Contact us (+ 7 (921) 446-25-10)
×
Texting is available for authorized users.
Please register or log in at the website.
×
Your request for online training is sent. Cbonds managers will be in touch with you shortly. Thank you!

Research and analytics

Waiting, please

Source

Select all
onoff
 / 
  • Alfa Bank
  • Bank ZENIT
  • Promsvyazbank
  • Raiffeisen Bank
  • Region BC
  • ROSBANK
  • Sberbank CIB
  • URALSIB Capital
  • Veles Capital
  • VTB Capital
  • ABSA Bank
  • ACRA
  • Adamant Capital (Ukraine)
  • African Markets
  • AK BARS Bank
  • Al Masah Capital
  • Alfa-Capital
  • Asian Development Bank (ADB)
  • Asyl-Invest
  • Bank Audi
  • Bank of Russia
  • Bank Saint Petersburg
  • BCC Invest
  • BCS Global markets
  • BOC International
  • Bondcritic Limited
  • Byblos Bank
  • Cbonds EM
  • Cbonds Group
  • Cbonds Legal
  • Cbonds Research
  • Cbonds Review
  • Centras Securities
  • Concorde Capital
  • Dagong Global
  • DBS Bank
  • Development Bank of the Republic of Belarus
  • DOM.RF
  • Eavex Capital
  • Emirates NBD
  • Empire State Capital Partners
  • EuroRating
  • Finance Ministry of Ukraine
  • FinExecutive
  • FUIB
  • Galt and Taggart
  • Gazprombank
  • GfK Rus
  • GLOBEXBANK
  • Halyk Finance
  • Home Money
  • Hong Leong Bank
  • IC RUSS-INVEST
  • ICU
  • IFC Solid
  • IG UNIVER
  • Investcafe
  • Kazkommerts Securities
  • KIT Finance
  • Kyrgiz Stocks Exchange
  • Legal capital partners
  • Liniya Prava
  • Magister Capital
  • Maybank
  • Metinvest
  • Ministry of Economic Development and Trade of Ukraine
  • Ministry of Finance (Belarus)
  • Moscow Exchange
  • MosFinAgency
  • Nordea Bank
  • NRA-Ryurik
  • NSD
  • OCBC
  • Otkritie Bank
  • Otkrytie Brokerage House
  • OTP Bank (Ukraine)
  • Price center «Cbonds Valuation»
  • Promsvyaz, Ltd.
  • PwC (Global)
  • Raiffeisen Bank Aval
  • Raiffeisen Capital Asset Management Company
  • Republic of Turkey Prime Ministry Undersecretariat of Treasury
  • Research for Traders
  • RHB Bank
  • Risk Management Institute
  • RUSIPOTEKA
  • Sberbank (Ukraine)
  • Sberbank Asset Management
  • SP Advisors
  • Standard Bank
  • TBC Capital
  • Tengri Capital
  • Tsesna Capital
  • UkrSibbank
  • Vnesheconombank
Region /
Сountry /
Date
Type /
Subject /
Language /
Reset
Source Comment
November 16, 2005
Alfa Bank Fixed Income Market
Raiffeisen Bank Daily Market Monitor
VTB Capital MNB Daily Market Comment
Fitch Ratings Credit Analysis of Bank TuranAlem
ING Wholesale Banking Russia Russian Fixed Income Daily
- The point of lowest demand likely to be reached next week
- Guidance for today\'s auctions...
Description
FX and money market On Tuesday, the situation in the money market remained tense. On the back of social tax payments which drained from the market some RBL80bn and continued the dollar’s strengthening, overnight interbank rates spiked to 7-8%. Previously, tax payments have not affected the market so strongly, but now as part of the government’s anti-inflationary measures, the MoF has deferred more budget expenditures, making the situation on the money market more dependent on the tax payment schedule (the next tax payment (VAT) is due on 21 November totalling some RBL95bn). This tendency is likely to be sustained up to the middle of December, when deferred expenditures have to be made on a cash basis. As a result of the liquidity squeeze, the CBR repo market became very attractive for investors. Yesterday the CBR held two repo auctions, the cumulative volume of which reached RBL41bn, while their average interest rates were 6.1% and 6.25% respectively. Today, we expect interbank rates to remain relatively high at 5-6%. In the FX market, following the euro’s weakening the rouble reached RBL/USD28.88. Today, the release of US October CPI figures is scheduled which could influence the euro/dollar exchange rate and thus the rouble, which we expect to see today in the range of RBL/USD28.82-28.87. Olga Golub, Moscow (7 095) 755 5176 Rouble bond market Quite in line with the recent trend, Tuesday was a very slow day on the domestic bond market, with significant turnover seen only in the most liquid papers. Pricewise, the market continued a slow downward crawl, which was most evident in the long, high-grade corporate, and municipal papers. Government sector Today the key sector event will occur on the primary market, where the CBR will hold two auctions for additional tranches of OFZ 25058 (RBL10bn) and OFZ 46017 (RBL6bn). These papers are quite different in duration: OFZ 25058 has a modified duration of 2.2 years, while OFZ 46017 is much longer at 6.6 years. This diversity could satisfy interests of both passive investors and speculators. We believe that in current market conditions, interest at the auctions will be limited relative to those which took place in summer, when primary placement auctions in the government sector were many times oversubscribed. As a result, it is possible that MinFin will be more generous and agree to offer the market a bonus. On Tuesday, OFZ 25058 retreated to 100.17 (-15bp), YTM 6.37%. Basing the pricing on this figure, we advise placing bets for the paper at 6.45% and above. OFZ 46017 was on Tuesday quoted close to 104.65, YTM 7.08%, so we recommend starting orders for the paper at 7.13% and up with the idea of selling the paper within several days of placement. Without this premium, obtaining a notable size at the auction has no sense. Corporate sector Similar to the government sector, the main events here today are the placements of two new RZhD issues: series 6 and 7. RZhD is first company in Russia to receive a full investment grade rating. The issuer is now rated BBB-/Baa2/BBB by S&P/Moody’s/Fitch respectively. RZhD-6 will have a size of RBL10bn and five years to maturity. Based on the fact that the shorter RZhD-3 was yesterday trading with a YTM of 7.28% for 50 months, we believe that the YTM of RZhD-6 should result in the range of 7.4-7.55%. RZhD-7 will have a size of RBL5bn and seven years to maturity. As there are no floating RZhD issues of such long duration, the pricing of RZhD-7 should be based on OFZ spread. The OFZ curve point corresponding to the duration of RZhD-6 is located at 6.9-6.95%, while the point corresponding to RZhD-7 is almost exactly 7.1%. Taking this into account and anticipating a small increase in required credit spread due to the longer maturity of RZhD-7 compared to RZhD-6, we arrive at a range of 7.55-7.7 for the YTM of RZhD-7. As for the trading recommendations on the secondary market, we continue to advise paying more attention to shorter issues, namely: KrVostok (9.5% for 16 months), TMK (8% for 12 months), and HCFB-2 (8.1% for 6 months). Short term market view Today’s placements are likely to determine the market’s sentiment for the short-term perspective (at least until the end of November). We believe that this sentiment is unlikely to be positive. The lowest buying interest is likely to be seen next week, as the usual tax payments of Russian companies will be draining already low liquidity from the money market. As a result, the end of next week is likely to be the best point to resume purchases before the usual December accumulation of the rouble balances. In any case, so far our general recommendation for rouble bonds remains a Hold, having been recently changed from a Sell. Dmitry Dudkin, Moscow (7 095) 755 5480 Stabilisation fund In October, the stabilisation fund increased by RBL133.8bn to RBL1094.5bn (US$38bn) In October, the MoF accelerated accumulation in the stabilisation fund, channelling into it a record RBL133.8bn (US$4.7bn). As a result, the fund reached an impressive RBL1094.5bn, or some US$38bn, strengthening our optimism regarding further accumulation. We forecast the fund to reach US$45bn and US$60bn by 2005-end and 2006-end respectively, which will create a solid financial cushion for the government and help to substantially reduce fiscal risks. Investment implications: As the stabilisation fund continues to grow impressively and is already very sizeable, we believe that fiscal risks if any are low in the ST and MT. We forecast the fund to reach US$45bn by 2005 and continue growing to US$60bn in 2006. Julia Tsepliaeva, Moscow (7 095) 755 5489
November 15, 2005
B&N Bank MDM Fixed Income Daily
Raiffeisen Bank Daily Market Monitor
VTB Capital MNB Daily Market Comment
ING Wholesale Banking Russia Russian Fixed Income Daily
- General recom. for long bonds changes from Sell to Hold
- ST view remains negative
- KrVostok and TMK appear attractive...
