Russian Daily Monitor

Gazprom pays $13.6 bn for control of Sibneft

Gazprom announced Wednesday that it had acquired 72% of Sibneft for USD
3.8 per share from Millhouse Capital. Gazprom also confirmed it had bought
another 3% on the market, and has thus accumulated a
&supermajority
8 in
Sibneft. The price brings Gazprom
,s total spending on the deal to
estimated USD 13.6 bn.
The price is in line both with previous hints and our own expectations,
and the development should be fundamentally neutral for Gazprom
shareholders. However, it is 5% below Sibneft\'s Tuesday close (USD 4.0),
proving that that day
,s frenzy in Sibneft shares (+14.3%) was a shot in
the dark. In particular, hopes of a generous buyout offer for minorities
have evaporated.
Importantly, the market could now look again at the past week\'s gains,
recognizing that there are too few convincing investment ideas and too
much speculative steam. Thus, the news could trigger a shift from the
current highly bullish sentiment to a more neutral outlook. A long overdue
correction could ensue.
In related news, Gazprom
,s Board of Directors met Wednesday evening, and,
among other things, finally approved the gas monopoly
,s investment
programme for the year. The fact that the programme was approved after the
vast majority of the investments had already been made reminds us of
Gazprom
,s lack of strategic focus as well as its weak corporate governance
practices.

Money market

As the short term risk of a renewed surge in the global oil price remains
high, the dollar
,s positions remains vulnerable. Meanwhile, a possible
resolution of the current political uncertainty in Germany could provide
some support for the euro. In the coming months, however, the dollar looks
set to stay strong, backed by expectations of a widening interest rate
differential between the United States and European Union. On the Russian
FX market, the rouble continues to track euro-dollar dynamics, a trend
that looks unlikely to change significantly in the short-term. A dollar
value of RUR 28.4-28.5 is probable in the coming days.

Rouble bonds

The last week of the quarter on the rouble bond market seems destined to
end as it began, with temperate ups and downs superseding each other in
generally directionless trading. Meanwhile, we see similarities to what is
going on in equities: few sensible investment ideas, but still lots of
money and an escalating
&herd effect
8. Should the global houses decide
that they have earned enough in Russia (the start of the final quarter is
the date to watch here), the country
,s relatively small market could
suffer: at current highs, even a slight rebalancing in foreign fund
portfolios in favour of other emerging markets could trigger a correction.
Moscow-39 and Moscow Region-5 are currently wide ahead of other issues in
terms of turnover, attracting over RUB 1 bn each; the City bond rose 14
bps while the Region bond remained flat.

Eurobonds

Stronger-than-expected data on durable goods orders for August, released
on Wednesday, proved that U.S. economic expansion was solid prior to the
recent hurricanes, a fact that might have led to increasing investment by
the end of the year. The data actually has little value in the current
circumstances, however, as investors wait for data that reflects the
economic damage done by Katrina and Rita.
Meanwhile, the latest readings on U.S. consumer confidence for September
released Tuesday showed a two-year low on the back of surging energy
prices, which will likely cause expectations that a further surge in the
oil price would prompt an even more significant slowdown. That said, the
benchmarks should remain sensitive to changes in the oil price, although
the general trend toward higher interest rates seems likely to find
support from comments by Federal Reserve policymakers.
On Wednesday the yield of Russia
,30 slipped 3 bps to 5.28% mirroring the
fall in benchmarks. The 10-year UST lost 4 bps in its yield, clocking in
at 4.26%. The sovereign credit spread widened marginally to 98 bps.

Equity market

Russia
,s benchmark RTS index managed to break through the 1,000 mark on
Wednesday, but closed well below the milestone at 988.28, posting a gain
of a mere 0.38%.
The reason for the rollercoaster trading was the excitement around
Gazprom
,s acquisition of Sibneft, officially announced in the afternoon
(see story above). In the end, Sibneft lost 8.75%, while Gazprom locals
and ADSs closed in black, adding 0.82% and 1.06%, respectively. Elsewhere,
trading was mixed: investors sold oil papers to buy metals and telecoms,
which had both lagged in the market
,s recent rally. ADR trading in New
York mirrored trade in Russia, bringing no surprises.
We think the equity market may see some growth Thursday on rising oil
(Brent climbed 1.26% to USD 62.84/bbl on renewed concerns about refinery
damage in the Gulf of Mexico). However, our view is that the market needs
to find a convincing trade idea to maintain its growth from these levels;
otherwise, some foreign investors could leave the Russian market to join
rallies in Brazil and Argentina.