Fixed Income Comment:record levels of the Russian government’sstabilisation fund together with Kudrin’s comments of this morning have improvedinitial sentiment in the Russian Eurobond market

Friday’s quiet summer, with no US data, produced a narrow, rangebound day inUST, with the EMBI+ spread above UST tightening in from 449bps to 438bps.
EMBI+ spreads have not been this tight since April, with the Russian portion of theindex narrowing from 316bps to 308bps. Although RU30 was locked in a tight cashtrading range of 93.875 – 94.0625, the asset closed with a narrower spread overUST of 329bps compared to its opening trade of 331bps. First print in RU30 todaywas up at 94.3125 (+325bps). With no significant US data this week we areexpecting RU30 to creep towards the tighter end of the current credit spread rangeover UST of +330bps to +320bps.
Kudrin commented that the cabinet would discuss removing the provision for aUS$2.5mln eurobond from the draft 2005 budget today as the stabilisation fundhas accumulated so quickly. The record levels of the Russian government’sstabilisation fund together with Kudrin’s comments of this morning have improvedinitial sentiment in the Russian Eurobond market.
Macroeconomic developments over the past week share a single common factor,
the word ‘revision’. That said, news flows have continually referred to the ongoingupward revisions by official sources to Russia’s macroeconomic fundamentals,
including oil price, GDP, FX reserves, and fiscal accounts. With regards to thelatter, the Ministry of Finance recently announced a budget surplus of 3.6% ofGDP (Rub587.34 billion) is expected for 2004, a marked improvement on itsoriginal target of 0.5% of GDP. At the same time, Russia expects its stabilisationfund to reach Rub574.4 billion by year-end, a level that surpasses the legislatedbase of Rub500 billion at which funds in excess of this level are eligible for non-
interest expenditure. As mentioned, the Russian government approved the draftlaw on the 2005 federal budget today (1.5% of GDP target with average Uralsestimated at US$27.2 pb) and will subsequently present it to the Duma on 26August.

RUSSIAN FIXED INCOME MARKET Date 23-Aug-04
Coupon Rating* Mid 1 day 1 week 1 month YTM CY Spread*** 1 week Maturity Size of
Rate % Price** -----(% change)-----% % bp Date Issue
Sovereign Eurobonds
RUSSIA 05 8.750 Baa3/BB/BB+ 105.10 0.00 -0.07 3.05 8.33 64 1 Jul-05 US$2.00 bn
