October 14, 2014

October 14, 2014
This is bne's Russia’s daily newsletter, a list of the top stories from the country. You
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RBL TOP STORY
1. Fears of a Russian credit crunch greatly exaggerated, say analysts
2. Russia to create oilfield service national champion to replace Western firms
3. Russia signs raft of deals with China
4. Economy to stagnate on large capital outflows, domestic policy tightening,
cheaper oil
RBL NEWS
5. Market comment: Russian market expected to hold ground
6. Russia bans imports of cheese products from Ukraine
7. Poroshenko will play up crisis easing ahead of elections
8. Russia Central Bank on Track to Let Ruble Float, Nabiullina Says
RBL On the site today
9. Polish central bankers sow confusion
BEARWATCH
10. Khodorkovsky Says Russia Didn’t Have ‘True Oligarchs’ Until Now
11. Moscow pledges response to Estonia’s entry ban for Russian academician Tishkov
RBL OTHER NEWS
12. Gazprom agrees on first part of debt repayment reduction to USD 1.45bn
13. Commercial and retail space vacancy rates double in third quarter in Moscow on
economic slowdown
14. FSK: generators object to increase in connection fee for new units
15. Gazprom and Novatek: Dmitry Medvedev meets Chinese Prime Minister
16. Gazprom: Western Route contract with China not expected to be signed until
2015
17. Khodorkovsky says Ukraine risks being Russia in 1990s
18. Ruble/Yuan trading looms, Moscow Exchange signs cooperation agreement with
bank of china
19. PhosAgro: Indian DAP retail price might be raised in October
20. Russia's Central Bank Shifts Boundaries of Floating Ruble Corridor by 10 Kopeks
21. Russia, China Move Ahead on $25 Billion High-Speed Railroad Project
22. Russia, Germany Postpone Business Forum
23. Russian commercial law bars Investigative Committee from suing AFK Sistema
24. Sanctioned Russian Banks Seek Alternative to SWIFT
25. Sanctions-Hit Russia Signs Deals with China on Energy and Finance
RBL COMPANY SNAPSHOTS
26. VimpleCom - A BUY on recent stock performance
RBL SECTOR SNAPSHOTS
27. September RAS data: growth still skewed towards lending rather than deposits
RBL MACRO RESULTS
28. Federal budget remained in the black with 2.0% surplus in September
29. Ruble Exchange Rate: Positive 3Q14 BoP Ignored On Cheaper Oil
RBL COMPANY RESULTS, UPGRADES
30. Russian Gas Giant Gazprom Says Q2 Profit Up 13 Percent
RBL TOP STORY
1. Fears of a Russian credit crunch greatly exaggerated, say analysts
bne
October 14, 2014
On paper, Russian companies have huge foreign debts, and no way of refinancing
them because sanctions effectively close Western capital markets to Russian
borrowers. But with much of Russian corporate foreign debt in fact hidden equity
investments from offshore zones, the figures seem much worse than they are.
International headlines are predicting a looming liquidity meltdown in Russia.
Russian companies must pay down $134bn in external debt through the end of 2015,
with a major spike of $32bn coming up in December 2014 alone, according to
Russia’s central bank.
But an accounting trick widely used in Russia may be misleading pundits on
corporate liquidity in Russia, say experts: for many larger Russian firms, foreign debt
is nothing other than equity injections from shareholders incorporated in offshore
zones such as Cyprus or the British Virgin Islands, with interest paid on the debt a
tax-minimising strategy to take profits.
Real foreign debt may be almost half of the figure on paper. “The figure [$166 billion
foreign corporate debt through 2015] is quite overestimated as it includes intercompany transactions. I think the realistic estimate amounts to not less than $90bn,
which are to be raised from domestic sources," Russia's economy minister Aleksei
Ulyukaev said in a boisterous speech to the Duma on October 8.
According to Russia's central bank, of $220bn in foreign loans taken out by Russian
companies in Russia in 2013, close to half were raised in offshore jurisdictions, such
as Cyprus, Ireland, Luxembourg and the British Virgin Islands, rather than from
international banking centres. Counting through all the eurobonds, syndicated loans
and bilateral loan agreements, gives a figure of $70bn-90bn in debt to be paid down
through 2015, similar to the figure quoted by Ulyukaev, say experts.
This is also why foreign currency lending to Russian corporates has been little
affected by the sanctions. "FX-denominated credit growth has remained robust,"
says Neil Shearing of Capital Economics, "given that financial sanctions have locked
large parts of the banking system out of Western capital markets."
Moreover, much of Russian companies' genuine foreign debt - some analysts says
around half - can be attributed to Russia's state-owned energy giants Rosneft and
Gazprom. Rosneft alone owes around $32bn to be paid by the end of 2014, debts
incurred to pay for the acquisition of oil company TNK-BP in March 2013. But both
Rosneft and Gazprom are receiving huge advance payments from China for
contracted oil and gas supplies.
Beside the state behemoths, Russian corporates are less leveraged, having learnt a
lesson during the last credit crunch in 2008-9, which forced them to pay down debt.
According to credit agency Standard & Poors, Russian corporates total outstanding
eurobond debt equals $90bn, but with a paltry $2.3bn to be paid down through end
of 2014, followed by $8bn in 2015. "The maturity profiles of these debts appear
manageable," write S&P analysts. "Companies should be in a position to replace
maturing Eurobonds with bilateral loans from the banks," the analysts add.
The bigger problem for Russian firms appears to be the sanctions on Russia's
dominant state-owned banks, which have had their access to Western capital market
cut off. This will reduce liquidity and push up interest rates. "We estimate that
interest rates for ruble debt have increased by 2% on average over the past two to
three months," write S&P analysts. "Higher financing costs for Russian companies
are the main result of the sanctions."
"Stepping back, the picture that emerges is one in which interest rates have
increased and credit growth has slowed, with certain sectors, notably households and
small and medium enterprises, hit particularly hard," says Neil Shearing of Capital
Economics. "But there is no sign yet that a widespread credit crunch has infected the
entire economy," he argues. Shearing, like most analysts, expects a tightening of
credit conditions in coming month as the Russian central bank hikes interest rates.
Still there is no ground for Russian authorities to relax. Capital outflows fells
significantly in the third quarter to $13bn, down from $24bn in the second quarter,
but they still exceed the current account surplus of $11bn. The accelerated slide in
the value of the ruble points to an increase in capital outflows at the start of the
fourth quarter, and the drop in the ruble will make year-end debt payments more
difficult for a number of companies. "The authorities will come under further
pressure to dip into FX reserves to help the private sector meet these obligations,"
warns Shearing.
2. Russia to create oilfield service national champion to replace Western
firms
bne
October 14, 2014
Russia's president Vladimir Putin has approved the creation of a state-owned oil
services national champion, intended to replace global giants such as Halliburton and
Schlumberger, according to news agency RBC.
