weekly reportdata.investfunds.ru/eng_news/11574/cebweeklyag09022009.pdf · job cuts, bad financial...

_1_

WEEKLY REPORT

ONLINE RESEARCH: www.crediteurope.ru/en/research/ Credit Europe Bank Ltd., Russia. All rights reserved. See terms of Use/Disclaimer on the last page.

09.02.2009

WEEKLY REPORT THEMES OF THE REPORT _

_RUSSIA _

_

_WORLD _

The CBR cut ruble liquidity: limited auction REPO volume, limited swap operations, offered fewer amounts on unsecured loan auctions, increased rates.

Oil price stabilized near $40/bbl. Gold is trending up and fluctuates above $900/OZ.

CBR almost did not participate in the trade on the domestic currency market last week but offered RUB41 on the basket. Trade volume was low. Drop of reserves stopped. The market grew up to RUB40.95 but was scared to touch the level in order not to be punished by the Regulators.

BoE cut interest rate by 50bps to a new historic low of 1% to stimulate the economy and stave off the deepening recession. ECB left benchmark interest rate unchanged at 2%. Trishet said he did not rule out march rate cut.

Russian banking system showed not bad results in December 2008: assets grew by RUB2.1trio to RUB27.2trio as of January 1, 2009. An outflow of household deposits stopped. Banks received solid profits on Ruble devaluation. The quality of banks’ loan portfolios continued to worsen.

EUR/USD is trending downwards as US administration’s anti-crisis plan becomes clearer, the demand for US Trys remains strong, while expectations on European economy and EMU went worse. Job cuts, bad financial results, deleveraging, bankruptcies, etc continued.

Russia’s GDP in real terms grew by 5.6% and in the nominal valuation it stood at RUB41,540bio in 2008.

Fitch cut the sovereign rating of Russia by one step to BBB from BBB+.

Andrey Golubev Head of Research

Treasury Credit Europe Bank Ltd

Bloomberg/Reuters: CEBM [email protected]

_2_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

Andrey Golubev Head of Research Treasury Credit Europe Bank Ltd

Bloomberg/Reuters: CEBM [email protected] T: +7 (495) 725 40 40 (ext. 7239) F: +7 (495) 725 40 13 [email protected]

LIQUIDITY & MIACR

0

200

400

600

800

1,000

1,200

1,400

31-Dec 14-Jan 20-Jan 26-Jan 30-Jan 5-Feb

0%

5%

10%

15%

20%

25%

30%

Deposits with CBR, bio RUB C/A with CBR MIACR O/N

DIRECT REPO WITH CBR

0

100

200

300

400

500

600

700

800


0%1%2%3%4%5%6%7%8%9%10%

REPO/CBR, bio RUB O/N REPO MINIMUM RATE, %

pre

USD / RUB TRADE VOLUME MICEX

0

2

4

6

8

10

12

14

16


26.0

28.0

30.0

32.0

34.0

36.0

38.0

TOM, TRADE VOLUME, bio USD TOD USD / RUB

RESERVES AND MONEY BASE

3.6

3.8

4.0

4.2

4.4

4.6

4.8

14-Jul 11-Aug 8-Sep 6-Oct 3-Nov 1-Dec 29-Dec 2-Feb

380

420

460

500

540

580

620

GOLD AND FOREX RESERVES, BIO USD

MONEY BASE, NARROW DEFINITION, TRIO RUB

MONEY MARKET The interbank overnight rate was in the range of 6-13% (first tier banks) last week. Balances on C/A opened the week at RUB470.5io and closed it at RUB364.8bio. Bank deposits with the CBR opened the week at RUB81.1bio and closed it at RUB90bio. Totally C/As and deposits fell by RUB96.8bio last week and amounted to RUB454.8.6bio. MosPrime o/n rate opened the week at 12.67% and closed it at 9.79%. The dual-currency basket reached RUB40.75 on Monday last week. It was evident that the market was expecting to break or at least test the level on the dual-currency basket which the CBR promised to protect – RUB41. However from Monday the CBR increased rates. Direct REPO with the CBR at fixed rates: the overnight rate was increased from 10% to 11%, for one-week money went 11% instead of 10%. Lombard auction rate was increased from 10.0-10.25% to 11%. For borrowing pledged by bills, demand rights, etc (law 312-P), the rate was increased from 11 to 11.25%. The refinancing rate was kept unchanged. The decision came to force on Monday. But the effect from those rate hikes was expected to be less than limiting the volume of funds offered through, in particular, unsecured loan auctions. Thus last week the Regulator offered only RUB50bio for two auctions. It was planning to place RUB25bio for 3months on February 2 and RUB25bio for 3 weeks on February 3. However, last week there was no payback on unsecured loan auctions. And on Tuesday the marked had to return RUB115.8bio borrowed on the Lombard auction on January 27 for 7-day term. On Monday interbank overnight rate closed opened at 11% and closed around 7%. Ruble currency swaps opened the day at 20% and closed at 10%. C/As and deposits slightly grew up. The market borrowed on the direct REPO auction RUB388.6bio which appeared to be less than the daily average of the previous week. However the demand for money remained strong. The demand (RUB759bio) exceeded the supply by two times. Correspondingly, on the second auction the weighted average rate reached 10.81% while the minimum rate was at 9%. WA rate also almost reached the newly established 11% rate for CBR’s overnight REPO with fixed rates. This fed the interest of market participants to the REPO with fixed rates where the market borrowed RUB181.4bio. The CBR cut the offering on direct REPO auctions and the market tried to borrow the rest on fixed rate REPO auctions for third day in a row. Nonetheless, trade activity on the domestic currency market increased. The basket reached RUB40.91 on Tuesday. The CBR already showed offer at RUB41 but the market did not triggered it at that day. The market still did not want to offload foreign currency positions. There is one more interesting observation. The CBR did not change the minimum overnight rate on direct REPO auction. But it can really increase this rate by increasing the cut-off rate because the mechanism how the CBR makes cut-off is not transparent. One more important notice – the CBR intensified saying that it would protect the level of RUB41. Thus the Regulator has now put his word on the bet and confidence to it will fall substantially if their actions do not meet their saying.