Description
FX and money market On Monday in the first half of the day, the rouble traded around RBL/USD28.82, however close to the evening following the euro’s depreciation the local currency fell to RBL/USD28.85. This morning the euro has fallen below USD/EUR1.70 which could shift the rouble further down. Today we expect to see the rouble in the range of RBL/US$28.84-28.89. The dollar’s strengthening is putting pressure on the money market where interbank overnight interest rates remain high at 6-7%. In addition, today social tax payments are scheduled which will drain from the market some RBL80bn. Thus, we believe this lack of roubles will limit improvements in liquidity today. Olga Golub, Moscow (7 095) 755 5176 Rouble bond market Similar to last Friday, Monday turned out to be quite a calm day on the domestic bond market: prices of long rouble bonds were slowly descending, while the trading activity remained low, with a single exception of some turnover growth in the corporate sector. The latter can probably be attributed to the preparation of the market participants to the primary placements on Wednesday, while the sales of high-grade bonds were definitely the result of high money-market rates, which are expected to prevail throughout November. After a long week-end, US Treasuries opened on Monday on a negative tone, having notably gone up in yield, although not surpassing recent highs. US10Y is trading now at 4.6% versus 4.55% on Thursday evening, preparing, in our opinion, a trip to the 4.75% point, which is likely to become a new consolidation area for US10Y. Therefore, our mid-term view for US Treasuries remains negative. Government sector If the latter scenario comes true and US10Y shifts to 4.75%, keeping the current spread 120bp Russia’30 will turn out to be at 109, YTM 5.95%, which will shift the long end of the OFZ curve to 7.10-7.15% range. This is definitely not the end of the world, but holding long-term OFZs (duration 6-8 years) in such a movement will result in an immediate loss of about 100bp in price. That is why we now do not recommend speculative purchases of long securities, apart from at primary placements, where it is possible to receive a premium over the fair value. On 16 of November, the CBR will hold two auctions for additional tranches of OFZ 25058 (RBL10bn) and OFZ 46017 (RBL6bn). These papers are quite different in duration: OFZ 25058 has a modified duration of 2.2 years, while OFZ 46017 is much longer at 6.6 years. This diversity could satisfy interests of both passive investors and speculators. We believe that in current market conditions, interest at the auctions will be limited relative to those which took place in summer, when primary placement auctions in the government sector were many times oversubscribed. As a result, it is possible that MinFin will be more generous and will agree to offer the market a gimmick. On Monday, OFZ 25058 traded at 100.3, YTM 6.31%. Basing the pricing on this figure, we advise placing bets for the papers at 6.35% and above. OFZ 46017 was on Monday quoted close to 104.89, YTM 7.05%, so we recommend starting orders for the paper at 7.1% and up with the idea of selling the paper within several days after placement. We will publish updated guidance for these auctions tomorrow morning. Corporate sector Basically, nothing interesting is happening in the sector now: in an environment of relatively high short-term rates and falling rouble traders do not feel like increasing the rouble bond holdings, and we agree with them. It should be noted that the bonds that were placed in September 2005, e.g. KamAZ-2 and Ochakovo-2, last week entered secondary trading, though slightly, but still below par value, which has been very rare since the market fall in summer 2004. In such a situation we so far can recommend turning to shorter issues that offer more interest-rate risk protection. Specifically, good value is currently offered by: KrVostok (9.25% for 16 months) and TMK (8.25% for 12 months). Both bonds have quite a solid credit quality for their yield level and both are believed by us to be trading at least 25bp above their fair value. Short term market view Our view for the market remains short-term negative due to the problematic state of the money market and also because of a significant probability of the continuation of the downward movement of US Treasuries. On the other hand, our Sell recommendation regarding long rouble bonds has been effective already for more than a week, so we believe we have given market participants enough time to reduce the overall portfolio duration. Therefore, today we are upgrading our general recommendation for long rouble bonds to a Hold. Dmitry Dudkin, Moscow (7 095) 755 5480 Putin’s surprising change of formation Putin has changed the government’s structure, strengthened the military bloc and, appointed new people to the government and his administration Yesterday, President Putin significantly changed the government’s structure and appointed new figures to the government and his administration. This was surprising, in particular as he has several times expressed his satisfaction with PM Fradkov’s government work. The main changes were: Dmitry Medvedev, previously head of the president’s administration, was appointed to the First Vice PM responsible for national projects (mortgages, healthcare, and education accounted for RBL550bn of budget expenditures in 2006). Mr Medvedev is a personal ally of Putin and his appointment definitely strengthens Putin’s control over the government. Mr Medvedev was usually mentioned in the list of potential Putin’s successors: looking at his new appointment from this point of view, we could say that his success may dramatically boost his popularity. Unfortunately, the previous experience in the practical realisation of similar ideas in Russia has been rather poor. Nevertheless, Medvedev will be a good “balance” to PM Fradkov, which may help to improve efficiency of the economic bloc of the government (Kudrin, Gref, and Zhukov). In addition, Mr Medvedev has kept his position of Gazprom chairman of the board. Defence Minister Sergey Ivanov has a new status of Vice PM to accelerate military reform and better coordinate military issues. This means strengthening of the military bloc and the ‘siloviki’ group within the government. Mr Ivanov is also included into the list of probable candidates to be Putin’s successor, although, he is less “electable”. In addition, the parallel appointment of Mr Medvedev to the higher position might mean that his chances remain almost unchanged. We would not be surprised if the successor were a virtual unknown within the administrative power structures at present. Putin has not removed anybody from his government. The economic bloc - Finance Minister Alexei Kudrin, Economy Minister German Gref, and Vice PM Alexander Zhukov - have kept their positions in the government and thus we do not expect substantial changes in economic policy. Former governor of Tymen (the second rich region in Russia) Sergey Sobyanin was appointed to the position of head of the presidential administration. Sobyanin is not from St. Petersburg (unusual for the president’s administration) which may mean that Putin does not mind strengthening federal authority using solid regional leaders. The new appointment of Kamil Iskhakov (former mayor of Kazan) to the position of the president’s representative in a problematic Far East region is another illustration of such a tendency. In general, this is a positive trend: regional elites can now see perspectives for further career growth, and the changes will increase “centripetal force” towards Moscow, which is not bad for Russia in the long-term Administrative reform on the federal level which began aggressively in 2004 assumed that ministers would become more independent in decision making and improved their status by a new government structure (ministry-agency-service). The number of vice ministers has been dramatically reduced from 10-15 to 2-3. At the same time, the number of vice PMs was also reduced from three-four to one, namely, Alexander Zhukov. The changes in government structure make reform results doubtful. Now there are three Vice PMs, including one first vice PM. Ministries also are introducing the positions of state-secretaries to enlarge the number of vice ministries. In general, the “old”, pre-reform structure was not much worse than the “new” – some people may even say that it worked even more efficiently. In any case, we may expect a new round of re-organisation at a lower government level. Investment implications: We do not expect any substantial changes in economic policy and believe that the situation concerning the problem of successor has not been clarified. Nevertheless, Mr Medvedev is an appropriate “balance” to PM Fradkov and might win some points in the race for potential successor. In general, the new governmental structure strongly remains pre-reform in nature, which will mean a new round of re-organisation. Julia Tsepliaeva, Moscow (7 095) 755 5489
November 14, 2005
VTB Capital MNB Daily Market Comment
B&N Bank Fixed Income Daily
ING Wholesale Banking Russia Russian Fixed Income Daily
- High money market rates to persist in the second half of November
- New tranches of OFZs to be placed on Wednesday...