The move follows Western sanctions on Russia over Moscow's aggression in Ukraine
that have banned EU and US companies from providing services to Russia's oil and
gas sector in the Arctic, deep water or shale structures, the crucial next frontiers for
Russia's energy sector.
However, critics fear the move could also damage existing successful private Russian
oil service companies.
Natural Resources Minister Sergei Donskoi called in September for the creation of a
national oilfield service company in response to a fresh round of Western sanctions
announced on September 12. Donskoi said at that time that such a company would
make Western giants such as France's Schlumberger and the US’ Halliburton "grind
their teeth."
That call obviously found response further up in the government. In a time
of "sharply escalating international tensions," a national oilfield service company is
crucial to help Russia keep its oil and gas output stable over the long term, Deputy
Prime Minister Alexander Khloponin wrote in a letter sent to Putin later in September
2014.
RBC journalists now say Putin has stamped a copy of the letter as approved,
although Kremlin spokesman, Dmitry Peskov, has refused to comment to media.
According to Khloponin's letter, the new state company will comprise the assets
of Rosgeologia, currently a government agency encompassing dozens of exploration
service companies. Government stakes in a further 15 companies involved in shelf
exploration could be transferred to the new national champion, Khloponin said in the
letter.
Western oil field service companies account for only around 20% of the market in
Russia, say analysts, but they own cutting edge technologies that their Russian peers
still lack, but which are needed to open new hard-to-reach offshore reserves in the
Arctic as well as in onshore shale structures.
It is not clear from the plan how a state-owned company could acquire such
technology, especially considering it is likely to pay less competitive salaries than its
private sector peers. "Russian companies can replace Western expertise but this will
take time, as foreign majors have been developing their technology for decades,"
Sergei Pikin, an energy expert, told the Moscow Times.
Other voices in the government such as Deputy Prime Minister Arkady Dvorkovich
have voiced skepticism over the need for such a state-owned company, given that
there is already a strong private oilfield sectors sector in Russia.
Russia's private oil firms, which have in-house oilfield service divisions, may also be
against the idea. Vagit Alekperov, majority owner and chairman of Russia's largest
private oil company LUKoil, previously called the idea "unacceptable”.
"Over the last 20 years we have formed the oil service market and expect a large
amount of companies to work in it, which will increase competitiveness," Alekperov
said, as quoted by TASS. The government has so far not allowed LUKoil to
participate in Arctic shell exploration, reserving it for state-owned companies Rosneft
and Gazprom.
3. Russia signs raft of deals with China
bne
October 14, 2014
Russia and China signed a raft of 40 agreements encompassing trade, energy,
finance and technology, following a meeting between Russian prime minister Dmitry
Medvedev and his Chinese counterpart, Li Keqiang, on October 14 in Moscow. The
agreements demonstrate how Russia is looking for other options for sourcing finance
and technology, after sanctions imposed on Russia in response to Moscow's
aggression in Ukraine restricted access to Western finance and technology.
Following the meeting, Medvedev said he envisaged Russia-China trade soon
doubling to $200bn. “Relations are really on the rise,” Medvedev said following the
meeting, as quoted by Interfax. “I think that level [of trade] is absolutely reachable.”
To financially underpin such a trade surge and move towards stronger use of
domestic currencies in trade instead of the dollar, Russia and China agreed to a
three-year yuan-rubel swap worth 150bn yuan (roughly $24.5bn), and Beijing state
banks agreed to provide credit lines to Russian banks and companies to fund
technology imports from China.
Kremlin-owned VTB and Vneshekonombank received yuan credit lines worth around
$2bn each to fund imports from China. Leading Russian mobile communications firm
MegaFon secured a $500m loan from China Development Bank for equipment from
Chinese technology producer Huawei Technologies, its main supplier. Russia's largest
bank, state-owned Sberbank, and Huawei also signed a technology agreement
intended to replace reliance on Western technologies.
“Until recently, Sberbank used high-tech equipment mostly from American and
European companies,” said German Gref, Sberbank CEO. “We are continuing and
developing our cooperation with them, while at the same time turning our attention
to alternative producers and providers.”
The Kremlin is eyeing Chinese loans as a means for Russia to attract funding, after
Western sanctions largely cut off access to international capital markets. “This is a
very real source of financing for our operations. It may be implemented in various
forms: loans in yuan are absolutely possible, [and so are] connected lending, project
financing, participation in major projects,” Russia's economy minister Aleksei
Ulyukaev said on October 13, as quoted by RIA Novosti. “This is not a complete but a
partial substitution," Ulyukaev said.
Moscow and Beijing also moved forward with some high profile energy and
infrastructure projects, signing an intergovernmental agreement on natural gas
supplies, which now allows a landmark 30-year gas deal agreed in May, worth
around $400bn, to enter into effect.
Russia's deputy energy minister Anatoly Yanovsky was quoted by media as saying
that China had offered Gazprom a role in construction of gas pipelines to carry
Russian gas on Chinese territory. In addition, Yanovsky said, consultations were
proceeding on gas supplies to China via the 'western' route through Russia's Altai
region, with volume of supplies initially set at 30bn cubic meters per year, and the
possibility of expansion to 100 cubic meters, according to newswires.
Russia's oil giant Rosneft and China's CNPC also signed an agreement for
construction of a liquefied natural gas plant on the island of Sakhalin, in the Russian
Far East.
Another memorandum opened the doors to Chinese participation in a planned $25bn
high-speed rail link between Moscow and Kazan, with the overarching aim of creating
a Eurasian high-speed transport corridor between Moscow and Beijing. Chinese
representatives said that Chinese companies could invest about $10bn.
4. Economy to stagnate on large capital outflows, domestic policy
tightening, cheaper oil
UralSib
October 14, 2014
Russia’s economy stops growing. In August, industrial growth decelerated to zero
after 1.5% YoY growth in July, due to manufacturing, which contracted 0.6% YoY in
August after growing 2.4% YoY in July. In addition, transportation turnover dropped
1.3% YoY due to the weak industrial growth, and construction fell 3.6% YoY as a
result of the 2.7% YoY contraction in capital investment. However, retail trade
accelerated to 1.4% YoY growth from 1.2% in July due to the short-term rebound in
real incomes (up 3.9% YoY in August). Nevertheless, consumer demand remains
under pressure due to the ongoing deceleration in retail credit growth and growing
inflation, which accelerated to 8% YoY in September as a result of the ban on
European food imports. We estimate that the economy contracted 0.2% YoY in
August, while the Economy Ministry more optimistically sees flat YoY growth in
August.
