CIS - data.cbonds.infodata.cbonds.info/comments/34324/08.10.01.pdf · CIS Fixed Income Daily Ukraine Fears of Prominvestbank’s bankruptcy stalled the money market O/N hryvnia rate

Debt Markets

CIS

CIS Fixed Income Daily 01 October 2008

Benchmark yields

Last

%ch(DoD)

UST 10Y (US$) 3.578 -0.277Russia 10Y (RUB) 7.170 -0.480Russia 10Y (US$) 5.946 -0.099Russia '30 (US$) 7.255 0.006Ukraine '16 (US$) 12.151 0.933

Today’s news

Russia: Moody’s has affirmed its ‘positive’ outlook on sovereign debt Other rating agencies are less optimistic.

Ukraine: Fears of Prominvestbank’s bankruptcy stalled the money market O/N hryvnia rate soared to 20-25% despite large excessive liquidity (UAH20.8bn).

Ukraine: Current account deficit reduced to US$7.5bn over 8M08 O/N hryvnia rate soared to 20-25% despite large excessive liquidity (UAH20.8bn).

Companies in this issue

Company Currency YTW (%) Rec Previously Since

none

Source: ING

_

_

Currencies

Last

%ch(DoD)

RUB/US$ 25.32 1.10KZT/US$ 119.83 0.08UAH/US$ 5.07 0.39

Money market rates

Last

%ch (DoD)

3 months RUB 9.24 0.123 months KZT 5.70 0.003 months UAH 12.20 0.80

SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATION

CIS Fixed Income Daily

Russia

Moody’s has affirmed its ‘positive’ outlook on sovereign debt Other rating agencies are less optimistic.

According to Reuters, Moody’s cited Russia’s strong fundamentals, high reserves and favourable government policy as the rationale behind its view on its sovereign debt. However, it believes that “the picture going forward is mixed”. Positively, the agency believes that “it is a success not only because of oil but because of effective policies”, probably referring to the prudent government policy in the recent years which allowed the authorities to amass FX reserves of US$560bn and the sovereign funds together exceeding US$160bn.

At the moment, Moody’s seems to be the most optimistic of the three rating agencies. Standard & Poor’s has recently changed the outlook on sovereign debt from “positive” to “stable” but hinted that the sovereign rating (BBB+) is still safe for as long as the government has not used any of the sovereign fund assets to combat the financial crisis. Fitch, which has the same rating and a ‘stable’ outlook, has abstained from statements on Russia’s rating prospects since the crisis broke out earlier this month.

We believe that the US$50bn package offered by the government for the refinancing of short-term external debt in 2008-09 has relieved the refinancing risks for the private sector and increased the chances of the economy achieving a soft landing in the aftermath of this year’s financial crisis. On balance, we do not expect rating changes this year provided that the government is not forced to tap the sovereign funds (we believe that this can be avoided).

Tatiana Orlova, Moscow (7 495) 755 5489

2

CIS Fixed Income Daily

Ukraine

Fears of Prominvestbank’s bankruptcy stalled the money market O/N hryvnia rate soared to 20-25% despite large excessive liquidity (UAH20.8bn).

Excessive liquidity in the hryvnia money market at UAH20.8bn, which is at a four-week high, did not secure the market yesterday. Thus O/N rates soared to 20-25% yesterday from just 2.8% the day before. Fears of market players of a possible bankruptcy of Prominvestbank (PIB) frightened them significantly. Prominvestbank (B2 / Moody’s) ranks in the top six banks in terms of assets as of 1 July and represents a former state-owned bank concentrated more on corporate loans and on retail deposits. PIB has quite low transparency and is the only bank among the large banks that is not a member of the Association of Ukrainian Banks.