Description
FX and money market Moving in accordance with the euro/dollar exchange rate, the rouble fell significantly to RBL/USD28.89 (tom) on Friday, losing a total of 13 kopecks during the week. On the back of the dollar’s strength in the money market, the cost of rouble funds remained high at 5-8%. In the second half of November, the market is entering a tax period with the first payment (social tax) scheduled for November 15. As a result, we do not rule out some reduction in rouble liquidity by the end of this month. Today following some euro appreciation, we expect the rouble to rise, trading around RBL/USD28.80-28.28.85. Olga Golub, Moscow (7 095) 755 5176 Rouble bond market On Friday, the market basically was again relatively immobile, demonstrating very low trading activity with the absence of bond trading in the States being an additional reason for market apathy. Meanwhile, money market rates remain quite high: today the 1-day MIBOR is 5.24%, the highest figure since November 2. Future prospects are also not bright: starting from 15 November (social tax) Russian companies will be paying taxes, which is expected to further exacerbate the rouble liquidity deficit. US10Y is now quoted close to 4.54%, at the same level as Thursday evening, and Russia’30 is at 111, YTM 5.73%, 119bp above US10Y. On this front the situation appears quite stable in a short-term perspective, but looking at terms of one month and longer, we see US10Y at 4.75% and higher following another Fed target rate hike on December 13. Government sector Long-term OFZs, specifically OFZ 46014, are now located almost exactly at 7%, i.e. 127bp above Russia’30. We have many times mentioned previously that we consider a range of 100-120bp to be fair for the OFZ 46014-Russia’30 pair. Therefore, we can conclude that long-term government bonds currently have a small spread compression potential (10-20bp), but since our view for Russia’30 itself is negative, we should not recommend accumulating long-term OFZs at the moment. In such a situation, the primary market is a natural way out. On 16 November, the CBR will hold two auctions for additional tranches of OFZ 25058 (RBL10bn) and OFZ 46017 (RBL6bn). These papers are quite different in duration: OFZ 25058 has a modified duration of 2.2 years, while OFZ 46017 is much longer at 6.6 years. This diversity could satisfy interests of both passive investors and speculators. We believe that in current market conditions, interest at the auctions will be limited relative to those which took place in summer, when primary placement auctions in the government sector were many times oversubscribed. As a result, it is possible that MinFin will be more generous and will agree to offer the market a small premium. On Friday, OFZ 25058 traded at 100.31, YTM 6.31%. Basing the pricing on this figure, we advise placing bets for the papers at 6.35% and above. OFZ 46017 was on Friday quoted close to 104.78, YTM 7.07%, so we recommend starting orders for the paper at 7.1% and up with the idea of selling the paper within several days after placement. We will publish updated guidance for these auctions on Wednesday morning. Short term market view As we are expecting higher money market rates in the second half of November, we cannot recommend holding long duration in any sector. The stability of the market is now solely based on the relatively positive dynamics of Russian Eurobonds, which could shift to the negative side very quickly. As a result, our general recommendation regarding long rouble bonds remains a Sell. Dmitry Dudkin, Moscow (7 095) 755 5480 Amendments to election legislation Political parties which win regional elections will submit a candidate for the governor’s position to the president Last Friday in their first reading, the Duma approved amendments to election law, which enlarge the authority of parties winning a majority in regional elections. According to the draft, these parties will submit to the Kremlin a candidate for the position of governor. Although the president will have the final say on the issue and has the right to submit an alternative candidate for the position for the approval of the regional parliament, in this scenario, he will be obliged to explain to the regional authority why he has rejected their candidate. We consider this new legislation as a friendly gesture towards democracy that will in a small way, help to increase the importance of political parties in political life in relation to the central power of the Kremlin. Taking into account that most candidates submitted by the leading regional party would be likely to be approved, this will make regional legislative authority stronger and their role more crucial. Nevertheless, the new amendments are somewhat decorative: people are only able to influence their governor very indirectly, and the latter’s loyalty to the Kremlin still remains the key issue. Investment implications: Russia continues to improve and develop its election legislation, which is not bad in general. The approved amendments, widening the authority of political parties winning regional elections, may not be sufficient for radical improvements. Nevertheless, they strengthen to a degree the importance of political parties as elements of the political system, which is positive for relatively new democracies such as Russia. Julia Tsepliaeva, Moscow (7 095) 755 5489
November 11, 2005
VTB Capital MNB Daily Market Comment
Raiffeisen Bank Russian Daily Monitor
Description
Timing of Gazprom ring-fence removal questioned Deputy Prime Minister Alexander Zhukov said Thursday that he doubted Gazprom ,s ring-fence would be removed before the end of 2005, as was initially reported, because of delays in the preparation of relevant documents. However, Gazprom officials said Friday that their expectations about the removal of the ring-fence, which limits foreign ownership of the gas giant ,s shares, had not changed. They still expect the changes to come into effect before the end of 2005. We are not particularly concerned about the possible delay. The market has been waiting for the removal for a long time - it can wait a couple of months more. Kalina founder decreases his stake The founder of Russian cosmetics company Kalina, Timur Goryaev, who reportedly owns 50% of the company ,s shares, intends to place a 20% stake with portfolio investors, business daily Vedomosti reported Friday. The offer price cited was USD 40 (its shares closed Thursday at USD 41), implying a value of USD 80 mn for the stake. We welcome the placement as it should help to increase the company ,s free-float. And we do not expect the additional float to harm the company ,s share price as Kalina still appears to be the cheapest way to enter the flowering Russian consumer sector. We thus expect its shares will be easily absorbed by the market. Money market The dollar hit a 2005 high against the rouble on Thursday, reaching RUB 28.87 as the greenback continued to outperform the euro. The eurozone currency missed its chances to gain ground on the dollar following the release on Thursday of figures showing a wider U.S. trade deficit than was expected and a deeper drop in import prices. Instead, the euro slipped below USD 1.17, reflecting the continuing strength of demand for dollar-denominated assets, including U.S. debt. November consumer confidence figures saw modest improvements, further buoying demand for the U.S. currency. In the mid-term we expect a euro rebound against the dollar as the dynamics of yield differential between 10-year USTs and their German counterparts should support the European currency (by Friday the gap had tightened to 106 bps from 120 bps a month ago). Under this scenario, the rouble is poised to take back some ground lost to the greenback, while weakening against the euro. Eurobonds On Thursday, the yield of Russia ,30 remained almost unchanged, clocking in at 5.79, as Russian Eurobond dynamics continued to reflect benchmark movements. The 10-year benchmark yield lost 7 bps to 4.56%, while the yield spread reached 122 bps. Fears of shrinking demand for U.S. debt appeared unjustified as Thursday ,s placement of 10-year UST saw a record share of demand from foreign investors. The demand proved resilient despite the fact that the U.S. trade deficit widened to a record USD 66.1 bn in September. Given strong bids for U.S. Treasuries we would not rule out further yield tightening. Moreover, as interest rate policy will undoubtedly depend on upcoming data releases, some upside for benchmarks may come from Thursday ,s figures on import prices, providing evidence of sensible deflation, and oil prices that currently are tipping downwards. On Friday, trade is likely to be weak as U.S. financial markets are closed today for a public holiday. Equity market We expect the Russian equity market to be weak on Friday, following unimpressive dynamics from both Russian ADRs and other emerging markets. Sliding oil prices are dulling investors , appetite for Russian oil & gas names (the indicative Brent price lost 2.45% on Thursday, to close at USD 55.42/bbl). Some negative sentiment should be also added by a possible delay in the removal of Gazprom ,s ring-fence (see story above). We expect the sideward drift to continue as the Russian equity market remains under the influence of speculators, who have been unable to push prices up significantly. The Russian equity market did not managed to maintain its growth on Thursday, and the benchmark RTS index declined 0.82% as a result. In New York, ADR trading mirrored that in Moscow, with most papers losing out. Gazprom ADRs led the drop, plunging 7.14%.
ING Wholesale Banking Russia Russian Fixed Income Daily
- Impex-3 placed at YTM 9.46%, good value for investors
- FSK UES promises RBL7bn bond in early December...
Description
FX and money market Yesterday, following some strengthening of the euro against the dollar the rouble traded around RBL/USD28-81-28.82 on average volumes and gained some 1.5 kopecks. Today, we expect the rouble to weaken by 5-6 kopecks following the euro’s depreciation by 0.5 cents. In the money market, liquidity remained tighter than 2005’s average, with interbank rates increasing to a range of 4-5%. Nevertheless, we do not expect any serious liquidity squeeze in the coming days and also expect the rouble’s decline could limit improvements in liquidity today. Julia Tsepliaeva, Moscow (7 095) 755 5489 Rouble bond market On Thursday the domestic bond market demonstrated no clear tendency on a background of low trading activity. Increased uncertainty of where long-term rates could go from current levels, and also relatively high money market rates did not stimulate traders to buy. In contrast to Wednesday, on Thursday the auction of 10-year Treasury notes turned out to be quite successful with regard to foreign interest. As a result, US10Y erased its former losses and is now trading at 4.56% compared to 4.64% yesterday morning. Nevertheless, we believe that ahead of the new rate hike on December 13, US10Y has nowhere to move in the medium-term perspective apart from upwards in yield, where 4.75% is very likely to become a new consolidation point. Corporate sector Yesterday Impex Bank placed its third rouble issue with a size of RBL1.3bn. The coupon rate for the first 1.5 years of floatation was set at 9.25%, which yields 9.46% to put. We expected the YTP of the issue to result in the range of 9.25-9.5%, but anticipated that the point was more likely to turn out closer to the lower border of this range. Apparently, general cautiousness of investors towards Russian banks apparently did not allow Impex Bank to place its issue at a higher price. Correspondingly, we believe that 9.46% for 1.5 years is a very good buy for the investors who received these bonds at the auction. If we look at the yield graph, in the area of approximately 1% around Impex-3 there are no bonds with similar credit quality, which will grant the paper price appreciation after it enters secondary trading. FSK UES announced that in the first half of December it would place its third rouble bond issue with a size of RBL7bn. The bond will have three years to bullet maturity and semiannual coupons. FSK UES is rated B+ by S&P and already has two bond issues floating. Based on their current position, we can conclude that if FSK UES-3 was placed today, its YTM would result at approximately 7.25%. Short term market view Money market rates are already quite high, but could be significantly higher in the second half of November, when large tax payments will be draining liquidity from the financial system. The continuation of the fall of euro versus the US dollar is also a preferred scenario now, promising further exacerbation of the rouble liquidity deficit this month. We believe these reasons are enough to justify cautious behaviour and holding rouble instruments with reduced duration. Our general recommendation for long rouble bonds remains a Sell. Dmitry Dudkin, Moscow (7 095) 755 5480
November 10, 2005
ING Wholesale Banking Russia Russian Fixed Income Daily
- Treasuries continue falling: target for US10Y is still at 4.75%
- Moscow buybacks destroy the Moscow curve at the short end...