Base case medium-term stagnation. We have recently lowered our medium-term
economic outlook for Russia due to the large capital outflows, domestic policy
tightening, and cheaper oil. We now expect Russia’s economy to stagnate in 2014-15
and resume its long-term growth potential by 2017. The key growth factors – growth
in Europe and the cap on regulated tariff growth – will continue to support Russia’s
economy in the medium term. However, if Russian companies remain cutoff from
global capital markets for longer than several months, the average ruble rate could
sink to RUB48-50 against the bi-currency basket next year, which would put the
Russian financial system under pressure, drag the economy into a recession, and
inevitably unleash an inflationary spiral. We believe that given the threats, the CBR
will step in and provide the required liquidity. In this case, we expect an average
ruble rate of RUB43.7/basket and real GDP growth of 0.7% in 2015.
RBL NEWS
5. Market comment: Russian market expected to hold ground
UralSib
October 14, 2014
Russia bounces slightly, while US falls in late trading. The Russian market recovered
some of its losses as the RTS index closed with a gain of 1.2%. Sector performance
diverged significantly, as metals and oil & gas exporters gained 1.6%, followed by
financials, which grew 1.4%, primarily thanks to Sistema closing up 2.6% in Moscow.
In contrast, telecoms and consumer stocks declined 0.8% and 0.1%. The US had a
volatile session and closed weakly. As a result, the S&P500 index closed 1.65%
lower, which drove the MSCI World stock index down 0.8% yesterday. However, US
futures are up 0.6% this morning, as some investors consider the market oversold
after yesterday’s selloff.
Neutral opening expected in Moscow. Asian markets are mostly in the green this
morning, albeit, with small gains, the Nikkei index being the outlier, down 1.7%.
Brent oil futures are showing no signs of increased investor interest at close to
$88/bbl.
Meanwhile, gold continues to rise, gaining 0.5% to $1,234/oz. Most other metals are
also up. It is another quiet day in terms of macro releases in the US, while European
markets will be focused on the October readings of the ZEW survey – the consensus
expects sentiment to weaken further in the beginning of 4Q14. We expect the RTS
index to open flat today.
Slava Smolyaninov
6. Russia bans imports of cheese products from Ukraine
Tim Ash, Standard Bank
October 14,
2014
Ukraine was a big supplier of food/agri
products to Russia, so this move will just further put upward pressure on food prices
in Russia, hurting the ordinary guy in the street, where cheese was something of a
staple - already consumer demand is weakening pretty markedly, as Russians
tighten their belts for the long
haul.
This cheese
import ban comes as Russia was trying to send a message that it was being
reasonable over the gas import/price battle with Ukraine - albeit both sides appear to
be trying to play to EU public opinion. On this latter score, Moscow agreed to reduce
the upfront payment needed to get gas supplies to Ukraine back on line - reducing
this first payment from USD2bn to USD1.45bn, then USD3.1bn paid by the end of
2014, and the outstanding balance (USD6.8bn, if Ukraine imports a further 4bcm
over the winter). Ukraine still maintains that Russia should first restart gas supplies,
then it will begin paying down some of the prior gas debts. Net-net this is still all
logjammed, presumably until the October 16-17 Putin Poroshenko meeting in Milan,
which could concievably provide a basis for a gas deal at the slated Oct 21 meeting
between Gazprom and Naftogas. I still would not hold your breath
tho.
In terms of
problems in the energy sector in Ukraine, the continuing conflict in Donbas is still
causing problems in getting some of the 100+ coal mines in Donbas back up and
running - around two thirds of Ukrainian coal production is centred in Donbas, and it
plunged overall by 60% YOY in August. As a result industry leaders are reporting of
potential shortages of 8mt of coal, which might leave generation shortfalls of 15% or
so in thermal power plants - again disrupting broader economic output. I saw one
figure which suggested that this could boost import costs by USD1-1.5bn. The
problems are not just about the mines themselves, but destroyed infrastructure
around the mines, including 30 destroyed bridges, 1,000km of roads, and much rail
infrastructure. Plus there is also the problem of the close to 400k internally displaced
people - the likely number therein is probably much higher.
7. Poroshenko will play up crisis easing ahead of elections
Teneo
October 14, 2014
Signs of easing tensions will likely dominate the news this week, but progress on
crisis resolution will likely be overstated and is unlikely to motivate a relaxation of
EU/US sanctions against Russia.Signs of easing tensions will likely dominate the
news this week, but progress on crisis resolution will likely be overstated and is
unlikely to motivate a relaxation of EU/US sanctions against Russia.
Ukrainian President Petro Poroshenko will meet Russian President Vladimir Putin on
17 October. While no specific outcomes are expected, it will likely be presented as a
positive sign. Similarly, the Russian leadership will likely follow through on its latest
announcement of troopsЙџ™ withdrawal from the Ukrainian border. Some progress
on ceasefire implementation may also be announced and push negative news from
the frontlines further to the background.
Playing the peace-maker Poroshenko will probably play up his meeting with Putin in
the run-up to the general elections on 26 October. He has built his election campaign
on his image as peace-maker and consensus-builder, and will use this opportunity to
foster this message. However, in terms of specific outcomes, little is expected.
Poroshenko is unlikely to meet Russian demands for the federalisation of Ukraine.
This fundamental clash of interests continues to inhibit a compromise that could
become a sustainable basis for crisis resolution.
Meanwhile, Moscow announced that troops stationed along the Ukrainian border will
return to their permanent bases in the coming days. While this is the third
announcement of this kind in recent months, it is likely that this time it will be
followed by action due to the approaching winter. Still, a Russian withdrawal does
not necessarily mean the end of hostilities in eastern Ukraine, as separatist units
remain engaged in clashes with government forces. The battle for the Donetsk
airport continues, and heavy fighting has been reported outside the port city of
Mariupol this morning.
Finally, it is also possible that a progress on ceasefire implementation will be
announced in the coming days, most likely in the form of an agreement on dividing
the control of areas where the most recent clashes have been reported. While Kiev is
keen to call the ceasefire a success before the elections are due, there seems to be a
deepening rift among individual groups of separatists. News of a similar deal Йџ“
under which separatists were to give up their attempts to regain Mariupol in
exchange for some sections of territory currently under the governmentЙџ™s control
Йџ“ leaked on 10 October, leading to internal conflict in the separatist ranks. Clashes
outside the city have intensified in the past 48 hours.
Overstating crisis resolution Overall, while some genuine easing is likely (e.g. the
Russian withdrawal of troops) any news of progress on the ground should be taken
with caution until after elections. The significance of positive developments may be
overstated and there is little certainty that any potential deals will be respected by
the separatists.
Similarly, the Russian withdrawal is unlikely to motivate a relaxation of EU/US
sanctions at the end of this month. A more durable commitment to ending the crisis
will be required to bring this about. Besides a sustainable peace deal, a constructive
attitude towards UkraineЙџ™s constitutional redesign will be the key factor.
