Russia 090922 Basic Political Developments

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Business, Energy or Environmental regulations or discussions

OAO Gazprom, Sberbank, VTB Bank: Russia Stock Market Preview

By Yuriy Humber

Sept. 22 (Bloomberg) -- The following companies may have unusual price changes in Russian trading. Stock symbols are in parentheses and share prices are from the previous close.

Russia’s 30-stock Micex Index fell 3.6 percent to 1,165.11 at the close in Moscow. The dollar-denominated RTS Index sank 2.8 percent to 1,210.57. The dollar-denominated Russian Depositary Index, a measure of global depositary receipts trading in London, fell 3.3 percent.

OAO Gazprom (GAZP RX): Swiss banks can provide more financing for businesses in Russia, Swiss Bankers Association Chairman Patrick Odier said in an interview in Bern. Gazprom fell 3.4 percent to 176.08 rubles in Moscow on the Micex Stock Exchange.

OAO Sberbank (SBER03 RX): Magna International Inc., the Canadian car-parts maker buying General Motors Co.’s Adam Opel GmbH unit with Sberbank, started talks with labor leaders on job cuts as part of the 5 billion-euro ($7.3 billion) deal, Opel spokesman Joerg Schrott said. Russia’s biggest lender fell 3.9 percent to 55.47 rubles on the Micex Stock Exchange in Moscow.

OAO VTB Bank (VTBR RX): Russia’s inflation rate in September will be between zero and 0.2 percent, Interfax reported, citing Economy Minister Elvira Nabiullina. VTB, Russia’s second-largest lender, fell 3.4 percent to 5.52 kopeks on the Micex Stock Exchange in Moscow.

To contact the reporter on this story: Yuriy Humber in Moscow at

Last Updated: September 21, 2009 22:00 EDT
Bloomberg; Russia Bank Estimates Raised, Stocks ‘Attractive,’ JPMorgan Says

By Stephen Kirkland

Sept. 22 (Bloomberg) -- Russian bank price estimates were upgraded at JPMorgan Chase & Co. as the brokerage moved its valuation horizon to December 2010, cut assumptions for cost of equity by 100 basis points and made specific changes to company estimates, according to a research report today.

“Russian banking shares look attractive in the global context,” analysts Alex Kantarovich and Anna Avdokushina wrote in the report, noting the stocks have underperformed global emerging markets since the “start of the downturn in July 2008.”

The price estimate for OAO Sberbank, the nation’s biggest bank, was raised to $3.02 from $1.63. The estimate for VTB Group, the second-largest, was increased to $4.29 from $2.55, while Bank Vozrozhdenie, a Russian lender focused on small businesses, had its projection upgraded to $43.77 from $26.55 at JPMorgan. Bank St. Petersburg’s estimate was lifted to $3.35 from $2.31 at the brokerage.

Last Updated: September 22, 2009 01:48 EDT
Bloomberg: VTB Raised to ‘Neutral’ From ‘Sell’ at UBS; Price Estimate $4.03

By Stephen Kirkland

Sept. 22 (Bloomberg) -- VTB Group, Russia’s second-biggest bank, was upgraded to “neutral” from “sell” at UBS AG, which increased its price estimate to $4.03 from 91 cents.

Last Updated: September 22, 2009 01:54 EDT
Bloomberg: CTC Media Initiated With ‘Buy’ Rating at UBS; Price Estimate $21

By Stephen Kirkland

Sept. 22 (Bloomberg) -- CTC Media Inc., Russia’s fourth- biggest television network, was given a “buy” recommendation and price estimate of $21 in new coverage at UBS AG, according to a note to clients.

Last Updated: September 22, 2009 02:08 EDT
Troika: Nabiullina: 2010 industrial electricity tariff growth may be 7.5%

Troika, Russia

Tuesday, September 22, 2009

The maximum electricity tariff growth for industrial consumers in 2010 may total circa 7.5%, Interfax cited Economics Minister Elvira Nabiullina as saying last Friday. The revised tariff projections will be submitted to the government in one or two days, she said, adding that a range of 7.0 8.0% is being discussed for regulated industrial electricity tariffs. After analyzing the Sayano Shushensk GES accident's effects on the electricity market and taking into account the tough requirements on electricity companies to cut costs, Nabiullina explained that roughly another 2 pp would need to be added to the 2010 tariff growth.