Despite the fact that a worsening in Prominvestbank’s financial situation was either a result of an attack by a raider, as it was treated by its management, or is the consequence of global banking crisis, other banks preferred to close inter-bank limits, thus almost completely stalling the money market. More dramatically, this situation occurred on the last trading day of the quarter where banks traditionally increase their demand for short-term hryvnia in order to create reserves. Almost immediately after the problem with PIB became public, the NBU decided to rescue the bank and provided UAH1.0bn through 6-month financing on Monday in liquidity support. However, yesterday the NBU increased the volume of support to UAH5bn ($1bn), thus reiterating in its press-release that the problem began due to attacks by raiders on Prominvestbank and panic behaviour of the population striving to withdraw their deposits from the bank. The NBU also stated that the quality of the credit portfolio and assets of PIB is good while the bank creates all necessary reserves in the full amount. From one side, NBU’s support will reduce the panic in the market and would restore stability to the money market. However, from another side, the NBU’s support is a first indicator that some less transparent banks (where PIB is a good representative) face problems with their liquidity.

We believe that the domestic banking system moved closer to the stage of total credit tightening while problems with short-term liquidity of PIB was a likely catalyst of this process. Despite the problems with PIB being of a non-economic nature, they significantly reduced the credibility of the Ukrainian banking system and moved CDS quotes by an additional 25bp breaking the 700bp level for 5-year CDS.

A shortage of external resources and rising currency risks is likely to induce banks to decrease their credit expansion. However, we estimate that the readiness of the NBU to support the stability of the domestic banking system will allow the money market to restore its common operations soon.

Alexander Pecherytsyn, Kyiv (38 044) 230 3017

Current account deficit reduced to US$7.5bn over 8M08 Long-term debt and FDIs still remain the major sources of keeping overall trade balance positive at US$6.2bn over January-August.

Preliminary data from the NBU shows a US$7.5bn current account deficit over January-August, which was slightly better than the US$7.7bn deficit over January-July. However, the data from the external trade balance still indicates a further worsening as imports growth outpaces exports growth while adverse price conditions in world steel

3

4

CIS Fixed Income Daily

markets will further reduce the growth rates in exports. Despite higher country risks and a more volatile global environment in August, the NBU reports about a US$1.7bn inflow of long-term debt over August. We still attributer the lion’s share of this increase to direct loans to Ukrainian banking subsidiaries by their foreign shareholders. The activity of domestic banks in attracting external long-term loans from the financial market was tiny as almost no foreign investors were ready to provide new loans to the domestic banking sector. The inflow of FDIs by US$1.2bn over August also looks quite unusual because high country risks reduced the attractiveness of Ukraine for foreign investors who prefer to postpone their active investments. Thus we attribute this inflow to the intentions of foreign banking groups to increase the share capital of their local subsidiaries. Quite healthy inflows of foreign long-term debt as well as FDIs improved the overall trading balance to US$6.2bn over 8M08 compared with US$4.9bn over 7M08 despite the further deterioration in current account balance.

We keep our projections of a more negative current account balance over 2H08 on the back of the continuing decline in steel prices while the domestic steel sector brings around half of export revenues. Our forecast for the current account balance stays at US$12.8bn or 6.7% of GDP till year-end. From the other side, the downward correction in world oil prices as well as lower imports of consumer goods due to the decline in bank lending will keep the gap between exports and imports from a more significant deterioration. Negative estimates of FDI’s and difficulties to refinance current external debts will also reduce positive inflow from the financial account, thus threatening the overall trading balance to turn into negative numbers at the end of this year.

A further deterioration in the current account balance and lower inflows on financial account is likely to pressure the hryvnia to faster weakening. The pace of the exchange rate movement will significantly depend on the NBU’s interventions in the FX market. However, the current level of FX reserves (US$38bn) will be enough to support hryvna stability within a short- to medium-term range only.