Economically, sanctions are now hurting both sides; however, political imperatives
continue to dominate the debate.
8. Russia Central Bank on Track to Let Ruble Float, Nabiullina Says
The Moscow Times
October 14, 2014
Russia is on course to freely float the ruble from next year, the Central Bank's
governor said, but she defended the bank's policy of intervening to support the
currency as it skidded to record lows in the past week.
Elvira Nabiullina told lawmakers in Russia's lower house of parliament that the
Central Bank had spent around $6 billion defending the ruble in the past 10 days.
But she said the situation on the currency market was under control.
Read more here: http://www.themoscowtimes.com/article/509326.html
RBL On the site today
9. Polish central bankers sow confusion
Tim Gosling in Prague
October 14, 2014
Less than a week after finally agreeing to cut interest rates, Poland's central bankers
are back to bickering and sowing confusion over further steps to support the
stuttering economy.
With the recovery going strongly early this year, the National Bank of Poland's
traditionally turbulent Monetary Policy Council (MPC) briefly reached unanimity,
opening the way for Governor Marek Belka to announce it would offer forward
guidance. With the economy now stumbling, such consensus has gone out of the
window. Conflicting signals mounted on October 13 following the previous week's
surprise of a 50-basis-point cut to push the key interest rate down to 2%.
Read more here: http://www.bne.eu/content/story/polish-central-bankers-sowconfusion
BEARWATCH
10. Khodorkovsky Says Russia Didn’t Have ‘True Oligarchs’ Until Now
Tim Ash, Standard Bank
Ocrober 14, 2014
And never when he
was at the helm of Yukos. That said, he makes some strident claims about use of
state funds to "influence" Western opinion - not sure how many Western
governments/societies will feel that comfortable with these claims as to how far
Russian state interests are now represented amongst Western elites.
11. Moscow pledges response to Estonia’s entry ban for Russian
academician Tishkov
TASS
October 14, 2014
Russia’s Foreign Ministry said Monday the ban on entry to Estonia for Russian
academician Valery Tishkov is a provocation and pledged a response to Tallinn’s
actions.
“We interpret the actions of the Estonian side as a provocative action aimed at
preventing open and unbiased exchange of opinions between representatives of the
two countries’ public and academic communities,” the ministry said in a statement.
Read more here: http://en.tass.ru/russia/754196
RBL OTHER NEWS
12. Gazprom agrees on first part of debt repayment reduction to USD 1.45bn
VTB Capital
October 14, 2014
News: According to Russian Minister of Energy Alexander Novak, the requirement to
Ukraine to pay back USD 2bn by the end of October has been reduced to USD
1.45bn, Vedomosti reports. This amount corresponds to the country’s debt for gas
purchased in 2013. At the same time, Ukraine has lowered its requirement for
Russian gas for the upcoming winter season to 4bcm, from 5bcm discussed
previously. Both sides have sent proposals to the European Commission.
Our View: The final agreement between Russia and Ukraine has yet to be
announced; the next trilateral meeting is planned for 21 October. However, any
progress with the issue would be supportive for Gazprom, we believe. In our view,
USD 1.45bn of reversed bad debt would help the company’s dividend and we
estimate the dividend yield at 4.5% in this case. An additional 4bcm of sales would
add some USD 1.4bn to Gazprom’s EBITDA (or about 2.5%).
Overall, given that nothing has changed at this point, we deem the news as not
market-moving for Gazprom.
13. Commercial and retail space vacancy rates double in third quarter in
Moscow on economic slowdown
Jones Lang LeSalle
October 13, 2014
According to JLL estimates, the Moscow shopping centres vacancy rate has increased
significantly from 3.5% in Q2 to 6% in Q3 2014 due to the high volume of new
supply added to the market from the beginning of the year and an active rotation of
tenants.
The volume of new retail supply for 9M 2014 reached 285,000 sq m, which is almost
1.5x the FY2013 level, according to JLL estimates. In Q3 two shopping centres were
delivered to the market – Vodny SEC (32,000 sq m GLA) and Alfavit SEC (11,000 sq
m GLA). This figure is 20% higher than last year, when only 35,000 sq m was
completed. “The majority of developments for 2014 are expected in Q4 with another
five shopping centres with total GLA of over than 450,000 sq m are planned to be
delivered by the end of the year. If all announced projects will be opened in time, the
volume of new retail space will exceed 750,000 sq m by the end of 2014, which is to
hit the highest level ever seen.” - Tatyana Kluchinskaya, National Director, Head of
Retail Department, JLL, Russia & CIS, comments.
Due to the volatility of the exchange rate, the period of tenants’ decision-making has
been lengthened. JLL analysts forecast, that the vacancy rate will continue to growth
in 2015 due to the significant volume of new completions, as well as the revision of
retailers’ development plans resulting from the weakening purchasing power of
Russians, and as consequence, the slowdown in retail sales growth.
Rents in shopping centres generally remain unchanged, though tenants are
increasingly insisting on a reduction in rental levels. For the moment developers, in
turn, are ready to consider alternative commercial terms. For example, they are able
to offer turnover rent for the short-term period (3-12 months) in newly constructed
shopping centres. The prime rent in shopping centres in Moscow is USD3,0004,500/sq m/year, the average rent is ranging between USD500 and 1,800/sq
m/year.
“The majority of well-known retailers are reviewing their plans and development
strategies given the current economic situation. The decline in consumption has
already negatively influenced company profits. Consequently, retailers are carefully
evaluating their plans; some have even closed their stores as a result of significant
losses in profits happen under unfavorable economic and political circumstances as
well as currency fluctuations. It should be noted that these companies completed
their restructuring plans in the beginning of the year when ruble depreciation was
not so substantial. In our opinion, it would be wrong to state that the exit of certain
retailers from the Russian market is a trend that will continue over the longer term.
Foreign retailers do, in our view, continue to see the potential of Russian retail
market though at the moment they have put their development plans on hold.” Elena Zadorozhnaya, Head of Tenant Representation, Retail Department, JLL, Russia
& CIS, comments.
TwinSet (Fashion), Unode50 (Jewelry), Crate&Barrel (Interior&Furniture), Penti
(Lingerie&Underwear) and A.Lange&Sohne (luxury watches) are among Q3 new
entrants. The first confectionery of famous American chain Magnolia Bakery was
opened in Moscow.
“We see the decline of retail development in the regions. According to current
conditions retailers prefer to complete their currently constructed projects but do not
start new ones. This is due to both the moderate demand from retailers and very
limited access to debt financing. In our opinion, in the short-term the construction of
new shopping centres will not be started except the projects which have been
financed already or self-financed. As a result we could see a similar dynamic to 2009
– a lack of new supply in the next years.” – Tatyana Kluchinskaya said.
