Bank of Moscow: Fixed Income Daily Report
Ruble bonds depressed by global panic
Stabilization plan update
EM eurobonds live through a selloff
S&P may downgrade ARROSA and RZD after purchase of KIT Finance
S&P lowers the outlook for Russian banking ratings
ТНК-ВP will pay big dividends
Fitch changes the outlook for Sitronics rating
Fixed Income Statistics
Bank of Moscow Bond Indices (BMBI)
n The government will buy out shares at the equity market via VEB. Vnesheconombank will be the operator of state-sponsored equity buyout from the market, PM Vladimir Putin said. The state plans to invest up to 175 bln. rub. in state funds and the placement will start next week. Further equity investments of up to 175 bln. rub. will be allocated in the state budget for 2009. / Reuters
n Will the global markets be closed? Italian PM Silvio Berlusconi has said that EU and G8 are discussing the idea to close the global financial markets until the new rules of their work are developed. He would later denounce these words./ Interfax, Bloomberg
n The balance between the state and private funds in the subordinated credit will be 1:1 instead of previously planned 1:2, said the head of Russian Bankers Association Garegin Tosunyan. / Prime-TASS
n The measures the government performs to support the national financial system, are sufficient for the time being, President Dmitry Medvedev said. / Interfax
n The new law on deposit insurance. On Friday, the State Duma approved the bill providing for 100 % state insurance of deposits of up to 700 000 rub. The initial variant of the bill providing a 100 % guarantee for up to 200 000 rub. deposits and 90% guarantee for 200 000 - 700 000 rub. was rejected by PM Vladimir Putin. Raising the guarantees will help to keep the deposits within the system, - Putin said. / Reuters
n The agency for deposit insurance has lowered the insurance payment ratio to 0,10 % from 0,13 % of the deposit base. This measure should weaken the pressure exerted on banks amid liquidity strains. / Reuters
n CBR will give VEB and Sberbank up to 950 bln. rub. at 7-8 % until 2020./ Reuters
n Arcada declared a technical default for 1.16 bln. rub. put option and 4.3 mln. rub. coupon payment. The company failed to meet obligations "due to the crisis at the Russian financial market which negatively affected the issuer''s operations". / Reuters
n Fewer winter tires? Amtel-Vredestein stopped production at the Kirov plant and cut production in Voronezh due to lack of current assets. / Reuters
n TNK-BP Holding will pay out 100 % earnings for 1H 2008 as dividends. / Reuters
n North-West Telecom in early November plans to sign a $ 200 mln. syndicated loan agreement with UniCreditBank. The money will be used to finance capex program and refinance short-term debt. / Business FM
n The FinMin has changed the date of regular budget money allocation auction to 13 October from initially planned 14 October./ Reuters
n S&P has placed ratings of RZD (BBB+) and Alrosa (BB) on the CreditWatch list with the negative outlook due to the planned purchase of 90 % stake in KIT Finance. The CreditWatch status is explained by the uncertainty surrounding the deal and potential future risks for the companies./ S&P
n S&P assigned the negative outlook to ratings of 13 Russian banks and left ratings of 14 banks unchanged.
