Russian Daily Monitor

Svyazinvest won
,t be privatized before 1Q 2006

An Economic Development and trade Ministry official said Wednesday that
the privatization of Svyazinvest will not happen earlier than 1Q06. The
official also noted that the government would hold a golden share, and
would thus sell 75 percent minus one share in the state telecommunications
holding, a scenario we fully expected.
The government needs time to prepare the sale of Svyazinvest and we expect
it to pass some amendments to telecommunications law and the Svyazinvest
charter. After that, it should carry out an appraisal of Svyazinvest. Our
understanding of the timing of the steps assumes that the privatization
should really not happen before 1Q06. We thus do not consider the
statement as a sign of the postponement of the privatization, and we still
think that it can unlock the value of regional fixed-line operators and
Rostelecom.

Money market

The dollar-rouble rate is still towing the line, following the greenback\'s
global performance. As the euro wavered on Tuesday night and Wednesday
morning, the rouble did too, sliding 3.2 kopecks to 28.5797 RUB/USD.
Meanwhile, the euro resumed its ascent on Wednesday. The global market
turned out to be mistaken in expecting supportive news for the dollar. In
fact, Wednesday\'s chunk of U.S. data was mixed: While new homes sales set
a new record, boosted by very low unemployment rates, July durables orders
sagged almost 5% compared to June. U.S. jobless claims data, to be
released Thursday, could bring more clarity as to whether domestic demand
continues to drive the American economy. Meanwhile, a senior Federal
Reserve official said Wednesday night that not increasing interest rates
would create the risk of significantly higher inflation. The Fed\'s target
rate is currently 3.5%, with a full four weeks remaining until the next
meeting on September 20.

Bond market

Rich rouble liquidity is helping the rouble bond market resist volatility,
but low yields and tight spreads are major concerns for investors. Some
price inefficiencies do exist in the medium segment of the yield curve,
however. Tax payments due Thursday should not challenge the situation on
the money market, opening way for further demand in rouble-denominated
assets.
News from the U.S. economy was mixed on Wednesday as the Russian Eurobond
market continued to track benchmark movements. Pessimism over a decline in
consumer confidence and durable goods orders was tempered by unexpectedly
strong new home sales. As the result, the UST
,10 benchmark yield declined
1 bps to 4.19%. However, the EMBI+ Russia spread widened 1 bps to 134,
following the broadening of emerging market spreads caused by a corruption
scandal in Brazil. The indicative Russia
,30 yield added 3 bps to reach
5.58%. However, the Russian Eurobond spread increase was not dramatic,
supported by expectations of new debt repayments to the Paris club.
A statement of the senior Federal Reserve official last night that the
American economy needs higher interest rates may put some pressure on the
Eurobond market. At the same time, we expect the Russian spread will be
rather stable because of the good macroeconomic situation at home.

Equity market

The optimists grabbed the initiative on the Russian equity market on
Wednesday and, supported by another day of rising oil prices, the RTS
closed up 0.3% at 863.53. Volumes were unexciting though, clocking in at
USD 730 mn across bourses. Most shares closed in the black: Surgut gained
1.6%, Transneft prefs added 0.2% and Gazprom ADS 0.9%. Investors turned
their attention to RAO UES, which surged 1.8%. In New York and London MTS
saw the biggest fall, down 2.6%, while other telecoms also languished.
The benchmark Brent oil in London jumped 2.91% to USD 67.14/bbl,
influenced by expectations of storms in the Gulf of Mexico and a report
from the U.S. Ministry of Energy citing a fall in petroleum stocks.
Another day of directionless trading is on cards for Thursday. The market
should open either flat or down until international markets open to
provide a direction. Although some pullback is anticipated on the
overheated market, there is little to suggest any fundamental selling
pressure.