14. FSK: generators object to increase in connection fee for new units
VTB Capital
October 14, 2014
News: Federal Grid Company might receive only part of the RUB 77bn it was initially
guided to be paid for connecting new generating units in 2014-17, Vedomosti
reports.
The newspaper writes that generators such as RusHydro and Rosenergoatom have
raised objections to the initiative to increase connection fees. The issue is to be
considered by the Ministry of Energy and the Ministry of the Economy, and more
details are to follow by 15 October. MinEconomy has suggested that one scenario
might be that generators pay for the last mile only, some 30% of the total
connection cost.
Our View: The cumulative RUB 77bn of connection fees in 2014-17 and RUB 20bn pa
afterwards were guided by Federal Grid Company’s CEO, Andrey Murov, on many
occasions (please refer to previous morning comments). Although we included some
payment in our DCF model for the company, we were conservative, assuming only
RUB 45bn of the guided amount would be collected in 2014-17. With no clear ruling
from state bodies, the potential downside risk to our 2014-17 EBITDA projections
varies from 5% (if generators cover 30% of connection costs) to almost 10% (in the
event the fee is cancelled). Sell reiterated.
Alexander Seleznev
Mikhail Rasstrigin
15. Gazprom and Novatek: Dmitry Medvedev meets Chinese Prime Minister
VTB Capital
October 14, 2014
News: Yesterday, Russian Prime Minister Dmitry Medvedev met his Chinese
counterpart, Li Keqiang, in Beijing, according to Kommersant. The prime ministers
plan that Russia and China might agree next year on supplies of China with pipeline
gas via the Western route. They also signed an official contract on the Power of
Siberia project (no details were disclosed). No agreement was reached on the
potential advance payment to Gazprom. CEO Alexei Miller confirmed that the
company might freeze the Vladivostok LNG project. Li Keqiang said that China might
participate in the Russian LNG project, without specifying the project name or
company name.
Our View: The meeting did not bring any clarity, either for Gazprom or for Novatek.
On gas supplies via the Western route, it is unclear if Gazprom needs to get involved
in another major capex consuming project with only long-term prospects. The
Western route (gas sourced from Yamal) was initially discussed with China and
afterwards replaced with the Eastern one. We believe that this project is unlikely to
proceed in the near term.
On the potential advance payment, CNPC previously agreed to provide Gazprom with
a prepayment of USD 25bn under the gas contract. The terms of the prepayment,
including the cost of debt and time schedule, are not clear yet. The prepayment
amount is close to 45% and 35% of the total capex programme for Power of Siberia,
under the official (USD 55bn) and our (USD 72bn) estimates, respectively. Having
been negotiating with China since 2004, Gazprom has agreed to supply it with up to
38bcm of gas per year for 30 years, with the first deliveries starting closer to the end
of this decade,.
As was reported yesterday, Gazprom’s Vladivostok LNG project might be frozen, as it
is to be substituted by the Power of Siberia project. We note that constructing
Vladivostok LNG could allow Gazprom to diversify its customer base in the east. In
our Eastern gas programme model for Gazprom, the plant generates positive FCF
making the entire project value-neutral for the company, so we would treat the news
as generally negative for Gazprom’s fundamentals. Nevertheless, it might not be as
bad given that additional gas volumes (15bcm) may go to China via Power of Siberia
pipeline.
On the potential LNG project, Chinese CNPC already holds a 20% stake on Novatek’s
Yamal LNG. Separately, Novatek previously considered another LNG plant at the
Gydan fields with similar capacity on the basis of Geofizicheskoye and Utrenneye
fields. We think it highly unlikely that the fields will be launched before 2020 and,
thus, do not incorporate Gydan into our Novatek model. The peninsula is not linked
to a pipeline and lacks any infrastructure at this point and so the company would
have to connect it to its Yamal LNG plant located across the Obskaya bay. All
required governmental approvals have been received, the CEO of Novatek Leonid
Mikhelson said in January.
16. Gazprom: Western Route contract with China not expected to be signed
until 2015
UralSib
October 14, 2014
Limited progress in talks with China. According to Prime Minister Dmitry Medvedev,
the negotiations between Russia and China over the "Western Route" pipeline, which
will run from Western Siberia to Northwestern China, are unlikely result in a contract
being signed
before 2015. Gazprom (GAZP RX – Hold) CEO Alexei Miller previously suggested that
Gazprom may be willing abandon its Vladivostok LNG plant in favor of a new pipeline
to China that could transport up to 15 bcm of gas, mostly from Sakhalin. However,
Russia and China did sign an intergovernmental agreement which will allow the May
2014 "Eastern Route" gas contract to take effect.
No clarity on the new LNG JV. Yesterday, China's Premier Li Keqiang told Russian
reporters that the two countries had agreed to set up a JV for LNG projects. It was
also reported yesterday that Novatek (NVTK LI – Buy) has received governmental
approval for LNG exports from the Geofizicheskoe and Salmanovskoe fields and the
North Obsky block. It is unclear whether Novatek will be part of the LNG JV.
Gazprom abandoning diversification strategy in the Far East. As Gazprom appears to
be ready to supply piped gas from Sakhalin to China, after extending the existing
Sakhalin-Vladivostok pipeline, and to abandon its Far East LNG plans, the greatest
risk to the company is China’s growing influence over the Russian exporter.
However, since Gazprom’s access to global markets as well as deepwater and LNG
technology appears limited at the moment, this could be the only workable option in
the short term. We have a Hold recommendation on Gazprom.
Alexei Kokin
17. Khodorkovsky says Ukraine risks being Russia in 1990s
Tim Ash, Standard Bank
October 14, 2014
I tend to agree with Khodorkovsky in Ukraine today - it is in urgent need of much
more Western financial support, and now. Therein see my piece on this subject from
last week.
However, I tend to disagree in terms of the failings which led to the 1998 crisis in
Russia. Actually big ticket Western financing was provided earlier in 1998 - July 1998
via an IMF programme - but the reality was that the then Yeltsin administration had
shown for whatever reason that it did not really want to take the kind of painful
reform measures that were required. I would particularly point to some key
privatisations which were stalled/utility market reform, et al. Actually this
Poroshenko administration in Ukraine is willing/eager to reform, as are the Ukrainian
population if a radical Western/EU reform agenda can be sketched out and some
more significant Western financing put in place to enable the economy to ride thru
on-going efforts from Russia to derail those Westernising reform efforts. The hope is
that the new govt to emerge after parliamentary elections on October 26 can provide
that reform blueprint, and the West stumps up enough cash to give those reforms a
real chance.