Description
FX and money market Yesterday, following some strengthening of the euro against the dollar the rouble traded around RBL/USD28.82 on average volumes, while overnight interbank overnight rate moved from 4% to 2.25% by the end of the day. Today, US September trade balance figures will be announced which could change the direction of the euro/dollar and consequently the rouble exchange rate. As a result, on the threshold of this event we do not rule out that market players will reveal some caution. We see the rouble today in the range of RBL/USD$28.79-28.85. Olga Golub, Moscow (7 095) 755 5176 Rouble bond market On Wednesday, participants of the local bond market gradually sold long bonds on a background of modest trading activity, which was quite surprising at the moment considering the preceding rise in US Treasuries and, consequently, Russian Eurobonds. On the other hand, later in the evening the status quo was restored: 10-year Treasuries significantly fell following the weak 5-year notes’ auction, which showed a reduced international demand for US papers. Right now, US10Y is trading at 4.64% versus 4.55% yesterday morning. As this movement directly corresponds to our medium-term view for US Treasuries, we can only repeat here that we expect US10Y to reach 4.75% by mid-December. Naturally, the fall of US10Y is expected to continue depressing buying activity on the local market today, so a continuation of the retreat of long-term OFZs is the most probable short-term scenario. Municipal bonds Moscow authorities announced today they were going to buy back six different issues of Moscow rouble bonds during an auction on 15 November. Specifically, Moscow is planning to bid for Moscow-32 (term to maturity – 6 months), Moscow-35 (8 months), Moscow-37 (11 months), Moscow-27 (14 months), Moscow-42 (21 months), and Moscow-40 (24 months). First of all, the fact that Moscow is buying back its debt at the short end of the yield curve is no news. This was one of the primary reasons why Moscow bonds with terms shorter than three years recently almost completely lost their trading liquidity. As our current recommendation for long rouble bonds is a Sell, we believe that the auction on 15 November is a good chance for market participants to return the two-year issues Moscow-42 and Moscow-40 to the issuer. Moscow is known for being quite generous at such buybacks, so the price could be very appealing. From the standpoint of the future of the Moscow debt market, the buybacks are naturally a negative thing. The Moscow yield curve is quickly ceasing to exist at the short end, and the nine-year Moscow-39 remains the only really liquid issue on the curve. In addition, Moscow issues that were widely used as pricing benchmarks for lower-credit municipal and even corporate bonds can no longer serve as such. As a result, the primary implication of the Moscow buybacks is that the OFZ curve will gradually restore its importance as a risk-free base for rouble interest rates, at least for terms exceeding one year. Corporate sector Today Impex Bank is auctioning its third rouble issue with a size of RBL1.3bn. The bond has 4 years to maturity, semiannual coupons and a 1.5-year put option to which it will initially be trading. Impex Bank is rated B-/Stable by S&P and Fitch, and B1/Stable by Moody’s. The presence of international credit ratings positively distinguishes this issuer from the vast majority of medium-sized Russian banks. We are expecting the YTP of the new Impex Bank bond to be in the range of 9.25-9.5%. Short term market view The growing yields of US Treasuries increase our confidence that holding a significant amount of long rouble bonds is not a very good strategy for the second half of November. It is quite likely that the liquidity squeeze this month will also be severe, similar to October, and there’s a strong probability that falling Russian Eurobonds will continue pushing yields of long-term OFZs higher, beyond the 7% level. As a result, right now we continue to recommend reducing the overall portfolio duration and paying more attention to the primary market and shorter protective issues. Our general recommendation regarding long rouble bonds remains a Sell. Dmitry Dudkin, Moscow (7 095) 755 5480 City of Moscow budget for 2006 City of Moscow approves the 2006 budget and record borrowing program Yesterday, the City of Moscow Duma completed the approval process for its 2006 budget. This budget is the biggest among the 89 regions, accounting for some 10% of the federal budget. Unlike the federal budget, however, in 2006 the City of Moscow’s is set to have a deficit of RBL56.6bn (US$2bn), or 11.2% of revenues. Nevertheless, this shortfall looks manageable and will still allow the city to borrow on the Eurobond market (according to the Russian legislation, a region’s deficit must not exceed 15% of its revenues if it wants to access international capital markets). Moreover, we expect budget revenues to be higher, although this is unlikely to influence the Moscow authority’s decision to replace the existing Eurobond to be redeemed in spring 2006 with a new Eurobond issue of EUR410mn maturing 10 or 15 years. In 2006, the City of Moscow will also increase its borrowing on the domestic market, with a total volume planned of RBL57bn (US$2bn) consisting of 10-15 year papers (amortised). Investment implications: We welcome the 2006 City of Moscow budget which looks solid and realistic. Its deficit remains relatively low although increased compared to 2004. The healthy borrowing appetite of the city could also be considered as a positive factor supporting the high liquidity of City of Moscow bonds in the market. Taking into account that Russia is very unlikely to issue any sovereign Eurobonds in the coming years, City of Moscow and Gazprom (quasi-sovereigns) are increasingly likely to play the role of Russian benchmark. A new long-term City of Moscow Eurobond will be important from this point of view. Julia Tsepliaeva, Moscow (7 095) 755 5489
VTB Capital MNB Daily Market Comment
Raiffeisen Bank Russian Daily Monitor
Description
Rosneft fails to approve consolidation Vedomosti reported Thursday that Rosneft ,s Board of Directors has not managed to approve the consolidation of the company ,s subsidiaries, a move necessary to make way for the company ,s IPO scheduled for 1H06. We see two possible reasons for the delay. The first is the dubious results of valuations of Rosneft subsidiaries, with the value of several companies significantly different from their market capitalization. The second is that Yugansk prefs are still under arrest, and thus it is impossible to conduct any transactions with them. If the consolidation was rescheduled in order to reappraise the conversion ratios for the subsidiaries, chances are high that Rosneft could raise their valuations * positive news for minority shareholders. Change in store for oil reserves valuations The Ministry of Natural Resources has put forward a proposal to change the classification of Russian oil and gas reserves to bring reserve valuations in line with Western classifications. The major difference of the new system, which would come into force sometime in 2009, is the introduction of economic assessment of reserves, i.e. the classification of reserves according to how efficiently and economically they can be developed. The new system also implies the reduction of reserves categories (with the abolition of category C3, for example) as well as accounting for the degree of geological exploration. The introduction of the new system of reserve estimates is a positive step forward, which would make reserve valuations more understandable to foreign investors, and in the long run should prompt the revaluation of Russian oil and gas stocks. Rumours link Pepsi to WBD Vedomosti reported Thursday that the recent 11% price increase of Russian dairy and juice producer Wimm-Bill-Dann ,s ADRs may have been caused by rumours that the soft drinks giant PepsiCo intends to buy WBD ,s juice business. A senior official at the Russian company said, however, that there are no negotiations about the company ,s sale at present, and we are inclined to believe him. It is almost impossible to separate WBD ,s juice business from its dairy business because of common production capacities. Instead, we think the company ,s ADRs probably grew because they were lagging behind the rally in consumer stocks, and have been playing catch-up with their peers. AC&M reports mobile figures for October Consultancy AC&M on Wednesday reported mobile figures for October. The Russian-wide subscriber base (the number of valid SIM-cards) grew 4.02 mn to 115.76 mn, with penetration reaching 79%. MTS was the leader in net additions, attracting 1.5 mn new users, to ensure leadership in the Russian mobile market. We expect a significant acceleration in subscriber base growth in November, and especially in December because of the traditional Christmas rally. As a result, the number of Russian mobile users could easily climb to 130 mn by the end of the year (we initially expected 122 mn). We may thus be forced to revise our fair price estimates for Russian mobiles. Money market Local FX trade on Thursday was smooth, with dollar bids slightly above RUB 28.8 as the euro continued to float between USD 1.17-1.18. But we still see the possibility of a technical euro rebound to last month ,s average of USD 1.21. Such a move could be triggered by Thursday ,s data releases on import prices to the United States. Prices are expected to have fallen slightly over October, thus easing concerns of building inflationary pressures and the prolonged dollar-supportive interest rate policy. Data on the U.S. trade balance for September is expected to show marginal widening of the deficit, which could underscore existing risks of U.S. imbalances. Thus, if the data is in line with expectations, a euro rebound looks the most likely scenario, which should bring a rouble recovery against the greenback. Eurobonds Intraday Russian Eurobond dynamics appear increasingly dependent on benchmark movements. Despite Wednesday ,s auction of 5-year U.S. Treasury notes (evidence of a drop in the share of foreign demand for U.S. debt) and the upcoming placements of additional U.S. debt (a 10-year note auction is due on Thursday) further yield expansion does not appear imminent. On Thursday, the release of U.S. October import prices is expected to show a 0.2% m-o-m drop, as compared with the previous month ,s figure of 2.3% m-o-m. Such signs of falling inflationary pressure could help buoy the market. Meanwhile, Russian papers have not regained their loses after the emerging market sell-off in early October * unlike those of Mexico and Brazil, and to a lesser extent Turkey ,s overseas bonds. The long-term prospects of Russia do retain some risks, which justifies the underperformance of Russian papers relative to the emerging market peers in the last weeks. However, short-term Russian papers may look like interesting buying opportunities given that strong fundamentals secure undisturbed repayment of the debt in the coming years. On Wednesday, the yield of Russia ,30 expanded 3 bps to 5.79%, following a 7 bps rise of the yield of the 10-year UST to 4.64%. The EMBI+ Russia yield spread hit 116 bps, down 1 bp. Equity market Russian equities trading proved a mixed bag on Wednesday. Among the main movers, Sberbank was up 1.3 %, UES regained its previous day ,s losses, climbing 1.2%, while Tatneft ended down 1.85%. Kalina posted very strong U.S. GAAP results for 1H05 * the cosmetics producer is still the least expensive Russian consumer company and this fact, along with its solid operating and financial performance, makes the stock very attractive for investors. We would also highlight Norilsk Nickel, which is lagging the market recovery despite strong momentum in nickel prices. Overall, the market is likely to trade sideways, mimicking the flattish dynamics of global markets.
