URALSIB LC: A SOLID GROWTH STORY

On the 24-th of July, URALSIB Leasing Company (ULC) will auction URALSIB Leasing-2 bond issue worth RUB5 bln with 1.5-year put option. The key credit point for ULC is potential support from the main shareholder, Russia’s Bank URALSIB (BB-/Ba3/B+). ULC is the third-largest private leasing company in Russia by lease portfolio size, and the largest by the new lease sales (in 2007).

We take as a benchmark URALSIB Leasing-1 bonds, which trade with YtP of 11.50% to derive the fair yield of a new issue. This suggests a premium of 320 bps to VTB Leasing-1 bonds (a six-month average of 282 bps, which is, in our view, a fair level, taking into account the difference in credit ratings). We believe, the following factors suggest premium to the market price of 70-100 bps (which is in line with the YtP range of 12.20-12.50%):

• The large volume of issues, planned by leasing companies (in particular, VTB Leasing for an amount of RUB20 bln and Europlan for an amount of RUB4.5 bln)
• Further increases of key CBR rates

The key drivers for investment attractiveness, as we think, are:

• Credit ratings which are sufficient for inclusion bonds in to the CBR REPO list (earlier issued URALSIB Leasing-1 bonds are already included into it)
• A premium of 100 bps to bonds within the CBR REPO list

The upside potential of the quotes on the secondary market is, in our view, related with the possible inclusion of newly issued bonds into an A1 quotation list (the outstanding issue of URALSIB Leasing-1 bonds is trading in this list).