18. Ruble/Yuan trading looms, Moscow Exchange signs cooperation
agreement with bank of china
Bank of China Limited
October 13, 2014
Moscow Exchange and Bank of China have signed a cooperation agreement aimed at
expanding collaboration between the Russian and Chinese financial markets.
Bank of China President Chen Siqing and Moscow Exchange CEO Alexander Afanasiev
signed the agreement during an official visit between the Chinese and Russian Prime
Ministers.
"This bilateral agreement on strategic cooperation between Bank of China and
Moscow Exchange will help to expand clearing and settlement transactions in our
countries' national currencies. Bank of China and Moscow Exchange will implement
the projects outlined in the agreement, as well as expand the existing CNY product
line. Bank of China (Eluosi) in Russia, with support from the head office, will continue
its cooperation with Moscow Exchange," said the CEO of Bank of China
(Eluosi)[1] Zhao Lianjie.
"The cooperation agreement between Moscow Exchange and Bank of China will take
our collaboration to a new level, helping to develop the Russian and Chinese capital
markets. Together we plan to create new products, including derivatives
instruments. Moscow Exchange and Bank of China will work together on programmes
that will allow Russian and Chinese investors to use a wider array of financial
instruments denominated in the Russian ruble and the Chinese yuan (CNY). This will
help us to meet demand from our clients, who are increasingly using these national
currencies for international trade and on global financial markets. Growing CNY
trading volumes on the Moscow Exchange are further evidence of this – CNY trading
in September reached CNY 7 billion, with an average daily volume of CNY 331 million
(RUB 2 billion)," said Moscow Exchange CEO Alexander Afanasiev.
Moscow Exchange and Bank of China began cooperating in 2010, when CNY/RUB
trading was launched. The Bank acts as a market maker for all CNY instruments on
the foreign exchange market, and actively supports new initiatives by the Exchange
to develop this market. The partnership between Moscow Exchange and Bank of
China is of exceptional importance for cooperation between the two
countries' financial markets, and to encourage the use of national currencies in
settlements between Chinese and Russian companies.
19. PhosAgro: Indian DAP retail price might be raised in October
VTB Capital
October 14, 2014
News: Argus FMB reports that Indian importers are planning to raise the domestic
price of DAP to farmers (“Maximum Retail Price”, MRP) by USD 25/t as of 20
October, after the results of the elections in certain states are announced.
Our View: Given reports of some Indian importers being loss-making in the current
environment, we had been expecting them to raise the MRP once the political agenda
eased up. The price raise will give some breathing space to importers and the
current average import price of USD 500/t could firm and perhaps increase slightly,
to USD 505-510/t.
In the short term, we expect no immediate traction on PhosAgro’s selling prices, as it
mostly sells West of Suez (Asian markets made up 10% of its 2013 revenues). In
Europe and the Americas, DAP prices are currently under pressure from demand in
Brazil and USA which has slackened on low corn and soybean prices. Still, the
implementation of the MRP raise in India sooner rather than later lends support to
our case of more stable phosphate prices globally in 2015 and provides comfort to
our FY15 DAP/MAP average selling price forecast of USD 482/t Baltic FOB for
PhosAgro.
We reiterate our Hold recommendation while pointing out that among Russian
fertilizer names, we prefer PhosAgro due to its exposure to phosphates and the
profitability gains from its cost saving initiatives.
Elena Sakhnova
Kevin Whyte
20. Russia's Central Bank Shifts Boundaries of Floating Ruble Corridor by 10
Kopeks
The Moscow Times
October 14, 2014
The Central Bank said Tuesday that it had shifted the boundaries of its floating ruble
corridor by 10 kopeks, following market interventions to curb the pace of the
currency's decline.
As of Oct. 13, the new corridor extended from 36.35 to 45.35 against a dollar-euro
basket, compared with 36.25 to 45.25 previously.
Read more here: http://www.themoscowtimes.com/article/509391.html
21. Russia, China Move Ahead on $25 Billion High-Speed Railroad Project
The Moscow Times
October 14, 2014
A memorandum signed Monday paved the way toward long-anticipated Chinese
participation in the construction of Russia's first high-speed railway, which will
stretch from Moscow 800 kilometers east to Kazan.
State-run railway monopoly Russian Railways told news agency RIA Novosti the
grand aim of the agreement is to develop plans for a Eurasian high-speed transport
corridor from Moscow to Beijing that would include the segment between Moscow
and Kazan.
Read more here: http://www.themoscowtimes.com/article/509384.html
22. Russia, Germany Postpone Business Forum
RIA Novosti
October 14, 2014
The Petersburg Dialogue, a business forum of Russia and Germany involving toplevel meetings and scheduled for late October, has been postponed, the event’s
press service said Monday.
“The Petersburg Dialogue of Germany and Russia will not take place in late October
in Sochi, as scheduled, it will be put off. This decision was made by chiefs of the
[forum’s] coordination committees on both sides,” the forum’s press office said in a
statement.
The annual Petersburg dialogue forum was established in 2001 at the initiative of the
Russian President Vladimir Putin and then-Chancellor of Germany Gerhard
Schroeder. The forum is aimed at increasing the mutual understanding between
Russia and Germany, further developing the bilateral cooperation in various spheres
and broadening contacts between the two nations.
Read more here: http://en.ria.ru/business/20141013/194028594/Russia-GermanyPostpone-Business-Forum.html
23. Russian commercial law bars Investigative Committee from suing AFK
Sistema
RAPSI
October 14, 2014
A third-party claim seeking over 189 billion rubles (about $4.7 billion) from AFK
Sistema in Bashneft case was filed by Russia's Investigative Committee in violation
of Commercial Procedure Code and was dismissed, an explanatory statement issued
Monday by the Moscow Commercial Court reads.
The Investigative Committee is not authorised to file lawsuits and motions with the
commercial court in defense of public interest, the statement says.
The Investigative Committee requested on Friday that the court allow it to intervene
into the case as a third party.
Read more here: http://rapsinews.com/judicial_news/20141013/272345602.html
24. Sanctioned Russian Banks Seek Alternative to SWIFT
The Moscow Times
October 14, 2014
Sanctioned Russian banks VTB and Sberbank are discussing alternatives to the
Belgium-based SWIFT payment system, VTB president Andrei Kostin told Russian
agency TASS on Monday.
Last month the European Parliament proposed cutting Russia off from the SWIFT
system over the Kremlin's alleged military support of separatists in eastern Ukraine.
Soon afterward, Russia's Central Bank began testing Telex as a SWIFT substitute,
Gazeta.ru reported.
“There is a choice: We can take advantage of the Central Bank system, which
already exists, or we can create our own. We are negotiating with Sberbank,” Kostin
told TASS.
