Daily Market Monitor: Given the relatively favourable situation the new MTS bond yields could be as low as 8%.

Monday’s dynamics on the Rouble bond market were
negative. Some investors are obviously reducing their
portfolios, while others are in no hurry to invest free funds at
the beginning of the new year. There seems to be a tendency
to wait for any news that might make the situation more
certain. Dollar strengthening against rouble did not help the
mood of investors, although a potential exchange rate reversal
at the end of the month might cheer them up.
Meanwhile, the first banking bond default since last summer’s
mini banking crisis occurred on Monday.
Souzobshemashbank failed to execute a put option and pay a
coupon on its Rub 200 bln bond issue. We see this event as
an afterthought to the crisis and we see no major negative
consequences for the broader market. Several small banks
were closed in the autumn, with no significant resonance on
the market.
The Russian Eurobond market was mostly negative amid
inactive trading. The price retreat was caused by delays in
talks with the Paris Club on early Russian debt redemption.
Any progress in the negotiations will, however, have a positive
effect on the market – so there is upside potential for Russian
Eurobonds in the mid-term.
In the meantime, Russia’s largest mobile operator, MTS, plans
to issue a seven-year Eurobond issue shortly, with an issue
volume that could reach $500 billion. The funds would be
used to refinance company’s short-term debt and for
acquisitions. MTS already has two Eurobond issues in the
market, representing a total volume of $800 billion, while its
major competitors Vimpelcom and Megafon are also present in
the Eurobond market. Given the relatively favourable situation
– global interest rates are still not growing, while Russian
papers spreads are also at low levels – the new MTS bond
yields could be as low as 8%.