Russian Fixed Income daily

FX and money market

On Thursday, activity in the FX market resumed and the rouble continued to depreciate, touching 26.95/USD. Trading volumes increased compared to the last few days – yesterday market players actively sold dollar to the Central Bank, which bought around US$1bn, although we do not believe this movement as ground for any worries. This morning the euro dropped to USD/EUR1.265, which gradually pulled the rouble further down. Today, volatility in international markets is likely to increase on the back of the incoming US Import Price index and advance retail sales. We see the rouble in the range of 26.95-26.70/USD.
In the money market, rouble liquidity continues to be strong. Interbank overnight rates remain around 2% and we do not expect any notable liquidity squeeze today. The tax payments period will begin next week – on Monday, Russian companies will pay advance social tax payments and on 20 July VAT is scheduled. In addition, auctions that will take place next week could increase demand for money, and as a result, some tension in the money market is likely.

Rouble bond market

Yesterday, increased tension in the Middle East caused spread widening in emerging markets – the spread of EBMI+ rose by 7bp to 218bp, while that of EMBI+ Turkey rose by 17bp. The EMBI+ Russia spread grew by a modest 5bp, with investors preferring to withdraw their money from emerging markets and invest them to safer instruments. On the back of these negative sentiments US10Y rose in price, with its YTM moving this morning from 5.10% to 5.06%. The spread of Russia ’30 over US10Y widened to 122-123bp.

The local debt market was again weaker yesterday with some downside price movement especially in the corporate segment, while the government sector looked better. Rouble liquidity remained the supportive factor for local bonds.

Uncertainty in external markets (including political events) still persists and so continues to influence rouble debt. Today, the market will focus on the release of US import price index and advanced retail sales figures.

Today, our view for the market is neutral with some negative sentiment. In addition, today’s scheduled primary placement totalling RBL4.25bn could slightly diminish interest from the secondary market. The most interesting issue will be that of RTKLeasing.

RTKLeasing-5
Auction date:
Friday, 14 July 2006

Issue parameters:

Size – RBL2.25bn, semi-annual coupons, term to bullet maturity – four years, one-year put option at 100. Principal amortisation schedule: 10% of nominal is to be paid off at each coupon date and 30% of nominal at maturity,

Ratings: The issuer is unrated by international rating agencies.

General description and Ownership structure:

RTKLeasing was created in 1996 and is currently the largest leasing company in Russia specialising in telecommunications. The main clients of the company (90% of the leasing portfolio) are daughter companies of Svaysinvest.

The shareholders are: North-West Telecombank (18.912%), Russian industrial bank (15.928%), KFO Finance (15.775%), Gamma-Invest (15.93%), Non-profit Partnership Research Centre of Telecommunications Development Problems; Nominal holder – Raiffeisinbank Austria (30.15%).

Obtained funds will be invested to widen the company’s core activity – purchasing and leasing telecommunication equipment.
Lead managers estimated a YTP of 8.6-9.1% which corresponds to a coupon of 8.4-8.9%.