RBC’s equity and debt deals. The newspaper reports that there are more than three bidders for RBC, including Prof-Media (Interros Group) and Gazprom-Media. RBC’s short-dated ruble issue is trading at around 50-60% price wise (maturity in March 09).

01.12.2008 17:22