BTA bank Analysis of EURUSD influence on USDKZT
November 09, 2005
Raiffeisen Bank Russian Daily Monitor
Description
Money market The euro has retained its position below USD 1.18, preserving the dollar ,s value on the local market at a one-year high of RUB 28.85. The four-day dollar surge seems excessive, pointing to the possibility of a technical euro rebound in the coming days. However, on the back of relatively flat newsflow for both the U.S. and European currencies, the stabilization of the euro around USD 1.18 seems the most likely scenario for Wednesday. Rouble exchange rate dynamics remain a straight reflection of euro-dollar moves, and local greenback bids are likely staying around RUB 28.8. Eurobonds As expectations of continued interest rate hikes look unlikely to change toward more aggressive moves from Fed, market demand for benchmarks is starting to recover, pushing yields down from their recent highs. Russian sovereign Eurobonds are following the trend, retaining a spread of around 110-120 bps. We see room for further yield tightening, although the move may continue over a longer period, likely following some period of stabilization in the coming days. U.S. Treasuries bounced back on Tuesday with the yield of the 10-year benchmark clocking in at 4.57%, down 7 bps on the day. Reviving market sentiment allowed Russian papers to find strong bids as well. The yield of the Russia ,30 tightened 9 bps to 5.76%. The EMBI+ Russia index saw yield spreads 3 bps narrower to 117 bps. Equity market The Russian equity market is likely to drift sideways again on Wednesday, propped up by rich domestic liquidity. It should also find support from relatively good performance from Russian ADRs. While the oil price continues to stagnate because of recovering crude production in the U.S. * the indicative Brent price softened 0.51% to USD 58.11/bbl on Tuesday * this need not seriously affect Russian oil & gas names. It looks as if investors are using current share prices to accumulate stock ahead of an expected rally at the end of the year. The Russian equity market faced another weak day Tuesday, as the benchmark RTS lost 0.04% to close 971.21. Russian heavyweight showed directionless dynamics, with Lukoil weakening 0.09%, while Gazprom locals and ADSs managed to add 0.31% and 0.33%, respectively. In New York, there was some demand for Russian ADRs, and most closed in black. Wimm-Bill-Dann is one to watch, growing an impressive 10.76% on Tuesday on healthy volumes in anticipation of 3Q05 results under U.S. GAAP.
VTB Capital MNB Daily Market Comment
ING Wholesale Banking Russia Russian Fixed Income Daily
- We see US10Y at 4.75% by mid-December
- Impex Bank YTP range 9.25-9.5%
- We matain a Sell recom. for long rouble bonds...
Description
Rouble bond market Supported by growth of Russian Eurobonds, on Tuesday the domestic bond market basically remained unchanged, demonstrating now already traditional low trading activity. There was just one notable negative exception on this overall neutral background: long-term government bonds took a small step down, although this happened simply because they had been miraculously unaffected by the general market fall on Monday. US10Y has been cheering the world bond markets with its performance over the last two days: since Friday, 10-year Treasuries dropped in yield from 4.68 to current 4.55%, causing some rebound of emerging markets’ debt. On the other hand, we believe that this positive movement is just a correction on a longer trend towards higher rates. On December 13 another FOMC decision is expected to raise the short-term rate to 4.25%, while we believe that US10Y will maintain at least a 50bp spread over the target rate, thus reaching at least 4.75% by mid-December. Corporate sector Price changes of high-grade corporate bonds in secondary trading: Gazprom-4 -2bp, Lukoil -10bp, RZhD-3 -5bp, FSK UES-2 -28bp. Second-tier issues: Megafon-3 -5bp, CenTel-4 +10bp. As can be seen, price movement was very weak and inarticulate. Tomorrow, on November 10, Impex Bank is planning to place its third rouble issue with a size of RBL1.3bn. The bond will have 4 years to maturity, semiannual coupons and a 1.5-year put option to which it will initially be trading. Impex Bank is rated B-/Stable by S&P and Fitch, and B1/Stable by Moody’s. The presence of international credit ratings positively distinguishes this issuer from the vast majority of medium-sized Russian banks. In July 2005 Impex Bank was rated 25th by assets and 29th by capital in the Russian banking system. The bank’s assets were at that time approximately US$1.5bn, being almost entirely represented by loans to diversified businesses and individuals. According to its business model, Impex Bank is a dedicated retail institution, aimed at providing a wide variety of classic banking services to its clients. The bank is entirely controlled by the UNICOR holding company, which in turn, has two final beneficiaries: Boris Ivanishvili and Vitaly Malkin. Impex Bank already has a floating issue on the rouble bond market, ImpexBank-2 with a size of RBL1bn, which is now trading at 8.8% to a put option in 6 months. Being extrapolated for a term of 18 months, and taking into account the slope of the yield curve between these terms, this gives us a yield of approximately 9.5%. However, we believe that the yield of ImpexBank-2 incorporates an illiquidity premium as having been placed in April 2005, this short bond has already lost its former trading liquidity. The peers of ImpexBank relative to which the new bond can be priced include HCFB-3. HCFB-3 is currently trading at 8.55% to put in 17 months. Home Credit and Finance Bank is rated B- by S&P and Ba3 by Moody’s, occupying 34th place by assets (US$1.1bn). On the other hand, though being a bit smaller in scale than Impex Bank, HCFB has definite advantages: 100% foreign capital and audited financial reporting according to IFRS. In addition, HCFB-3 has a significantly higher liquidity as the size of the issue is RBL3bn. Summarising what was said above, we believe that a fair range for the YTP of ImpexBank-3 at the primary placement auction is 9.25-9.5%. Investors should not expect this bond to be actively traded after the first month of floatation, but we recommend inclusion of this issue into passively managed portfolios provided its yield results in the recommended range or above. Short term market view The second half of November is likely to produce rouble liquidity shortages similar to those seen in the end of October. In addition, it cannot be ruled out that the downward movement of US Treasuries will resume already this month. As a result, right now we continue to recommend reducing the overall portfolio duration and paying more attention to the primary market and shorter protective issues. Our general recommendation regarding long rouble bonds remains a Sell. Dmitry Dudkin, Moscow (7 095) 755 5480
November 08, 2005
Alfa Bank Alfa Bank\'s Weekly Report
Description
Our expectations: ь Exchange and money markets The correlation between US and EU percentage rates alongside the ongoing disorder in France will enable the dollar to strengthen against the euro to $1.18/?, corresponding to a ruble rate of R28.7-28.8/$. Toward the end of the week, sales of currency proceeds by Russian enterprises at a profitable rate may allow the ruble rate to settle in a range of R28.6-28.7/$. ь Ruble bonds market Prices will decline (primarily in 1st tier bonds) this week on the ruble bond market due to the sharp depreciation of the ruble against the US dollar, the reduction of sovereign debt, and also preparations for the placement of Russian Railway bonds. ь Eurobond market In the absence of key news this week, the external debt market will most likely drift sideways as investors abstain from decisive action until next week?s publication of US inflation data. Attention will focus on US Treasury auctions with a total volume of $40 bln, as well as on commentary by Fed representatives.