RUSSIA 07 10.000 Baa3/BB/BB+ 113.25 0.06 0.00 4.93 8.83 214 1 Jun-07 US$2.40 bn
RUSSIA 10 8.250 Baa3/BB/BB+ 108.88 0.11 0.35 5.46 7.58 207 -11 Mar-10 US$2.82 bn
RUSSIA 18 11.000 Baa3/BB/BB+ 129.38 0.10 0.58 7.55 8.50 332 -9 Jul-18 US$3.45 bn
RUSSIA 28 12.750 Baa3/BB/BB+ 149.25 0.34 0.17 8.06 8.54 383 -3 Jun-28 US$2.50 bn
RUSSIA 30 5.000 Baa3/BB/BB+ 94.06 0.40 0.40 7.51 5.32 328 -6 Mar-30 US$18.34 bn
RUSSIA 05 DM 9.370 Baa3/BB/BB+ 103.75 0.00 -0.05 2.88 9.03 68 -19 Mar-05 DM1.25 bn
MinFin Bonds
MINFIN 6 3.000 Ba1/BB/BB+ 97.63 0.13 0.25 4.41 3.07 201 -8 May-06 US$1.75 bn
MINFIN 8 3.000 -/BB/BB 94.00 0.47 0.53 5.41 3.19 261 -15 Nov-07 US$1.32 bn
MINFIN 5 3.000 Ba2/BB/BB 89.56 0.00 0.07 6.13 3.35 273 1 May-08 US$2.83 bn
MINFIN 7 3.000 Ba1/BB/BB+ 78.13 0.16 0.31 7.09 3.84 286 -6 May-11 US$1.75 bn
ARIES
ARIES 07 ? (FRN) +325 Ba2e/BB+/-102.00 0.00 -0.06 4.75 3.19 278 4 Oct-07 EUR2.00 bn
ARIES 09 ? 7.750 Ba2e/BB+/-104.38 0.24 0.00 6.61 7.43 314 -1 Oct-09 EUR1.00 bn
ARIES 14 $ 9.600 Ba2e/BB+/-108.25 0.35 0.11 8.37 8.87 414 -3 Oct-14 US$2.44 bn
Regional Eurobonds
Moscow EUR 04 10.250 Ba1/-/BB+ 101.25 0.00 -0.19 2.49 10.12 50 19 Oct-04 EUR350 mn
Moscow EUR 06 10.950 Ba1/BB+/BB+ 109.50 0.00 0.00 4.82 10.00 241 -6 Apr-06 EUR400 mn
Corporate Eurobonds
Banking
VTB 05 (FRN) +200 Baa3/-/BB+ 100.38 0.12 0.12 3.29 3.16 155 -3 Apr-05 US$325 mn
Alfa Bank 05 10.750 Ba2/B/B 103.88 -0.12 0.61 7.37 10.35 497 -51 Nov-05 US$175 mn
Gazprombank EUR 05 9.750 Ba2/B+/-105.31 0.18 0.12 4.65 9.26 224 -18 Apr-05 EUR150 mn
MDM Bank 05 10.750 Ba2/-/B+ 102.13 0.00 0.00 8.96 10.53 656 3 Dec-05 US$200 mn
Bank Zenit 06 9.250 B1/-/B-98.63 0.13 0.13 10.09 9.38 768 -2 Jun-06 US$125 mn
UralSib Bank 06 8.875 -/B-/-96.50 0.00 0.12 10.99 9.20 859 0 Jul-06 US$140 mn
Sberbank 06 (FRN) +175 Baa3/-/BB+ 99.38 1.02 -0.01 3.74 2.94 199 -2 Oct-06 US$1.00 bn
Petrocom Bank 07 9.000 B1/B/-99.50 0.25 -0.13 9.21 9.05 641 10 Feb-07 US$120 mn
Nomos Bank 07 9.125 B1/-/B 98.00 0.51 1.55 10.04 9.31 724 -67 Feb-07 US$125 mn
Nikoil Bank 07 9.000 B1/-/B 97.25 0.52 0.26 10.25 9.25 745 -6 Mar-07 US$150 mn
Russian Standard 07 8.750 Ba3/B/-102.00 0.12 0.00 7.89 8.58 509 4 Apr-07 US$150 mn
VTB 07 (FRN) +290 Baa3/BB+/-100.94 -0.06 -0.06 4.38 2.87 263 -2 Jul-07 US$300 mn
Gazprombank 08 7.250 Ba2/B+/-99.00 0.00 0.25 7.52 7.32 412 -5 Oct-08 US$1.05 bn
VTB 08 6.875 Baa3/-/BB+ 101.00 0.00 0.12 6.59 6.81 320 -2 Dec-08 US$550 mn
Oil and Gas
Rosneft 06 12.750 B2/B/-114.50 0.00 0.44 5.73 11.14 333 -22 Nov-06 US$150 mn