We expect clarity on 2010 electricity tariffs this Tuesday. The original plan called for a maximum increase of 5% for industrial tariffs in ruble terms and more recently a 6 8% range had been reportedly discussed, so 7.5% would be closer to the high end. A larger than 5% hike is positive, but given that this is retail tariff growth (i.e. generation, transmission, distribution and supply), it is unclear how it will be distributed. If RusHydro receives extra tariff growth in 2010 to repair Sayano Shushensk GES, it would obviously be positive news for the stock. We model a slight y o y drop in RusHydro's total compensation tariff in 2010. For OGKs and Mosenergo, we model both the electricity and capacity tariffs rising 5% across the board in 2010. While greater tariff growth would be positive, the impact would be limited, as the average share of liberalization is supposed to reach around 70% next year. It was previously reported that the higher tariff growth than initially planned was mainly due to Federal Grid Company's transition to RAB from 2010. The head of the Federal Tariff Service, Sergei Novikov, indicated last week that Federal Grid Company's tariff may grow 30% or more in 2010.

Rencap: Crude steel production numbers for Aug 2009 - steelmakers face slow recovery

Renaissance Capital, Russia
Tuesday, September 22, 2009

Event: Yesterday (21 Sep), the World Steel Association (WSA) reported steel production numbers for Aug 2009. Global steel output was 106.5mnt (-11.1% YoY and +2.5% MoM). Russia's steel production was 5.0mnt (-20.8% YoY and +0.4% MoM). Ukrainian steel output was 2.6mnt (-17.0% YoY and -3% MoM). China reported record steel output of 52.3mnt (+22.0% YoY and +3.2% MoM) last month. India reported steel output of 4.7mnt in July (-0.3% YoY and +0.0% MoM). US steel production was 5.2mnt (-40.0% YoY and +4.6% MoM).

Action: The news is neutral for the Russian steel sector, in our view.

Rationale: Russia's steel output remained nearly flat MoM in August. The Russian steel sector's YoY underperformance is primarily the result of low utilisation rates at second-tier mills, which often experience liquidity problems. A broader recovery in domestic steel demand may help to restore steel production to pre-crisis levels. China reported another record month of steel production, exceeding 52mnt (+22% YoY). We have mentioned that China's high production level raises questions regarding that country's ability to process produced steel volumes, and suggest that investors monitor China's steel export statistics as the leading indicator. Chinese finished steel exports in Aug 2009 were up 14.9% MoM. However, Chinese domestic prices are very close to cost levels. We believe China's mills would rather cut production than export at a loss. The pace of recovery in major developed markets remains slow. Italy's crude steel production statistics do not look encouraging for Severstal and Evraz, both of which operate subsidiaries in the region. We saw stable MoM production volumes in the Middle East (Iran) and India despite the Ramadan holiday season. This is positive for MMK, Mechel and NLMK, which are traditional exporters to this region.

Troika: Peter Hambro Mining another step closer to state funds

Troika, Russia

Tuesday, September 22, 2009

Peter Hambro Mining (Petropavlovsk) and Russian Railways on Friday signed a framework cooperation agreement in Sochi to construct a rail link from the Garinskoye iron ore deposit to the Trans Siberian railroad and to build a bridge over the Amur River.

Russian Railways undertook to assist building both projects and will include them in the plan of development of Russia's railroad system.

We think that the news is highly significant as it marks yet another important stride Peter Hambro Mining has made to receive state funding for projects by assuring the support of Russian Railways. As a reminder, the Regional Development Ministry previously supported applications made by Peter Hambro Mining to obtain funding from the State Investment Fund to construct a 148 km rail link (Shimanovskaya Gar) from its Garinskoye iron ore deposit to the Trans Siberian railroad worth $500m. A government commission will make the final decision on financing this autumn. If approved, the State Investment Fund would fully pay the amount and later transfer ownership of the link to Russian Railways.

The iron ore assets of former Aricom envision the joint development of K&S and Garinskoye, each mining circa 10m tonnes of ore with overall production of 8.3m tonnes in concentrate. Peter Hambro Mining's investments will total up to $2.3bn. The company included in this estimate the cost of construction of a conveyer line under the assumption that the state does not pay for the railroad. The miner is currently considering various options for developing its iron ore assets (JVs, project funding) and the state funding may meaningfully improve the economics of the projects by reducing the estimated capex number by $500m. This would obviously be beneficial for any negotiations that the company conducts with potential Chinese partners over funding or offtake agreements.

Moreover, the manifest state support would serve to meaningfully reduce the perception of political risks that the company might have.

Considering the reached agreement and the amount of money still left in the State Investment Fund due to lack of attractive projects, we think that the chances of attracting government financing are robust.

Mikhail Stiskin

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