n Moody''s won''t upgrade banks. The Russian government''s anti-crisis measures won''t lead to any banking ratings upgrades. Liquidity and capital are predominantly provided to state-owned banks whose ratings already factor in high level of systemic support. / Moody''s
n Fitch changed the outlook for the rating of Sitronics (B-) to negative from stable, reflecting deterioration of the credit portfolio as well as higher refinancing risks on the back of high share of short-term debt to be refinanced within the nearest 6 months. Fitch is aware of the company''s efforts to refinance the $ 125 mln. loan maturing in November 2008. / Reuters
n Coupons 5 and 6 for the debut issue of PFPG Finance have been set at 15,75%. / Cbonds
n Coupons 3 and 4 for the debut issue of Tinkoff Credit Systems have been set at 18%./ Cbonds
n Inflation. The ministry for economic development plans to announce new inflation forecast for 2008 in November. However, it may do so earlier, the ministry head Elvira Nabiullina said. Inflation in Russia from 1 January through 6 October amounted to 10.8 %. The official forecast of the government and CBR, approved in August, calls for 2008 inflation to be in the band of 10,5-11.8%./ Interfax
BM__Toc211673439BM__Toc211673428BM__Toc211673278BM__Toc211673267BM__Toc21167 3247BM__Toc211414034BM__Toc211414023BM__Toc211413756BM__Toc211413705BM__Toc2 11413690BM__Toc211413523BM__Toc211326145BM__Toc211326101BM__Toc211325994BM__ Toc211325980BM__Toc211240172BM__Toc211151388BM__Toc211151282BM__Toc211151227 BM__Toc211150933BM__Toc211064332BM__Toc211064118BM__Toc211064067BM__Toc21106 4022BM__Toc211063940BM__Toc210809410BM__Toc210809371BM__Toc210809334BM__Toc2 10809255BM__Toc210801385BM__Toc210801162BM__Toc210727774BM__Toc210727751BM__ Toc210727682BM__Toc210637633BM__Toc210637458BM__Toc210631891BM__Toc210631662 BM__Toc210551952BM__Toc210550883BM__Toc210550872BM__Toc210546026BM__Toc21054 4839BM__Toc210544479BM__Toc210463472BM__Toc210457456BM__Toc210205193BM__Toc2 10204931BM__Toc210198323BM__Toc210114075BM__Toc210112857BM__Toc210112783BM__ Toc210112705BM__Toc210112439BM__Toc210112208BM__Toc210030614BM__Toc210030428 BM__Toc210030392BM__Toc210030355BM__Toc210029252BM__Toc209946347BM__Toc20994 6294BM__Toc209937592BM__Toc209862659BM__Toc209862554BM__Toc209862399BM__Toc2 09860789BM__Toc209600961BM__Toc209599740BM__Toc209599691BM__Toc209599680BM__ Toc209599611BM__Toc209599599BM__Toc209599578BM__Toc209599563BM__Toc209599535 BM__Toc209599520BM__Toc209599505BM__Toc209511816BM__Toc209511727BM__Toc20951 1651BM__Toc209511623BM__Toc209510931BM__Toc209510898BM__Toc209510725BM__Toc2 09510712Local market
BM__Toc211673440BM__Toc211673429BM__Toc211673279BM__Toc211673268BM__Toc21167 3248BM__Toc211414035BM__Toc211414024BM__Toc211413757BM__Toc211413706BM__Toc2 11413691BM__Toc211413524Ruble bonds depressed by global panic
On Friday, ruble bond prices continued to move down, which is not surprising on the back of continuing selloff at the global market. However, the price falls were limited and occurred on low deal volumes. Gazprom-А4, one of the most liquid issues, maturing in February 2010, fell 1.49 % with the yield rising 129 bps to 10.87 %. Central Telecom-04 maturing in August 2009 fell 0.52 %, while the yield rose to 21.35 % (+77 bps). TGC-10-02 with put in February 2009 shed 0.28% while the yield rose 108 bps to 21.94 %.
Liquidity. The liquidity is still very low. On Friday, 281 trades were executed in the negotiation mode with 81 of them done in the framework of Rosselkhozbank put option. However, isolated buys in ruble bonds of Gazprom led to the yield curve of the company going lower than OFZ while the longer end of OFZ curve topped 9.0%.
On Friday, 3 issuers were facing put options: Rosselkhozbank for the 4th issue, Avtovazbank for the first and Arcada for the third. The first two issuers successfully passed the put while Arcada declared technical default.
Interestingly enough, the holders of Rosselkhozbank sold back 6 bln. rub. out of total 8 bln. rub. However, we are not sure this is positive sign as the rest of the issue may have simply been out of the market.
There will be fewer put options this week. We abstain from making forecasts on issuers'' ability to pass the puts.
BMBI - ruble bond yield rose 261 bps on the week to 22.4%
The bond market closed the last week down. The yield of the whole corporate bond sector rose further 260 bps to 22.4 %. OFZ return 8.2 %, or 47 bps more. The blue chips yield rose 152 bps to 13.26 %, the second tier yields more than 22 %, while the third is over 33 % (+422 bps).
The situation aggravate with zero demand in ruble bonds and more technical defaults. It has become "easier" not to meet obligations explaining this by the liquidity crisis.