Alexander Pecherytsyn, Kyiv (38 044) 230 3017

Russia's rouble corporate debt universe

X5-1

WBD-3

WBD-2URSI-8

United Bakers-2

United Bakers-1

Unimilk-1

VolgaTel-4

VolgaTel-3

VolgaTel-2

Victoria-2

TMK-3

TMK-2

Transmashholding-2

Tattelecom-4

SunInBev-2 Stroytransgaz-2

UTK-5

UTK-4

UTK-3 SNOS-2

Sistema-1

Sibur-5Sibur-4Sibur-3Sibur-2

Sibur-1

Severstal-Auto-2

Severstal-Auto-1

RZD-7

RZD-6

RZD-5

RZD-3

Razguliay-3

Razguliay-2

Razguliay-BO-1

NWTel-4

NWTel-3

MTS-3

Mechel-2

Magnit-1

Magnezit-2

Magnezit-1

Lukoil-4

Lukoil-3

Lukoil-2

Kopeyka-3

Koks-2

Koks-1

Integra-2

Integra-1

Gazprom-9

Gazprom-8

Gazprom-6Gazprom-4

GAZ-1Dixy-1

Dalsvyaz-3Dalsvyaz-2

ChTPZ-3

ChTPZ-1

Cherkizovo-1CenterTel-4

Belon-2

Belon-1

AvtoVAZ-BO-3

AvtoVAZ-BO-2

AvtoVAZ-4

AvtoVAZ-3

Amurmet-3

Amurmet-2

Amurmet-1

77.5

88.5

99.510

10.511

11.512

12.513

13.514

14.515

15.516

16.517

17.518

18.519

19.520

20.521

21.522

22.523

23.524

24.525

25.526

26.527

0 1 2 3 4

MD (years)

yiel

d (%

)

CIS

Fixed Income D

aily

Source: Bloomberg, Micex, ING _ 5

Russia's rouble utilities debt universe

CIS

Fixed Income D

aily

Tyumenenergo-2

TGK 10-2

TGK 10-1

TGK 4-1

OGK6-1

OGK5-1

OGK2-1

MRSK Urala-1

Mosenergo-2Mosenergo-1

MOESK-1

MOEK-1

Lenenergo-3

Lenenergo-2

HydroOGK-1

GC-1

FEGC-1

FSK-5

FSK-4

FSK-3

FSK-2

EESK-2

Bashkirenergo-3

77.5

88.5

99.510

10.511

11.512

12.513

13.514

14.515

15.516

16.517

17.518

18.519

19.520

20.521

21.522

22.523

23.524

24.525

25.526

0 1 2 3

MD (years)

yiel

d (%

)

Source: Bloomberg, Micex, ING _ 6

Russia's rouble financial debt universe

CIS

Fixed Income D

aily

VTB24-3

VTB24-2

VTB'09

VTB-6

VTB-5

VTB-4

VostExpress-1

URSA'10-2

URSA-8

URSA-5

URSA-2

ULC-1

Transcredit-2 Transcredit-1

Svyaz-1

Souz-2

RussBank-1

RAB-7

RAB-3

RAB-2

RSB-8

RSB-5

Rosbank'09

Rosbank-1

RfB-4

RfB-3

RfB-2

RfB-1

RCB-3

RCB-2

RCB-1

Promsvyaz-6

Promsvyaz-5

Petrocommerce-4

Petrocommerce-2

Nomos-7

NFC-1

MBRD-2

KMB-2Kedr-3

Kedr-2

HCFB-5

HCFB-2

GPB'10

GPB-5

GPB-4 GPB-2

GPB-1

BOM-2

BOM-1

BOM 09

Ak Bars-2

AIZK-9AIZK-8

AIZK-7

AIZK-6

AIZK-5

AIZK-4

AIZK-3

AIZK-2

AIZK-1

66.5

77.5

88.5

99.510

10.511

11.512

12.513

13.514

14.515

15.516

16.517

17.518

18.519

19.520

20.521

21.522

22.523

23.524

24.525

25.526

0 1 2 3 4 5

MD (years)

yiel

d (%

)

Source: Bloomberg, Micex, ING _ 7

Russian corporates - USD Credit Curve

CIS

Fixed Income D

aily

Raspad

MMK

MTS

Gazprom Neft

Norilsk Nickel

Petrocom

Sberbank (sub)

Severstal

Sistema

Vimpelcom

VTB

VTB

Gazprom BBB+VTB (sub)

