CIS Credit Monitor: MDM-Bank, Lukoil

In this issue:

· MDM-Bank: Q1 2009 IFRS results

· VEB purchases a stake in Lukoil

MDM-Bank (BB-/Ba1/BB-): Q1 2009 IFRS results
MDM-Bank published its Q1 2009 financial results yesterday and held a conference call for investors. Like the whole Russian banking system, MDM-Bank remains vulnerable to the crisis, with a 91% drop at the bottom line together with balance sheet contraction of 6% in Q4 2009. Provisioning eroded most of the profits from the core business, as the quality of the loan portfolio continued to deteriorate. Nevertheless, profitability remained positive and the liquidity position was still fairly comfortable. We believe the bank’s profile will remain sustainable after the merger with URSA bank is complete. MDM-Bank bonds seem quite expensive to us at the moment.

VEB (BBB/Baa1/BBB) purchases a stake in Lukoil (BBB-/Baa2/BBB-)
The Russian state-owned bank Vnesheconombank (BBB/Baa1/BBB) has acquired a stake in Lukoil (BBB-/Baa2/BBB), according to a press release distributed yesterday by the oil company. The details of the acquisition, such as amount, price of the transaction and purchase date, were not disclosed. However, the size of the stake is not likely to exceed 5% of the company since Russian law requires disclosure of details of shareholdings larger than the 5% threshold. Lukoil, the second largest oil major in Russia, welcomed the company’s new strategic investor.