Russian Daily Monitor 30/05/2005

Rosneft valued at $26.4

Rosneft has been valued at $26.4 billion by Morgan Stanley and 2-K Audit,
Interfax reported on Saturday, quoting a statement from the Federal
Property Agency. Interfax said the agency would transfer 100% of the oil
firm at market value into Rosneftegaz, a specially created vehicle that
the Russian government plans to use to fund an increase in the state
,s
stake in Gazprom on June 8.
The valuation envisages a Rosneft EV of at least $40 bln
* while six
months ago Rosneft was valued at $7 bln-$8.5 bln, and Yuganskneftegaz was
bought for $9.35 bln. It is so far unclear how the $20 bln of Rosneft
,s
debt associated with the purchase of Yugansk will be treated.
Meanwhile, the Vedomosti daily quoted an unnamed Kremlin source as saying
that the government intends to buy a 10.74% stake in Gazprom for some $5-6
bln. The price is much lower than the current market price of the stake
($7.2 bln as of Friday
,s close). If true, the news would be slightly
negative for Gazprom shareholders, meaning they would basically have to
pay for the ring-fence removal themselves. We hope Gazprom will use all
its lobbying power to bargain for higher price
*the gas giant is known to
want around $8-10 bln for the stake.

UES could lift moratorium on asset sale in a month

The moratorium on UES asset sales could be lifted if the Board of
Directors agrees on a distribution scheme of proceeds from the sales at
its late June meeting, according to reports. The Board failed to approve a
scheme that envisaged directing 45% of the proceeds on share buy-outs as
directors ordered management to elaborate on the issue, including exact
specification of the use of the other 55% of proceeds.
The moratorium was introduced three years ago to protect minority
shareholders from asset stripping, but by now has started to deprive the
UES reform of room for manoeuvre. UES CEO Anatoly Chubais told the press
that lifting the moratorium would allow minor on-the-fly changes to the
composition of Territorial Generation Companies, divestures of small
generation plants with one key consumer, or even a sale of one (or maybe
more) of the thermal Wholesale Generation Companies, if such mechanism is
endorsed by the Economic Ministry which is now examining the complex
electricity reform plan.
Reaching an agreement on that sensitive a topic would likely benefit UES
shares, although the sums involved would likely remain modest unless a WGC
is sold. Concerning the latter possibility, the impact on value will be
mixed, we believe. On the one hand, core assets such as a WGC are unlikely
to sell for high prices at this still far-from-final stage of the reform,
while on the other hand, such a sale would ultimately prove the transition
to a competitive generation market irreversible, implying a boost for UES
shares.
UES
, AGM will take place on June 29 (May 10 was the cut-off date).

MMK seeks suppliers

MMK is struggling to protect itself from a stoppage of ore supplies from
Mikhailovsky Mining and Lebedinsky Mining, controlled by Alisher Usmanov,
and SSGPO. Vedomosti reported Monday that Ukraine
,s Poltavsky Mining is to
deliver a pilot shipment of ore to MMK, and the latter hopes that
shipments from Ukraine will help substitute deliveries cancelled by
Mikhailovsky. It is rumored that MMK plans to buy a 15% stake in Poltavsky
Mining to protect its supplies. MMK will also take ore from Korshunovsky
Mining, a Mechel subsidiary. But it is obvious that shipments from
Poltavsky and Korshunovsky Minings are not enough for MMK and it will have
to find a partnership with a Russian ore producer: Mechel, Evraz or
Usmanov
,s holding.

Money market

The dollar, at its highest point against the euro this year, has hit a
three-month high against the rouble. We still see a further dollar rise as
likely, although further strong U.S. data looks necessary to fuel a
continued ascent by the greenback.
On Friday, the release of U.S. unemployment figures for May, which were
unchanged as expected from April at 5.2%, could still prove a market
mover. Among local factors shaping dollar-rouble dynamics is the still
generous inflow of export revenue, which has been pushing the rouble up
over the last 7 years. We expect that next week
,s release of export and
import data for April should underline this trend.
On Friday the rouble lost 1.7 kopecks against the dollar to hit RUB 28.08,
while the euro gained slightly to hit USD 1.257. On Monday, on the local
market, the dollar looks set to float close to RUB 28.08 as liquidity
gradually recovers.

Bond market

This week the Rouble bond market is likely to feel support from recovering
liquidity and the stabilization of dollar-rouble dynamics, which is set to
favor forthcoming placement this week. On Tuesday, MGTS will conduct the
placement of its RUB 1.5 bln issue, maturing in May 2010 with the interest
rate to be set by auction. In June, three placements are to be held with a
total nominal value of RUB 2.7 bln: Adamant-Finance with RUB 0.5 bln issue
maturing in 3 years, RUB 1 bln issue of Tinkoff-Invest maturing in June
2008 and Nutryinvestholding bonds with a nominal value of RUB 1.2 bln,
maturing in four years.
The Russian Eurobond market is holding a record high position, conforming
to the largest year-to-date flow into emerging market bond funds since
1995, according to data published on Friday by Emerging Portfolio Fund
Research (EPFR). We still see the main support for the Russian Eurobond
market as coming from local developments
) for example a likely
forthcoming credit rating upgrade closer toward the end of the year.
On Friday, the Russian Eurobond market saw little change with the
sovereign credit spread contracting by 1 bps to a record low of 171. The
yield of indicative Russia
,30 fell by 1 bps to hit 5.86% following the
benchmark
,s yield tightening of 1 bps.