KRU

ICB (sub)

AlrosaBIN Bank

Megafon

Sberbank

BKMOSC (sub)

Promsvyazbank

Evraz Group

MDM

Nomos (sub)

URSA BankRSB (Sub)

Alfa Bank

Gazprombank

MDM (sub)

TNK-BP

URSA Bank (sub)

RSHB

BSOYUZ

RSHB (sub)Transneft

Eurochem NOVORO

Gazprom

Gazprom

TRANSC

Lukoil

BKMOSC

TRACAP

Severstaltrans

HCF

HCF

TMK

100150200250300350400450500550600650700750800850900950

10001050110011501200125013001350140014501500155016001650170017501800185019001950200020502100215022002250230023502400245025002550260026502700

0 2 4 6 8 10 12 14Remaining life, yrs

Spr

ead

to U

ST

Source: Bloomberg, ING _

8

Ukraine’s domestic tradable bond universe

MoF 21006MoF 21006

MoF 22400

MoF 14070MoF 14070MoF 16206

MoF 20406

MoF 20909

Zaporizhya (D )

Odesa (B)

Donetsk (C)

Zaporizhya (E)

Kyiv (A)

Donetsk (B)

Karavan (C)LuAZ (B)

Boryspil Intl Airport (A)

MTI (A)

ProC redit Bank (F )

Podillya (A)

Nidan+ (A)

Concern Khlibprom (D)Ipobank (A)

Rodovid Bank (C)

Ukrainian Automobil e Hol ding (A)

Ukrgazbank (A)

Ukrgazbank (D)

Pravex Bank (B)

YutiSt (A)

VAB Bank (F)

Oshchadbank (Saving Bank) (B)

Soyuz-Victan Trade (A)

Ukrsotsbank (E) Agromat (A)

Agromat (B)

At lant-M (A)

Amstor (A)

Ams tor (B)

Amstor (C)

Amstor (D )

Amstor (F)

Khreshchatyk Bank (E)

Pravex Bank (A)

Donetsksteel (A)

LuAZ (A)

Donetsksteel (B)

FUIB (A)

Creditprombank (F)

Creditprombank (H)

Creditprombank (I)

CB Finansova initsiatyva (B)

European Insurance Alliance (A)

CB Finansova initsiatyva (A)

Fora (A)

Forum Bank (B)

At lant-M (B)

Pivdenny (A)

Aval Bank (C)

Calyon Bank Ukraine (A)

Aval Bank (B)

10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

0.0 0.5 1.0 1.5 2.0Modified duration

Yie

ld

CIS

Fixed Income D

aily

Government bonds Municipal bonds Corporate bonds Mortgage bonds Sovereign yield curve

Notes: corporate bond issues are with outstanding UAH50m and more. Source: PFTS, I _

9

CIS

Fixed Income D

aily

10

Halyk

Intergas

ATFATF

BCC

DBK

Halyk

NurbankKKB

Tengizchevroil

BTA

KKB (sub)

Alliance KKB (perp)

BTA (perp)

BKCAS

BCC(perp)

Alliance(perp)

KazakhgoldATF Bank (perp)

TEMIR

Astana-Finance

KTZKZ

050100150200250300350400450500550600650700750800850900950100010501100

115012001250130013501400145015001550160016501700175018001850190019502000205021002150220022502300235024002450250025502600265027002750280028502900295030003050310031503200325033003350340034503500

0 2 4 6 8 10 12 14Remaining life, yrs

Spr

ead

to U

ST

Kazakhstani corporates - USD Credit Curve

Source: Bloomberg, ING _

CIS Fixed Income Daily

Research team Stanislav Ponomarenko Daria Volchenko Head of Research, Russia Analyst, Ukraine Moscow (7 495) 755 5480 Kiev (38 044) 590 35 87 [email protected] [email protected]

Tatiana Orlova Alexander Pecherytsyn Economist, Russia Head of Research, Ukraine Moscow (7 495) 755 5489 Kiev (38 044) 230 30 17 [email protected] [email protected]

11

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