Fixed Income Weekly:
- Intourist-1
- Moscow Region-7
- OGK-6-1

Intourist-1

Intourist is one Russia’s largest tourist holdings comprising two major business divisions: tour operation and hotel management.

Market shares of the tour operation business line in Russia: 10.1% in inbound travel, 3% in outbound travel. The main directions of Intourist in outbound travel are quite logical – Turkey and Egypt.

AFK Sistema – 65.1%, City of Moscow – 25.04%, OAO “GAO Moskva” (affiliated with the Moscow government) – 8.75%, others – 1.11%.

The lead managers of the issue are currently marketing it in the yield range of 9.75–10.25%, so there is a chance to obtain the bond with a yield above our fair estimate. We therefore would recommend investors take part in the upcoming auction.

Moscow Region-7

The Moscow region is one of the best credits in the municipal sector of the rouble bond market.

Surrounding Moscow, the region’s economy currently greatly benefits from high real estate prices in the city and the consumption boom. The main retail chains and other companies are locating their stores, warehouses and production facilities in the region, as there is much more land available in the suburbs than in Moscow.

Moscow region is rated BB/Positive by S&P and Ba3/Stable by Moody’s.

MosReg-7 will have a duration of 5.1 years. The corresponding point on the OFZ curve is 6.35%. Adding the credit spread of MosReg-6 (80bp) we arrive at 7.15% as the lowest point MosReg-7 can the placed at during the auction. Everything in excess of 7.15% would be in investors’ favour.

OGK-6-1

OGK-6 is one of the wholesale generation companies (WGC) incorporated as part of Russia’s electricity sector restructuring. Six power plants transferred to OGK-6 include Kirishi SDPP, Ryazan SDPP, Krasnoyarsk SDPP-2, Cherepovets SDPP, Novocherkassk SDPP and SDPP-24. Their total installed electric and heat capacity is 9.1 GWt and 2.5GCcal/h respectively. Most of OGK-6’s plants are located in power deficient regions.

A 93.48% controlling stake is owned by RAO UES (rated BB by), minority shareholders account for 6.52%.

OGK-6 produces financial statements under both RAS and IFRS. The latest IFRS financial report is available for 2005. Incorporated on March 16, 2005 OGK-6 only reached its target structure in the third quarter of 2006, which is not appropriately reflected in the full-year financials. For the purposes of financial analysis below, we use pro-forma figures for 2006 revenues and EBITDA in order to account for all of the six power plants’ full-year results as if they have been consolidated form January 1, 2006.

Lead managers are marketing OGK-6-1 at 7.63–7.85%. We believe that the fair yield to put lies in the range of 7.84%–8.05% and view 7.84% as the lowest possible bid at the auction.