Raiffeisen Bank Russian Daily Monitor
Description
Money market After relatively quiet trade on Monday, the euro tumbled to USD 1.173 this morning, likely reflecting fears surrounding the street violence in France and the possiblity it could spread across the continent. However, we see this factor as unlikely to spark substantial disturbances in euro-dollar dynamics as we see the potential effects as short-lived. Instead, expectations of interest rate gap between the United States and European Union should remain the major force shaping euro-dollar dynamics. Given that Russia ,s Central Bank is likely to remain loyal to its currency basket rule at least until the end of the year, we expect the rouble ,s value to remain close to Monday ,s levels in the mid-term. At present the possibility of a euro rebound to USD 1.20 appears to depend on the political will of countries sharing the euro to let the ECB lift the rate. Eurobonds Russian Eurobonds continue to track movements in U.S. Treasuries, as the latter appear poised for yield tightening after a recent sell-off. We see long-term benchmark yields as unlikely to climb far from current levels, suggesting that expectations of long-term inflation should remain contained. Russian papers, retaining a fair yield spread of 110-120 bps, should follow the benchmarks. In the coming days we expect a sideward drift on the market, at least until the release of the University of Michigan confidence index on Thursday. The Russian Government reiterated its willingness to pay back its USD 28 bn to the Paris Club group of debtor nations ahead of a schedule, with the first payments likely to be conducted as early as the beginning of 2006. Although the outcome is not yet clear, we see little upside for Russian sovereign debt from further early redemption of external debt. The major rating agencies have made it clear that further credit rating upgrades for Russia will not depend exclusively on quantitative characteristics. On Monday the yield of Russia ,30 added 1 bps to 5.85%, while the yield of 10-year UST lost 2 bps, clocking in at 4.64%. The EMBI+ Russia spread widened to 120 bps, up 1 bps on the day. Equity market We expect the Russian equity market to see slippage on Tuesday as it appears to have temporarily lost the support of foreign investors. The global funds that fuelled a rally in emerging markets over the past two weeks appear to have lost their appetites for risky assets. Mid-term sentiment around the oil price remains bearish because of warm weather everywhere in the Northern Hemisphere and recovering U.S. crude production capacities in the Gulf of Mexico, deflating demand for Russian oil & gas names. The indicative Brent price lost 2.13% on Monday to hit USD 58.41/bbl. However, the Russian equity market looks strong enough to escape a sharp decline before global funds return. The local equity market saw some rollercoaster trading on Monday with a price drop at the opening before a mini recovery. The benchmark RTS softened 0.08% to close at 971.64, with all Russian oil & gas name closing in the red. In New York, Russian ADRs were unable to find reasonable bids and most fell on the day.
VTB Capital MNB Daily Market Comment
ING Wholesale Banking Russia Russian Fixed Income Daily
- VTB gets full investment grade
- Impex Bank can benefit from S&P\'s rating action
- RZhD to place RBL15bn of bonds on November 16...
Description
FX and money market On Monday morning, the rouble dropped significantly to RBL/USD28.76 (-20 kopecks compared to Thursday) following the euro’s depreciation to USD/EUR1.18, and during the day continued to trade around this level. As a result, on the back of dollar’s strengthening speculative demand for dollars increased the cost of rouble funds with overnight interest rates jumping to 4-4.25%. We believe this tension will be short-lived, however, and no significant problems are expected on the market before mid-November. Currently, the rouble has fallen to RBL/USD28.83 after losing eight kopecks as the euro continues to slide down. Today we see the rouble at RBL/USD28.81-28.86 Olga Golub, Moscow (7 095) 755 5176 Rouble bond market On Monday, the local bond market dropped in price from Thursday’s levels following the selling of Russian Eurobonds on Thursday and Friday, which in turn, was a consequence of weak US Treasuries. On the other hand, the retreat was not very strong, lacking support from long OFZs that had lost trading liquidity. In addition, yesterday was quite a positive day for US Treasuries, as US10Y fell in yield from the 4.68% peak reached on Friday and is now trading at 4.6%. Accordingly, Russia’30 left the 109 figure area and is now quoted close to 110.25, YTM 5.81%, 121bp above US10Y. This positive movement is likely to support the domestic market in today’s trading, but overall our expectations regarding US10Y remain on the downside: we anticipate that US10Y still has the potential to reach 4.75% and probably test the 4.9% peak. Corporate sector As mentioned, the majority of corporate papers were gradually retreating on Monday, reflecting concerns market participants had about the future movement of long-term rouble rates. Price changes of high-grade corporate bonds in secondary trading: Gazprom-4 -31bp, Lukoil -10bp, RZhD-3 -35bp, FSK UES-2 -32bp. Second-tier issues: UrSI-5 -30bp, CenTel-4 -27bp. S&P upgraded it credit ratings for nine Russian banks yesterday, stating that the Russian banking system continues to benefit from general economic expansion, especially in the retail sector. The list of upgraded banks includes: VTB, IMB, Alfa Bank, MDM, Uralsib, BIN Bank, Ural Bank for Reconstruction and Development, Petrocommerce, and Promek Bank. The first names represent the core of the Russian banking system, which makes this upgrade a rather notable positive change in the attitude of S&P to Russian banks in general. The upgrade of VTB to BBB-/Stable makes it the second Russian company after RZhD with a full investment grade: the bank is now rated BBB-/BBB/Baa2 by S&P, Fitch, and Moody’s respectively. Inpex Bank, which is planning to launch a RBL1.3bn issue on November 10 (see our weekly publication for a thorough discussion), was not upgraded, but is likely to indirectly benefit from this rating action as well. We’ve been expecting the bond’s YTP to result in the range of 9.25-9.5% for 1.5 years, and now there is a possibility that S&P’s action will help bring the YTP closer to the lower border of this range. RZhD announced yesterday it was planning to place RBL15bn of its bonds on November 16 by selling two new issues. RZhD-6 will have a size of RBL10bn and 5 years to maturity. RZhD-7 will have a size of RBL5bn and 7 years to maturity. As mentioned earlier, RZhD has a full investment grade and is rated BBB-/Baa2/BBB by S&P/Moody’s/Fitch. We believe that a fair value of RZhD-6 at the primary placement is close to 7.4%, but we will be updating our advice closer to the auction. Short term market view As our view for US Treausries remains negative, and also taking into account that the money market is likely to produce higher short-term rates in the second half of November, we believe it is time now to reduce holdings of long rouble bonds. More attention should be paid now to the primary market and shorter protective issues. Our general recommendation regarding long rouble bonds remains a Sell. Dmitry Dudkin, Moscow (7 095) 755 5480
ING Wholesale Banking Russia Russian Fixed Income Weekly
- Story of the week
- Impex Bank primary placement
Description
Russia View for the week Story of the week: Administrative anti-inflationary measures, inflationary slowdown and the rouble 7 November 2005 Market commentary FX and money markets Last week the key event in international markets was Tuesday’s FOMC meeting, in which as expected the US Fed raised the benchmark interest rate a quarter point to 4%. In addition, the Fed said that it expected to continue to raise interest rates at a “measured” pace. As this event had already been priced in, the reaction of the market was reserved. On Thursday was the ECB meeting which was also very important for the market, with the bank preferring to keep its target rate at 2%, as had been expected. It did not, however, announce any clear intention to raise interest rates at the next meeting, which was disappointing for most market participants. As a result, the euro felt some downward pressure which was amplified by political factors. Last week the rouble continued to be linked to the euro/dollar and over the period lost 12 kopecks falling to RBL/USD28.55. Over the long Russian holiday weekend the euro continued to drop to USD/EUR1.18, and consequently, on Monday morning the rouble traded at RBL/USD28.75. This week we expect to see the rouble in the range of RBL/USD28.60-28.85. In general, an appreciation scenario looks less and less likely this year (please see our story of the week). We are downgrading our forecast for the rouble to RBL/USD28.50 (2005-end) but maintain our view that appreciation is very likely in the next 12 months due to the strong support of macroeconomic factors. At the beginning of last week on the back of the end-of-month effect, the money market faced spiking overnight interest rates up to 10-12%. The shortage of rouble liquidity stirred dollar sales, although these were not particularity large. However, with the beginning of the new month, market conditions gradually improved and overnight interest rates dropped to 2-3%. On Monday, due to the dollar’s strengthening against the euro, speculative demand for dollars increased the cost of rouble funds, with overnight interest rates jumping to 4-4.25%. We believe this tension will be short-lived, however, and no significant problems are expected on the market before mid-November. Olga Golub, Moscow (7 095) 755 5176 Rouble bond market Next week’s primary placements: Impex Bank On 10 November, Impex Bank is planning to place its third rouble issue with a size of RBL1.3bn. The bond will have four years to maturity, semiannual coupons and a 1.5-year put option, to which it will initially be trading. Impex Bank is rated B-/Stable by S&P and Fitch and B1/Stable by Moody’s. The presence of international credit ratings positively distinguishes this issuer from the vast majority of medium-sized Russian