Natalia Kovaleva, Egor Fedorov
BM__Toc211673441BM__Toc211673430BM__Toc211673280BM__Toc211673269BM__Toc21167 3249Russian Economy
BM__Toc211673442BM__Toc211673431BM__Toc211673281BM__Toc211673270BM__Toc21167 3250Stabilization plan update
The Russian government continues to stabilize the national financial system and stop the development of the crisis. The State Duma has approved a bill on 100% state guarantee for deposits of up to 700 000 rub. Previously, such guarantee had been applicable only to deposits of up to 100 000 rub. For deposits exceeding 100 000 rub, the state used to guarantee payment of 90 % of the deposit but not higher than 400 000 rub. Besides the higher state guarantee, the document has 2 more important points.
* The law is applicable to insured events occurred after 1 October, i.e. the law is retroactive. * The law covers deposits with the banks, which are not part of the deposit state insurance system.
The crisis has made governments of several countries to implement similar measures. One of the necessary conditions of success is communicating these measures to the population.
The governmental commission for control over foreign investments has decided to partly invest state funds on the equity market. According to PM Vladimir Putin, the government may allocate up to 175 bln. rub. In this year and further 175 bln. rub. In the next. The placement will start next week with VEB being the organizer. This is another example of direct support from the government to the national equity market.
The proportions of distribution between equity and bond market are yet unclear. Even if we suppose that half of the money will be used to buy, this will be only a tiny portion of the market (we estimate the total volume of private instruments at the market at 1.67 trln. Rub. With around 1.06 trln. Rub. In state-issued instruments). Nevertheless, the news should support the prices of the blue chips who have beat all records of falling together with the general market recently.
BM__Toc211673444BM__Toc211673433BM__Toc211673283BM__Toc211673272BM__Toc21167 3251EM eurobonds live through a selloff
On Friday, the EM eurobond market experienced a selloff. The mean yield of the sovereign risk rose more than 100 bps (EMBI+ spread reached 653 bps), while the value of all bonds fell more than 7.0%.
Almost all sovereign papers at the emerging markets were on the sell side. The most pronounced fall was registered with Turkey''30 (-9.96 % / 9.279 % / + 115 bps); Brazil''30 ( -6.12 % / 9.107 % / +69 bps), Venezuela''34 (-13.38 % / 20.398 % / 266 bps).
The selling tsunami did not miss Russia''30. The sales were so strong that the paper shed around 9.3 %, with the yield rising 170 bps to 9.7 % (spread to UST-10 is 570 bps). In fact, this is the level of Gazprom''s USD curve.
Together with the sales in Russia''30 the default swap for the Russian risk increased dramatically as well. The spread rose to 565 bps from 366 изы a day before. The sales in the corporate sector were less pronounced.
We think that the nature of the Friday''s selloff is emotional and technical. The sales were ignited by outflows from EM funds focused on the sovereign risk.
Otherwise, movement of similar scale could be caused by lowering sovereign ratings across the board. That is not a case in Russia as none of the rating agencies has expressed the willingness to lower the country''s ratings.
In the morning, the spread of Russia''30 to UST-10 has returned to the pre-Friday level of 430 bps and we expect it to oscillate in 400-430 bps band. The Russian spread is likely to change following the spreads of EM eurobonds.
We treat the latest selloff as a very serious signal of warning about the global investors'' attitude to sovereign risk. If the capital outflows from EM funds doesn''t stop, this will make investors to seriously reconsider sovereign risks of all emerging markets, including Russia.
The spread of Russia''s CDS to iTRAXX investment grade index
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BM__Toc211673446BM__Toc211673435BM__Toc211673285BM__Toc211673274BM__Toc21167 3253S&P may downgrade ARROSA and RZD after purchase of KIT Finance
On Friday, S&P put ratings of ALROSA (ВВ/Ва3/-) and RZD (ВВВ+/Ва3/ВВВ+) on the CreditWatch list with the negative outlook after the companies agreed to buy 90 % stake in distressed KIT finance. The main concern of S&P is the unclear structure of the deal and the deal''s influence on both companies financials.