Read more here: http://www.themoscowtimes.com/business/article/sanctionedrussian-banks-seek-alternative-to-swift/509345.html
25. Sanctions-Hit Russia Signs Deals with China on Energy and Finance
The Moscow Times
October 14, 2014
Russia and China signed energy, trade and finance agreements on Monday
proclaimed by Moscow as proof that a policy turn to Asia is bearing fruit and will help
it to weather Western sanctions over the Ukraine crisis.
The 38 deals, signed on a visit to Moscow by Premier Li Keqiang, allow for deeper
cooperation on energy and a currency swap worth 150 billion yuan ($25 billion)
intended partly to reduce the sway of the U.S. dollar.
Read more here: http://www.themoscowtimes.com/article/509339.html
RBL COMPANY SNAPSHOTS
26. VimpleCom - A BUY on recent stock performance
Renaissacne Capital
October 14, 2014
We see VimpelCom’s (VIP) capex peaking in 2014-2015E, the possibility of additional
expenses on licences and M&A, volatile FX and weakening economies. The Wind
merger will only nominally help leverage and without it we see dividends resuming
only in 2017. However, our rating moves to BUY (from HOLD) on a 12M view, as we
find the stock oversold, and we roll forward our model and derive a new (YE15E) TP
of $7.7/ADS (from $9.4/ADS previously).
Operations continue to be challenged
We think VIP Russia has stabilised its market position and will probably not need to
revert to pricing measures, but capex is likely to remain high. Italy should see a
better half in 2H14, but a weaker euro will have an impact on financials. The possible
sale of Wind mobile towers brings in little liquidity while adding to leasing costs. We
forecast VIP to have 22% consolidated capex/sales in 2015E and to reduce net
debt/EBITDA to 2x only in 2017E. Selling or merging Wind into another entity would,
in our view, reduce VIP leverage and may expedite the return of dividends. Keeping
Wind with forecast normalised leveraged FCFs of c. EUR500mn pa implies to us the
need for cash injections from VIP to reduce Wind’s EUR11bn debt more quickly.
We see few reasons to own the stock…
We believe the Algerian deal is priced in and results only in a small reduction of debt,
as does the possible sale of mobile towers by Wind. We believe the buy-out of
minorities at Global Telecom (GTH, BUY, TP $4/GDR, CP $3.1/GDR) makes sense but
may cost VIP $2bn-plus, GTH is ramping up capex, and VIP Ukraine may miss the 3G
licence or face spending an extra c. $150mn+. In Russia, the rouble and economy
are a drag and a deal with Hutchison (not covered) looks remote to us. The inclusion
of VIP in the Russian Index should be positive, but a small free float would limit the
impact, and the likely reduction of VIP’s weight in the Nasdaq OMX Global Index may
also result in outflows during the December 2014 rebalancing. However, we think
Telenor’s (not covered) conversion of preferred shares at market prices now looks
appealing – this could bring VIP’s leverage below 2x in 2016E with a resumption of
the dividend and help boost sentiment.
…but think opportunities lie in the recent sell-off
Our new blended YE15E TP for VIP is $7.7/ADS (from $9.4/ADS), using our FX
forecasts of RUB37.5/$ for 2015 and RUB38.5/$ for 2016. Our DCF valuation, with
an 11% WACC, gives us an $8.2/ADS for VIP in 2015E, while on 10x P/E we value
VIP at $6.6/ADS. On these forecasts VIP’s trading multiples fall between those of
MTS (MBT/MTSS, HOLD/BUY, TP $19.7/RUB350, CP $13.1/RUB221) and Megafon
(MFON, HOLD/HOLD, TP $28.8/RUB1022, CP $24.6/RUB992). If we were to decrease
our rouble forecast to RUB40.0/$, change our dollar forecast to $1.20/EUR for 2015
and onwards and add capex in Ukraine, our fair value would fall to $6.9/ADS. We
prefer stocks with strong dividend and cash flow generation, but with the stock down
55.8% YtD (vs 28% for Megafon ad 40% for MBT) we find it looks attractive. Post
Nasdaq rebalancing, we see c. 30% potential upside in the stock on a 12M horizon.
We upgrade VIP to BUY (from Hold), but acknowledge this call as somewhat
opportunistic.
RBL SECTOR SNAPSHOTS
27. September RAS data: growth still skewed towards lending rather than
deposits
UralSib
October 14, 2014
Corporate lending growth decelerates YoY, net of ruble effect. The Central Bank
published the preliminary sector data for September yesterday, which showed
corporate loans grew at 2.3% MoM, the same pace recorded by Sberbank’s results
published earlier. As we have already noted for Sberbank, the growth continues to
be supported by forex loans’ revaluation; net of
the close to 7% MoM ruble depreciation against the dollar, the sector’s corporate
portfolio added around 0.7%. The ruble has fallen about 20% YoY in September and
this has helped post corporate lending growth of 18% YoY; without the ruble effect,
we estimate growth was close to 13% versus 14% YoY in August. Retail loans rose
1.3% MoM, the same as in August (Sberbank was slightly ahead of the sector as its
retail loan portfolio increased 1.5% MoM). YoY, the retail portfolio expanded 18%,
roughly the same as in August.
Retail deposits dynamics remain sluggish. The share of overdue loans improved
somewhat in the corporate loan portfolio; according to the Central Bank, it fell 20
bps MoM to 4.3%, while the share of overdue retail loans continued to rise, with
another 10 bps MoM increase bringing the ratio to 5.7%. Retail deposits expanded
just 0.2% MoM, and given that around 20% of the retail deposits are forexdenominated, it implies a contraction of around 1% MoM in real terms. YoY, retail
deposits grew 8.5%, close to the 8.3% growth in July-August (however, net of the
ruble effect, the YoY growth was around 5% compared to 6.2% in August and 6.8%
in July). Sberbank’s retail deposits contracted 0.4% MoM in nominal terms, thus
lagging the sector.
Top-down view remains cautious. Our recently updated macro forecast, which sees
economic growth below-1% this and next year, implies the situation for the Russian
banking sector could remain difficult for some time. This should be both in terms of
lending growth (the current dynamics are inflated by the ruble weakness and also
there is probably a continued skew towards the largest banks) and asset quality,
with high COR outbalancing the potential NIM gains. Top-down we remain cautious
on the sector, but we still rate two stocks – Sberbank and Bank St Petersburg – as
long-term Buys.
Natalia Berezina,
RBL MACRO RESULTS
28. Federal budget remained in the black with 2.0% surplus in September
VTB Capital
October 14, 2014
News: In September, the monthly federal budget printed a surplus of 2.0% of GDP
(vs. a surplus of 3.9% in August), according to the Ministry of Finance. The YTD
budget surplus widened slightly to 2.1% of GDP, despite a 15% YoY jump in
expenditures. The growth in revenues slightly moderated to 6.0% YoY (vs. 8.8% YoY
a month ago) mainly on the back of an unfavourable base effect in oil and gas
revenues (which hit the highest since May 2012 in September 2013).