banks. In July 2005 Impex Bank was rated 25th by assets and 29th by capital in the Russian banking system. The bank’s assets were at that moment approximately equal to US$1.5bn, being almost entirely represented by loans to diversified businesses and individuals. By its business model, Impex Bank is a dedicated retail institution, aimed at providing a wide variety of classic banking services to its clients. The bank is entirely controlled by the UNICOR holding company, which, in turn, has two final beneficiaries: Boris Ivanishvili and Vitaly Malkin. Impex Bank already has an issue on the rouble bond market, ImpexBank-2 with a size of RBL1bn, which now trades at 8.8% to a put option in six months. Extrapolating for a term of 18 months, taking into account the slope of the yield curve between these terms, this gives us a yield of approximately 9.5%. However, we believe that the yield of ImpexBank-2 incorporates an illiquidity premium as, having been placed in April 2005, this short bond has already lost its former trading liquidity. The peers of ImpexBank, relative to which the new bond can be priced, include Rosbank and HCFB-3. Rosbank is now traded with a YTP of 7.5% for 16 months, while the bank is rated Ba3 by Moody’s and B+ by Fitch. At the same time, the bank is ranked 6th by assets (US$5.2) and 12th by capital among all Russian banks, so it is significantly larger in scale than Impex Bank. HCFB-3 is currently trading at 8.5% to put in 17 months. Home Credit and Finance Bank is rated B- by S&P and Ba3 by Moody’s, occupying 34th place by assets (US$1.1bn). On the other hand, though being a bit smaller in scale than Impex Bank, HCFB has definite advantages: 100% foreign capital and audited financial reporting according to IFRS. In addition, HCFB-3 has a significantly higher liquidity, as the size of the issue is RBL3bn. Summarising what was said above, we believe that the fair range for the YTP of ImpexBank-3 at the primary placement auction is 9.25-9.5%. Investors should not expect that this bond will be actively traded after the first month of flotation, but we recommend inclusion of this issue into passively managed portfolios provided its yield results in the recommended range or above. Dmitry Dudkin, Moscow (7 095) 755 5480 Story of the week Administrative anti-inflationary measures, inflationary slowdown and the rouble This year, we have reiterated several times that an appreciation scenario looks the most likely for the rouble, with strong macroeconomic performance and high oil prices continuing to put strong upward pressure on the Russian currency. Although nominal appreciation has not materialised, in January-October 2005 the rouble gained a solid 6.6% against the dollar in real terms. The main reason why the rouble still remains weaker than it could be (we estimate the equilibrium rate at RBL/USD25-25.50), is the policy choice of the local monetary authorities. In Russia, tough debate in the government about a possible policy to suppress inflation began in 2H05 when inflation accelerated above 13% (YoY) while the government’s 2005 inflationary target was 8.5%. Even the subsequently revised target of 10% has proved to be problematic, which has pushed the government to employ anti-inflationary measures, which we thought would involve the appreciation of the rouble. At the same time, industrial growth slowed below 4% YoY, which made the choice difficult as the government usually refers to the rouble’s appreciation as one of the main reasons for the slowdown. In October 2005, timing became a crucial factor. To see lower inflation already in 2005, which would be very important from a political point of view, the government cannot continue to delay its final choice. Procrastination is senseless from a bureaucratic point of view. In the last week of October, President Putin several times publicly stressed the importance of suppressing inflation and called emphatically for more efficient anti-inflationary measures. Earlier, we strongly held the view that allowing the rouble to appreciate would be a rational choice. Nevertheless, in the government there are strong supporters of the idea of a weak rouble. In October, inflation slowed down significantly to 0.6% MoM, or 11.7% YoY, a very pleasing and timely result for the government (taking into account the president’s criticism). Now it has become clearer that the government has used, and intends to continue using, administrative measures and price controls to slow inflation below 2004’s 11.7% (Dec/Dec): • First of all, retail gasoline prices (which rose a tiny 0.1% MoM in October) have been frozen for October-December 2005 in an agreement between the oil majors and the government. Usually, price caps are inefficient and are useful only for the short term. For example, in Ukraine the government also introduced price caps on gasoline in May 2005 to reduce inflation, but within a couple of months long lines were forming outside gas stations, forcing the government to remove the price caps. In Russia, price control measures could be more successful in the short term. Taking into account that Rosneft and Sibneft (16% and 7% of total oil production) are part of government-controlled Gazprom, and the loyalty of Lukoil (19% of oil production), the temptation to extend price controls to 1H06 is very strong. • Housing/communal tariffs have also been frozen. For example, in October fixed-line telephone tariffs had been planned to be significantly increased by more than 40% – but this increase has been postponed. In 2005, communal and housing tariffs cumulatively rose by 32%. Yesterday, it was announced that in 2006, the cumulative further increase would not exceed 15-20%. Currently, it is not clear how this idea will combine with the initial plan for housing and communal reform, which requires a further increase in the share of communal costs paid by people and a dramatic reduction of the budget subsidies. • Import duties for some food products (for example, meat) will be significantly reduced to suppress food inflation. President Putin targeted inflation in 2005 to remain around 11% (Dec/Dec). Administrative measures may help to achieve this goal, but in the end, these are useful as a temporary solution only. In several months, the inflationary problem will arise once more if fiscal and monetary softening continues. Currently, we maintain our inflation forecast for 2005 at 11.5% (year-end) although the rouble is likely to remain strongly linked to the weighted trade basket. Fundamental factors are very supportive for the rouble’s strengthening, suggesting that it will be just a matter of time. But timing is crucial, and we are downgrading our forecast for the rouble to RBL/USD28.50 in 2005. As in 1H06, the problem of inflation is very unlikely to remain the key priority of the government, with the usual expectations that inflation could drop in summer or substantially fall later in the reporting period. This could shift the rouble’s appreciation against the weighted trade basket to 2H06. Being optimistic regarding oil prices in 2006 and other important fundamental factors, we maintain our forecast of the rouble in 2006 at RBL/USD27.00. Julia Tsepliaeva, Moscow (7 095) 755 5489
November 07, 2005
Raiffeisen Bank Russian Daily Monitor
Description
October inflation 0.6% m-o-m Consumer price inflation hit 0.6% m-o-m in October after 0.3% m-o-m the previous month, which brings the total for the first ten months of 2005 to 9.2%. Food prices advanced 0.4% m-o-m, while non-food and services appreciated 0.7% from the end of September. Given that consumer prices are likely to grow in the remaining two months at a pace close to that seen this time last year, annual inflation is likely to remain below the 2004 level of 11.7%. Such a result would likely allow the Central Bank of Russia to hold back from intervening on the FX market to temper currency purchases. This, in turn, should preserve the close rouble tracking of euro-dollar dynamics. Money market On Friday, as the local market enjoyed a new public holiday, the dollar broke its resistance level against the euro (near USD 1.19), and climbed to its highest level this year. Early Monday the euro has been traded at USD 1.181. The dollar ,s ascent was prompted by generally strong data on U.S. business sentiment, productivity gains and an October hike in labor costs. Attendant comments by Federal Reserve officials, including Alan Greenspan ,s testimony before the Joint Economic Committee of Congress, proved to be dollar supportive as well. Given little interesting data from the United States this week we expect the greenback to continue to drift sideways. The rouble is poised to track euro-dollar movements, advancing against the euro and losing some ground against the greenback. Eurobonds By Monday morning, Russian Eurobonds yields had expanded to a six-month high following a tumble in benchmarks on the back of relatively strong U.S. data releases at the end of last week. As movements in U.S. Treasuries remain the major force behind the dynamics of Russian papers, the market ,s attention is likely to be focused on data releases from the United States. This week seems unlikely to bring much interesting data, likely resulting in a sideways drift. On the whole, further yield expansion looks likely to be limited given expectations of long-term inflation that continue to be contained. After a period of stabilization likely this week, a moderate bounce in benchmarks and Russian Eurobonds may follow. On Friday the yield of Russia ,30 added 6 bps to 5.84%, while the yield of 10-year UST saw marginal expansion to 4.66%, up 1 bps on the day. The EMBI+ Russia index widened 6 bps to reach 119 bps. Equity market On Monday, we expect the Russian equity market ,s five-day growth spurt to end. Positive newsflow about the U.S. economy has already caused fund outflows from emerging markets and the Russian market, closed on Friday, should quickly catch up with its emerging market peers. We expect no support from oil prices, which declined on Friday because of mild weather in the United States and healthy stockpiles. The indicative Brent price declined 2.15% Friday to USD 59.68/bbl. The Russian equity market gained 0.83% Thursday to hit 972.43. In New York, trading was nothing to write home about.