We expected such reaction of the rating agencies and tend to assess it as fair. Now, amid harder access to borrowings even for state-owned companies with the expected slowing of production (shipments) growth, diverting money to support non-core assets contains significant risks. It can prove more serious for Alrosa, whose business is much smaller than RZD''s.
The scope of financial support needed for KIT finance can be judged by the volume of urgent credit given by Gazpromban. This credit is to be refinanced soon, and this obligation is assumed by the new shareholders.
The rating action will have only limited influence on the bonds of ALROSA and RZD. We also treat the bonds of KIT Finance (42 % to maturity in December 2008) as attractive for purchase. Since Thursday last week the price has grown from 90.50 % to 94.00 % of par. We think that the fair price of the paper is 96.00-97.00 %. In any case, it is a low-risky investment to hold the paper until redemption.
BM__Toc211673447BM__Toc211673436BM__Toc211673286BM__Toc211673275BM__Toc21167 3254S&P lowers the outlook for Russian banking ratings
Late last week, S&P assigned the negative outlook to ratings of 13 Russian banks while confirming the stable outlook for 14 more ratings.
In general, we were not surprised by the change of outlook as the agency methodology is clear. The stable outlook is assigned to state-controlled banks. Another group of banks which dodged the outlook downgrade are subsidiaries of foreign financial institutions. As for HCFB, we attribute the outlook downgrade to the parent Czech-based PPF Group saying it would cut financial support to its Russian subsidiary.
All other private-owned banks and financial institutions experience pressure on rating. According to an S&P analyst, the negative outlook for the ratings reflects a 30 % possibility of a rating downgrade within 2 years.
On Friday, Moody''s published a report on the Russian banking sector. The key highlight of the report is assertion that the state support to Russian banks and enterprises is one-off and extraordinary and therefore cannot cause upgrade of ratings. Moody''s does not rule out the possibility of further downgrades in the Russian banking sector: stand-alone creditworthiness of most Russian banks (discounting the factor of one-off systemic support) is low.
Leonid Ignatyev, Egor Fedorov
BM__Toc211673448BM__Toc211673437BM__Toc211673287BM__Toc211673276BM__Toc21167 3255ТНК-ВP will pay big dividends
The shareholders of TNK-BP Holding approved the dividend payment of 2.94 rub. per each common and preferred share. Thus the dividends will amount to 47.9 bln. rub., or 100% of RAS 1H 2008 net income, Reuters reports.
Amid limited access of the Russian companies to the debt market we tend to assess withdrawal of $2 bln. from the company as a negative factor for its creditworthiness (ВВ/Ваа2/ВВВ-). Theoretically, paying 100 % of the profit as dividends suggests that the company either requires little investment or the shareholders are not interested in the long-term business development. Obviously, we can not speak about low capex requirements as this is not the case with any Russian oil company.
The shortest eurobonds of the company (TNK-BP 2011 and TNK 2012) are traded at 18-21 % level of yield. We do not recommend to buy them. The longer issues of the company are risky to buy.
We should note that high dividends of TNK-BP are positive for Alfa Group and, thus, Vimpelcom. Media have recently discussed margin calls and events of default for corporate credits secured by shares. As far as we understand, this story is important for Alfa who may need short money to compensate the lower value of collaterals. The short eurobond Vimpelcom 2010, returning 18.5% with slightly more than 1-year duration, is interesting for us. We have seen trades in Megafon-09 - a bond with a comparable duration with the yield of only 13.0 %.
BM__Toc211673449BM__Toc211673438BM__Toc211673288BM__Toc211673277BM__Toc21167 3256Fitch changes the outlook for Sitronics rating
On Friday, Fitch changed the outlook for Sitronics rating due to higher refinancing risks on the back of weak credit metrics. Among the positive factors for Sitronics creditworthiness are sistema''s readiness to support its subsidiary as well as cross-default clause in Sistema''s eurobond prospectus.
According to the financial report for 1H 2008, short-term debt of the company stood at $600 mln., while annualized Debt/EBITDA stood at 6.4X, Net debt/EBITDA - 3.8X.
We see it currently difficult to refinance such a big debt within a year. At the same time, we have no doubt that Sistema will do its best to avoid defaults of its key subsidiaries, including Sitronics.
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