Sibneft 07 11.500 Ba3/B/-107.00 0.00 0.82 8.28 10.75 549 -36 Feb-07 US$400 mn
Gazprom 07 9.125 -/BB-/-108.19 0.00 -0.18 5.76 8.43 297 10 Apr-07 US$500 mn
TNK 07 11.000 Ba3/BB-/BB 111.00 -0.45 -0.56 7.08 9.91 428 23 Jun-07 US$700 mn
Sibneft 09 10.750 Ba3/B/-105.50 0.12 1.20 9.18 10.19 579 -33 Jan-09 US$500 mn
Gazprom 09 10.500 -/BB-/-115.50 0.11 1.20 6.87 9.09 348 -29 Oct-09 US$700 mn
Gazprom EUR 10 7.800 -/BB-/BB 103.50 -0.36 0.36 6.94 7.54 346 -8 Sep-10 EUR1.00 Bn
Gazprom 13 9.625 -/BB-/-107.00 0.00 0.06 8.45 9.00 506 1 Mar-13 US$1.75 bn
Gazprom 20 7.201 -/BBB-/BBB-99.00 0.25 -0.50 7.37 7.27 398 11 Feb-20 US$1.25 bn
Gazprom 34 8.625 Ba2/BB-/BB 101.88 0.18 0.37 8.41 8.47 418 -5 Apr-34 US$1.20 bn
Telecoms
MTS 04 10.950 Ba3/BB-/-102.38 0.00 -0.12 3.43 10.70 172 -6 Dec-04 US$300 mn
Vimpelcom 05 10.450 B1/BB-/-104.25 0.00 0.00 3.94 10.02 223 -18 Jul-05 US$250 mn
MTS 08 9.750 Ba3/BB-/-106.50 -0.12 0.35 7.56 9.15 476 -9 Jan-08 US$400 mn
Sistema Finance 08 10.250 -/B/B 103.75 0.24 0.48 9.01 9.88 621 -12 Apr-08 US$350 mn
Vimpelcom 09 10.000 B1/BB-/-103.50 0.00 0.85 9.07 9.66 568 -21 Jun-09 US$250 mn
MTS 10 8.375 Ba3/BB-/-98.25 0.26 1.29 8.74 8.52 535 -25 Oct-10 US$400mn
Sistema Capital 11 8.875 P(B3)/B/B-98.88 -0.13 0.50 9.10 8.98 630 -6 Jan-11 US$350mn
Others
MMK EUR 05 10.000 Ba3/B+/-102.25 0.00 -0.13 4.97 9.78 283 6 Feb-05 EUR100 mn
Severalmaz 06 8.875 -/-/-98.63 0.00 -0.13 9.87 9.00 746 15 Mar-06 US$150 mn
SeveralTrans 06 9.500 -/-/-96.00 0.00 0.00 12.41 9.90 1000 9 Mar-06 US$110 mn
Evrazholding 06 8.875 B3/-/B 100.38 0.50 0.63 8.66 8.84 626 -28 Sep-06 US$175 mn
ALROSA 08 8.125 B3/B/-99.75 0.13 0.37 8.20 8.15 540 -8 May-08 US$500 mn
Wimm-Bill-Dann 08 8.500 B3/B+/-94.75 0.13 0.13 10.21 8.97 742 1 May-08 US$150 mn
MMK 08 8.000 Ba3/B+/BB-98.00 0.51 0.00 8.57 8.16 518 2 Oct-08 US$300 mn
Severstal 09 8.625 B2/B+/-96.44 0.19 1.64 9.60 8.94 621 -43 Feb-09 US$325 mn
Evrazholding 09 10.875 (P)B3/-/B 100.00 0.13 0.00 10.86 10.88 747 2 Aug-09 US$150 mn
Severstal 14 9.250 B2/B+/B+ 92.00 0.00 2.36 10.58 10.05 635 -39 Apr-14 US$375 mn
MNB Issues
MNB 08 4.375 Ba1/BBB-94.88 -0.13 -0.53 5.88 4.61 248 18 Jul-08 US$150 mn
Source: MNB, Bloomberg
* Ratings where applicable are provided by Moodys, Standard & Poors and Fitch
** Prices are taken at close of business London time on the previous day
*** Spreads are measured over USTreasuries or a nominated Euro benchmark of comparable maturity