Russian Daily Monitor

Rosbank IPO scheduled

After several attempts to sell to a strategic investor, the owners of
Rosbank
) one of Russia
,s Top 10 banks
) have decided to hold an IPO in
summer 2006. The bank
,s current shareholders, Vladimir Potanin and Mikhail
Prokhorov (the principal shareholders of Norilsk Nickel) plan to float
5-7% of the bank
,s shares in Russia, and 10-20% on the London Stock
Exchange.
Rosbank is the seventh largest Russian bank by assets, and the ninth by
capital. With capital of around USD 550 mn, a realistic valuation of the
bank would approach USD 1.3
) 1.5 bn. We think that Rosbank
,s IPO will be
successful as it will provide investors with exposure to the booming
Russian banking sector, offering a cheaper alternative to Sberbank.

TNK-BP completes consolidation of ONAKO

Russia
,s second-largest oil company, TNK-BP, has completed a full
consolidation of ONAKO, a fully controlled subsidiary. The move was
anticipated by the market and will bring TNK-BP
,s free float to 5% (under
consolidation, minority stakes in TNK-BP subsidiaries were swapped for
shares of the parent company). We welcome the consolidation as it will
boost TNK-BP shares liquidity, and will likely prove a catalyst for the
company
,s valuation.
The full consolidation also indicates that the rumoured swap of ONAKO for
Gazprom
,s 50% stake in Slavneft is unlikely to go ahead.

Approval of Vimpelcom
,s budget delayed

Vimpelcom reported Wednesday that its Board of Directors had failed to
approve the company
,s budget for 2006. However, the Board recommended that
management work under the unapproved 2006 budget until final agreement is
reached.
The delay in the approval of the budget is not a sign of either worsening
operational management or corporate governance, but rather a continuation
of the recent shareholders
, conflict. We do not think that either of the
shareholders intends to hurt Vimpelcom
,s business, as they have allowed
the company to use the unapproved budget. Besides, Telenor has not yet
undertaken any legal action against Altimo (formerly Alfa Telecom), and
that indicates that Telenor may be taking time out from the conflict to
decide whether to make a deal with Altimo or withdraw from Vimpelcom
altogether.


Q3 GDP hits 7%

After a significant slowdown in economic growth at the beginning of the
year and ongoing stagnation in the mining sector, Q3 GDP saw 7% yoy, which
is close to last year
,s levels (7.1% yoy in Q3 2004 and 7.2% yoy in 2004
as a whole). Meanwhile the processing sector is gradually gaining momentum
(4.9% yoy in Q3), but the growth rate is still below that of last year.
Apart from expected seasonal growth in agriculture, the most dynamic
sectors of the Russian economy in the third quarter were construction
(11.1% yoy), trade (12% yoy) and commercial services (7-9% yoy). These
sectors had capacities and managed to promptly respond to growth in
household demand.
Investment demand looks capable of speeding up on government initiatives,
including increased capital expenditures and the settlement of the
investment fund. In sum, the pace of recovery in processing industries is
likely to speed up in the coming years. Moreover the stabilization of oil
sector taxation may enhance production in the resource extraction sector
as well.
However, the main risks for the economy remain increased capacity usage
and continuing real rouble appreciation.

Money market

Money market liquidity is being squeezed by local primary bond market
activity, ongoing payments of the social tax and local FX dynamics. We
expect liquidity to remain tight, however, no extreme rise in money market
rates seems likely.
Recent dollar shifts against the euro should continue on Thursday as few
crucial figures from the United States are due for release. Upcoming
Empire Manufacturing and Philadelphia Fed indexes, as well as figures on
inflation and net foreign security purchases, have the potential to
trigger noticeable changes in euro-dollar dynamics.

Eurobonds

On Thursday the market
,s attention will be focused on a string of U.S.
data, with the key release being core-CPI. The market expects inflation to
hit 2.1% yoy, slightly above the Federal Reserve
,s 2% comfort level.
However, Wednesday
,s release on import prices saw a more pronounced drop
than was expected, which added to optimism on the market. On the whole, we
expect the market to show increasing volatility to the upcoming data as
the achievement of a neutral interest rate level does not appear to be far
away. Russian Eurobonds appear to have no other option than to continue
following benchmarks. Any change in interest rate expectations on the
downside would provide optimism for the Russian Eurobond market as well.
On Wednesday the yield of Russia
,30 saw an impressive 9 bp decrease to
5.62%, reflecting a 9 bp drop in 10-year UST to 4.45%. The EMBI+ Russia
spread saw a mere 1 bp tightening to 114 bp.

Equity market

The Russian equity market will likely see declines on Thursday,
compensating for a sharp price rise on Wednesday evening. However, we
still see some upside in Russian equities in the mid-tem: the booming
Russian economy and galloping consumer spending (see story above)
guarantee interest in Russian consumer stocks, while high oil prices and
the successful NLMK IPO promise healthy demand for Russian oil and steel
names.
The Russian equity market saw growth Wednesday, albeit on slim volumes.
The leaders were consumer stocks (Baltika climbed 5.87%) and telecom
papers (most posting healthy growth). Mechel attracted attention as its
share price soared 11.72% on the RTS thanks to the successful IPO of NLMK.
The benchmark RTS added 1.06% to hit 1105.67 as a result. ADR trade in New
York was more subdued. The only stock worth mentioning is Wimm-Bill-Dann,
whose ADRs swelled by 8.6% on strong macroeconomic data from Russia.