ING Wholesale Banking Russia Russian Fixed Income Daily
- General recom. for long bonds changes to Sell
- IrkutskReg-1, Tattelecom, TMK-1 and -2, Mechel-SG downgraded from Buy to Hold on good performance...
Description
FX and money market Last week the rouble continued to be linked to the euro/dollar and over the period lost 12 kopecks falling to RBL/USD28.55. At Thursday’s ECB meeting, the Bank left its target rate at 2% in line with market expectations, although it did not announce any intention to raise interest rates at the next meeting, which disappointed many market participants. As a result, the euro felt downward pressure which was amplified by political factors. Over the long Russian weekend the euro continued to drop to USD/EUR1.18, and consequently, this morning the rouble is trading at RBL/USD28.75. Today we expect to see the rouble in the range of RBL/USD28.74-28.80. In general, an appreciation scenario looks less and less likely this year (please see our economic comment today). We are downgrading our forecast for the rouble to RBL/US$28.50 (2005-end) but maintain our view that appreciation is very likely in the next 12 months due to the strong support of macroeconomic factors. Olga Golub, Moscow (7 095) 755 5176 Rouble bond market On Thursday, the rouble bond market continued growing on relatively modest trading activity. On the other hand, growth was notable only in the municipal and corporate sectors, while long-term OFZs more or less remained unchanged. A very soft payrolls release on Friday did not help US Treasuries much, as having made an attempt to drop in yield shortly following the job report publication, US10Y only touched 4.6% for a moment, later jumping back to its current 4.68%. As a result, US10Y definitely appears to be targeting a new consolidation level of 4.75%, and has the potential to reach as high as 4.9% - the yield peak it reached in May 2004. As a result of this fall in US Treasuries, Russia’30 is now quoted approximately at 109.875 (YTM 5.85%, spread over US10Y 119bp), and as we mentioned earlier, 109 should serve as a short-term support if US10Y relocates to 4.75%. Government bonds On Thursday OFZ 46014 was quoted around YTM 6.9%, which means that its spread over Russia’30 at that point was 105bp – quite narrow, considering our estimation of the fair range for this spread of 100-120bp. This is very likely to cause some downward pressure on long-term OFZs this week, so we recommend taking precautions and start reducing the average portfolio duration to achieve limited exposure to the interest rate risk. Municipal bonds Price changes of the most popular papers in secondary trading: Moscow-39 +11bp, MosReg-5 +9bp, KrasnoyarskReg-3 +7bp. IrkutskReg-1, which was we recommended for buying last week, gained 19bp on Thursday, reducing its YTM to 7.65%. We believe that from this point the paper has the potential for further appreciation at least to 7.4%, but this is not so certain, so we are downgrading the paper from Buy to Hold. Corporate sector As mentioned, the corporate sector demonstrated an upbeat mood, although on the background of below-average trading activity. Price changes of high-grade corporate bonds in secondary trading: Gazprom-4 +20bp, Lukoil -5bp, RZhD-3 +25bp, FSK UES-2 +0bp. Second-tier issues: Salavat-2 +45bp, CenTel-4 +8bp. Overall, bonds that were on our Buy list as of Thursday performed quite well. Specifically, Tattelecom gained 21bp reducing its YTM to 8.66% for 18 months; TMK-1 grew 17bp, dropping in yield to 7.89% to maturity in 12 months; TMK-2 added 40bp to its price, now yielding 8.1% to put in 17 months; Mechel-SG appreciated by 23bp, dropping in yield to 7.54% for 7 months. We believe that in current market conditions increasing one’s position is unreasonable, so we are downgrading the above-mentioned papers from Buy to Hold on the good performance. Short term market view Last week was very positive, as the consequences of the large selling in the second half of October were partly erased. On the other hand, the current moment appears to be the best from the standpoint of money market conditions, while US Treasuries continue to pose a significant threat to prices of Russian Eurobonds. These factors taken together suggest that we probably won’t see prices as high as last Thursday throughout the remainder of November. We accordingly change our general recommendation regarding long rouble bonds from Hold to Sell. Dmitry Dudkin, Moscow (7 095) 755 5480 Administrative anti-inflationary measures and inflationary slowdown In October, inflation slowed down significantly to 11.7%(YoY) as a result of administrative measures Last weekend, PM Mikhail Fradkov announced that in October inflation slowed down significantly to 0,6% (MoM), or 11.7%(YoY). The FSSS is likely to release the detailed figures today, which will allow us to better analyse the main reasons of this pleasing and timely result. At the last week of October, President Putin several times publicly stressed the importance of suppressing inflation and rigorously called for more efficient anti-inflationary measures. We have been expecting for some time that the issues of inflation and the implementation of anti-inflationary measures would return to the government’s agenda. Earlier, we strongly held the view that although not an easy decision for the central bank to make, allowing the rouble to appreciate would be a rational choice (although doing so would be good for consumers, it would be negative for producers). Nevertheless, there are strong supporters of the idea of a weak rouble in the government. Now it has become clearer that the government intends to use administrative measures and price control to slow inflation below 2004 result of 11.7% Dec/Dec: First of all, retail gasoline prices (which rose 0.1% MoM in October) have been frozen for October-December 2005 on agreement between the oil majors and the government. Usually, price caps are inefficient and can be useful for the short-term only. For example, in Ukraine the government also introduced price caps on gasoline in May 2005 to reduce inflation, but within a couple of months long lines were forming outside gas stations, forcing the government to remove the control. In Russia, the price control measures could be more successful in the short term. Taking into account that Rosneft and Sibneft ( 16% and 7% of total oil production) are part of government-controlled Gazprom, and the loyalty of Lukoil (19% of oil production), the temptation to extend price control to 1H06 is very strong. Housing/communal tariffs have also been frozen. For example, in October fixed-line telephone tariffs were planned to be significantly increased by more than 40% – but this increase has been postponed. In 2005, communal and housing tariffs cumulatively rose by 32%. Yesterday, it was announced that in 2006 further increase would not exceed 15-20%. Currently, it is not clear how this idea will be combined with the initial plan of housing and communal reform, which requires further increase in the share of communal costs paid by people and a dramatic reduction of the budget subsidies. Import duties for some food products (for example, meat) will be significantly reduced. President Putin targeted inflation in 2005 to remain around 11% (Dec/Dec). Administrative measures may help to achieve this goal, but in the end, these are useful as a temporary solution only. In several months, the inflationary problem will arise once more if fiscal and monetary softening continues. Fundamental factors are very supportive for the rouble’s strengthening which makes it just a matter of time. But timing is crucial, and we are downgrading our forecast for the rouble to RBL/US$28.50 in 2005. As in 1H06, the inflationary problem is very unlikely to remain the key priority of the government with the usual expectations that inflation could drop in summer or substantially fall later in the reporting period. This may shift the rouble’s appreciation against the weighted trade basket to 2H06. Being optimistic regarding oil prices in 2006, we maintain our forecast of the rouble in 2006 at RBL/US$27.00. Investment implications: Currently, the government seems to be leaning towards anti-inflationary measures of an administrative nature, which makes rouble appreciation in 2005 quite unlikely. We downgrade our view for the rouble to RBL/US$28.5 at 2005-end, and maintain our 2006 forecast at RBL/US$27.00 as macroeconomic factors remains very supportive for the appreciation scenario. Julia Tsepliaeva, Moscow (7 095) 755 5489
VTB Capital Russian GDP Indicator
“Research and analytics” section shows daily analytical commentary, weekly and special reviews from leading investment banks on the following topics: macroeconomics, money market, bonds and international bonds, syndicated loans and promissory notes. Comments can be searched by topic, source, key words, and review publication frequency. It is possible to set automatic e-mail sending of required comments from a certain source.
minimizeexpand
150 000
issues: local and international bonds
170
countries
+7 812 336 97 21
pro@cbonds.info
150 000
issues: local and international bonds
170
countries
Сbonds is a global Fixed income data platform
+7 812 336 97 21
pro@cbonds.info
Data
  • Descriptive data on bonds
  • Bond Quotes from trading systems and market participants
  • Prospectuses and other issue documents
  • Credit ratings
  • Indices and indicators
  • Market news and analytical research
Analytical instruments
  • Multi-parameter bond database search
  • Bond Maps
  • Market calendar
  • Bond calculator
  • Watchlist and Portfolio management
  • Chart analysis
  • Mobile App and Excel Add-in Tool
Enter or RegisterSubscription/Trial access
×