Russian Daily Monitor 07/05/2005

Sibneft sets Russian dividend record

Sibneft announced a dividend of $0.483 per share for 2004, implying an
amazing 14% dividend yield and a record total payout of $2.3 bln. The
stock price shot up 3.51% on the news, booking an 11% w-o-w gain on six to
eight times average turnover.
The ex-dividend date (and the date of the repeat AGM) have yet to be
determined.
Sibneft
,s principal shareholders have indicated several times that they
want to get their hands on the 14.5% of the company
,s shares locked with
YUKOS before offloading accumulated cash. Therefore, the huge dividend was
somewhat unexpected -- though it is consistent with the recent rumour that
the company is about to change hands. Encouragingly, core shareholders
opted for a transparent way to cash-out, which could also help YUKOS,
entitled to $793 mln on its total 34.5% stake. Meanwhile, a Sibneft source
told Vedomosti that a very close court decision finally snatching the
disputed 14.5% of shares from YUKOS is the development core shareholders
are actually waiting for before announcing the cut-off date for the AGM
and the dividend. However, as the change to the register will be
backdated, it does not mean that the cut-off date is still ahead and that
it still makes sense to buy Sibneft in hope for the dividend.

RTS curbs weighting of LUKoil, Surgut

From July 15, the RTS intends to introduce an amended methodology for
calculating its benchmark dollar index, introducing a 15% cap on the
weighting of any single company. The change will be a blow to LUKoil,
whose free float-based share of total market capitalization is currently
34.52%, and Surgutneftegaz, with 17.7% (combined ordinary and preferred
shares). Also, the number of securities in the index will be limited to 50
(down from the current 68).
With the exception of LUKoil and Surgut, other equities stand to benefit
from the change, even if only marginally. In fact, with the RTS lacking a
number of key papers like Gazprom and mobile telecoms, the few index
equity funds in Russia are more likely track the MSCI Russia, especially
after the recent expansion of that index. LUKoil and Surgut
,s image as
flagship listed Russian oils should not suffer significantly.

Conoco ups LUKoil stake

ConocoPhillips
, preliminary 1H05 results stated that the company has
raised its stake in LUKoil from 11.3% to 12.6%. The fact that
ConocoPhillips has moved beyond its initial commitment of 10% should
support LUKoil
,s shares
* the U.S. major may now boost its stake in LUKoil
to 20%.

Foreign Investment Jumps

According to preliminary estimates from the Central Bank, foreign direct
investment in the first half of the year totaled $9.3 bln, almost double
the figure for the same period last year. In the meantime, without a clear
picture of the origin of the foreign investment and sectors it flowed
into, it would be and exaggeration to take this as a sign of the recovery
of the business climate in Russia, which suffered notably from the YUKOS
affair and unwarranted tax probes. However, growing consumption from
Russian households and their increasing ability to consume more expensive,
better-quality goods and services makes Russia a potentially attractive
region for foreign producers, especially when local production is
straining to meet national consumption needs. Among well-known advantages,
growing FDI investment in Russia could help local producers facilitate
innovation and, thus, overcome the ongoing slowdown in production.

Turkmen conflict resolved

Vedomosti reported Tuesday that MTS has managed to resolve its conflict
with the authorities in Turkmenistan. As was previously reported, MTS
bought 51% of American BCTI, which offers mobile services in Turkmenistan.
After two days, the Turkmen telecommunication ministry revoked the license
of the acquired company. However, after negotiations between MTS CEO
Vasily Sidorov and the Turkmen authorities, the license has been reissued
and MTS has agreed to pay Turkmen government additional taxes based on the
subsidiary
,s net income.
The development is positive the Russian operator as it has secured access
to a market with a growth potential. However, the Turkmen market remains
extremely risky and the deal will have little influence on MTS
, valuation.

Money market

The dollar climbed to 28.8 against the rouble on Monday as the Russian FX
market
,s tracking of euro-dollar dynamics continued. Still, we think the
euro may slide below the current 1.19 to the dollar as the latest data on
service sector improvements in the eurozone proved poorer-than-expected --
promising a slower recovery from the European currency. In accordance with
local rules, the rouble should follow the euro and hit 28.9 against the
greenback when EUR/USD subsides to 1.18.

Bond market

The corporate and sub-sovereign sectors of the rouble bond market remained
almost flat on Monday, likely depressed by a new dollar surge against the
rouble and concerns that a liquidity squeeze may follow. Corporate sector
sovereign bonds, on the other hand, feel more comfortable, having seen
growth for the last seven days, apparently on the back of swelling demand
from non-residents. However, trade in the sovereign sector looks quite
modest. At present, while the market remains reluctant to allow a downward
correction, the upside looks limited as well. We do not rule out the
possibility that the market may move down in the near term, especially if
new liquidity tightening follows on the heels of persistent rouble
weakening.
On Tuesday, the main event on the primary market is the placement of a RUB
0.6 bln issue from USKK. The bonds mature in three years and assume a put
option in one. The semi-annual coupon rate will be set at auction.
The sovereign sector of the Russian Eurobond market is experiencing a
record tight credit spread against U.S. Treasuries: 155 bps for the
EMBI+Rus index. We think that some yield expansion should follow in
sovereign sector in response to Friday
,s sharp fall of U.S. Treasuries,
which lost more than 10 bps on the day. A better strategy might be to
build position in the corporate sector, which holds the potential for a
contraction of its credit spread.

Equity market

On Tuesday the market is likely to take a pause for breath in its uphill
marathon as it feels the effects of sluggish performances from EMEA
markets on Monday. We still see considerable upside potential, but the
market will likely undergo a consolidation phase before reaching higher.
The Brent oil price continues to hover just shy of $60/bbl, supporting the
valuations of Russian oils.
Once the RTS
, amended methodology for calculating of its benchmark dollar
index kicks in on July 15 (see story above), LUKoil and few other
heavyweights may feel the pinch -- but other equities stand to benefit
from the change.
The RTS added another 0.4% on Monday to hit a year-to-date high of 720.5.
Trading volumes were decent, in spite of the absence of most Western
investors due to the Independence Day holiday in the United States. Many
blue chips closed in the black, with Sibneft (up 3.5%) climbing the most,
on the back of an announcement of record high dividends (see story above).
Turnover of Sibneft papers has increased dramatically, reaching $34.2 mln
per day on Monday (from a three-month average of $4.6 mln). Other oils
were also up, gaining a more moderate 0.5-1%. UES and Norilsk Nickel
declined on the day, losing 1.5% and 0.4% respectively.