MinFin’s outstanding deposits in banks added RUB 205bn last month. The overall
balance of MinFin’s accounts with the CBR increased RUB 191bn, but with FX
revaluation effect it decreased RUB 102bn.
Our View: We highlight several points in the report on the federal budget execution
last month.
- The beginning of the autumn brought both the drop in oil prices and simultaneous
weakness in the rouble. As a result, in September, rouble-denominated Urals was
marginally (0.2%) lower in annual terms, which that saved oil and gas budget
revenues from contraction. In the first half of October, though, roubledenominated
Urals was even up 3.8% YoY, which could help budget revenues if the trend
continues.
- The slower but still strong gain in non-oil and gas revenues seems inconsistent with
the generally sluggish economic backdrop (the moderating economy putting a drag
on profit and income taxes as well as VAT), especially given the unfavourable base
effect.
- In September, the YoY growth in budget expenditures quickened to 15.0%,
bringing 9mo14 growth to 7.1%. Given the planned volume of spending, we are
likely to see a contractionary effect for the economy growth, as expenditures are set
to decline by near 3-4% YoY in 4Q14 vs. a growth of 11% in 1H14 (note that
planned amendments to the 2014 budget law do not affect expenditure volumes,
only revenues).
- As of the end of September, MinFin increased the outstanding amount of its
deposits in banks to RUB 890bn, almost an YTD high. Also, this offset the negative
effect on liquidity of other federal government operations, such as the monthly
budget surplus and a negative monthly balance of domestic borrowing.
- Under our base case scenario, we expect the FY14 federal budget surplus at 0.3%
of GDP and a minimum-to-zero transfer to the Reserve Fund. The possibility of
tapping the Reserve Fund could also be considered subject to the success of local
borrowing and privatisation programmes.
29. Ruble Exchange Rate: Positive 3Q14 BoP Ignored On Cheaper Oil
Alfa Bank
October 14, 2014
We consider the recent drop in the ruble to RUB40.45/$ to be an overreaction, with
the market having disregarded 3Q14’s strong current account surplus and lowerthan-expected foreign debt redemption of $16bn. Should oil return to $100/bbl, we
still see RUB37/$ as plausible for YE14; however, each $10/bbl deviation leads to a
RUB1.5-2.0/$ adjustment. As our current account surplus expectations of $90bn for
2015 are double consensus’ figure, we remain optimistic on the ruble, envisaging
RUB38/$ for YE15.
The Facts
CBR spent $6bn in FX interventions in Oct: The ruble entered the CBR’s intervention
area at start-October for the first time since mid-May. Depreciation initially took
place on modest volumes that reflected a lack of FX supply rather than strong
demand; however, last Friday’s oil-price drop to below $90/bbl (Brent) came as a
shock, pressuring the ruble to RUB40.45/$ on high volumes. As a result, the CBR,
which has been selling $0.5-1.5bn daily since Oct 3, was forced to sell around $2bn
last Friday, putting the Oct volume at $6bn.
Ruble under triple pressure, market mood gloomy: There are several reasons for
ruble depreciation since mid-year. First is oil price weakness: the ruble traded
~RUB34/$ in July under $110/bbl, and the drop to $90/bbl justifies depreciation to
RUB38/$. Second, the shortage of FX liquidity after the tightening of foreign
sanctions in Aug, which restricted corporate access to foreign funding, explains
depreciation by another RUB1.0-1.5/$. The most recent blow was the capital control
rumor that re-emerged in Oct, and which has remained an investor concern despite
official denials that such a measure was being considered. As a result, market
expectations on the YE14 RUB/$ rate have collapsed from RUB33-38/$ at mid-year
to the current RUB36-42/$.
Market disregarding positive 3Q14 current account… Macro fundamentals behind the
ruble exchange rate are not as negative as perceived. The 3Q14 current account
surplus was an above-consensus $11bn, with imports down 9% y/y. Ruble
depreciation combined with foreign trade restrictions suggest that imports may drop
by 10-15% y/y in the next four quarters. Under the $100/bbl assumption, we see
the current account surplus at $17bn in 4Q14E and $90bn in 2015, the latter being
twofold higher than consensus.
…overestimating pressure of foreign debt redemption… In 3Q14, Russian corporate
foreign debt contracted by $44bn; however, $28bn of this decline was due to the
revaluation effect, as around 20% of the debt is denominated in rubles and 10% in
euros. Russian banks and companies in 3Q14 have actually redeemed only $16bn vs.
$37bn guided by the CBR and managed to rollover the rest. The $47bn redemption
guided by the CBR for 4Q14 also appears highly overestimated.
…and underestimating banks’ ability to attract FX deposits locally: While FX deposit
rates offered by Russian banks were rather stable until Aug, anecdotal evidence
suggests that they are up from ~2% to ~4%. We believe that this may attract some
FX from “under the mattress”, and thus within a month may help banks overcome
the shortage in FX liquidity.
Oil price remains key risk for our RUB37/$ YE14 forecast: Given the aforesaid
considerations, we believe that the market is currently overly pessimistic. We expect
the ruble to return to RUB37/$ by YE14 if oil recovers to $100/bbl; however, each
$10/bbl deviation in the oil price causes a RUB1.5-2.0/$ adjustment in the FX rate.
We also consider a 50bp interest rate hike as a prerequisite for curbing rumors of
capital control. As far as 2015 is concerned, as foreign debt payments are likely to
stay below official guidance of $87bn, and we expect the current account surplus to
be as high as $90bn, we see the ruble fluctuating in the RUB35-40/$ range and
ending the year at RUB38/$, which puts us on the optimistic side of consensus.
Natalia Orlova, Ph.D.
Dmitry Dolgin
RBL COMPANY RESULTS, UPGRADES
30. Russian Gas Giant Gazprom Says Q2 Profit Up 13 Percent
The Moscow Times
October 14, 2014
Russian gas producer Gazprom said Tuesday its second quarter net profit was up 13
percent to 227.6 billion rubles ($5.6 billion) boosted by foreign exchange gains but
still short of analysts expectations.
A poll of analysts had expected Gazprom to post 234 billion rubles in the second
quarter net profit, up from 202 billion rubles the same period of last year.
The company, the world's largest gas producer, added that its revenues were up to
1.32 trillion rubles in the second quarter of this year from 1.11 billion rubles a year
ago, beating analysts expectations of 1.29 trillion rubles.
Read more here: http://www.themoscowtimes.com/business/article/russian-gasgiant-gazprom-says-q2-profit-up-13-percent/509393.html