gg G

Trade volume on the market substantially falls the second week in a row. Devaluation of the Ruble stopped.

The drop of reserves stopped. CBR squeezes banks to leave gradually foreign currency positions by cutting ruble liquidity.

_3_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

RUSSIAN STOCK & BOND MARKETS

450

500

550

600

650

700

750

800


78

79

80

81

82

MICEX CORP BOND INDEX RTS

DUAL-CURRENCY BASKET

1.25

1.30

1.35

1.40

1.45

31-Dec 6-Jan 12-Jan 16-Jan 22-Jan 28-Jan 3-Feb

32

34

36

38

40

42

CURRENCY BASKET (55% USD & 45% EUR) EUR / USD

GUILTS, BUNDS, FRA - YIELDS

2.5%

3.0%

3.5%

4.0%


2.5%

3.0%

3.5%

4.0%

GUILTS 10Y FRA 10Y BUNDS 10Y

EUR / USD & SOVEREIGN DEBTs

120

140

160

180


550

600

650

700

750

800

850

900

RUS 30 - UST10 Spread

SPRD BTW US LONG-TERM & SHORT-TERM USTs

MONEY MARKET (CONTINUATION)

Actually the situation comes to the local key point in Russia. The good scenario looks like this – CBR will push banks to offload currency positions and decrease the pressure on the Ruble. At the same time the Ruble will also receive support if oil price will fluctuate at least not lower than $45/bbl. Hardly such oil price will balance the Budget and the current account as we all wish but still it will help to stabilize the exchange rate. After that the CBR will logically expect that banks increase credit activity to reload the economy. WA rate on the first unsecured loan auction reached record 18.65% last week, while the demand exceeded the supply by 7 times!!! On Tuesday money market was relatively calm. Interbank overnight rate was at 10%, swaps also fell to 10% in the second part of the day. However, interbank rates do not reflect the picture at current circumstances since few can borrow there. But going down swaps was really a good sign. REPO with the CBR at fixed rate fell to RUB106.4bio. But on direct auction REPO the market borrowed RUB503.5bio (the demand was RUB707bio). The basket fluctuated around RUB40.9. The pressure on the level was limited. The CBR almost did not participate in the trade at that day. NDF rates were still at quite high levels of 30%. Balance of CBR’s operations with the market still exceeded C/As + deposits. On Wednesday the CBR cut the maximum placement amount for the first direct REPO auction to the level of RUB275bio. However that did not have a sounding impact on rates since money which the market borrowed on unsecured loan auctions on Monday and Tuesday (RUB48.5bio out of RUB50bio offered) came to the system on Wednesday. By the way, the weighted average rate for both auctions reached 18%. On Wednesday the basket reached RUB40.95. Interbank overnight rate reached 5.5%, swaps closed at 9%. At fixed rate the market borrowed from the CBR through REPO. The domestic currency market calmed, the trade volume was low. The CBR also announced at the end of the last week that they did not exclude that rates could be increased further. On Thursday the State Housing and Communal Services Corporation carried the deposit auction for RUB15bio at the weighted average rate of 14.95% for 27 days. The demand was for almost RUB37bio. On Friday interbank overnight rate closed at 8%. Swaps closed at 10%. The fact that swap and interbank rates fell and almost coincided says about easing on the market. The debt of the market on the direct REPO instrument as of the end of Friday amounted to only RUB218.8bio compared to big numbers at earlier days. Balances on C/As and deposits continued to decline last week. However we can see the logical reason why at such low rates C/As continue to decline. Look, the economic activity declined, companies stopped investment projects, canceled many earlier signed contracts etc, and consequently, the demand for money fell and the necessity to keep substantial funds on C/As decreased.

Gg

Russian stock and bond market remain under selling pressure but look better after market participants felt that devaluation of domestic currency can soon stop.

Banks do not make sharp movements on the basket keeping the rate near RUB41 CBR’s citadel.

_4_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

MONEY MARKET (CONTINUATION)

Let us look at what is expected in terms of liquidity for this week. AT THE BEGINNING OF THE WEEK: C/As+deposits: RUB454.8bio Balance of CBR’s operations with the market: (–RUB536.7bio)

INCOMING Unsecured loan auctions Placement of max RUB100bio for 6 month on

February 9 at the min rate of 14.5%. Placement of max RUB15bio for 5 weeks on February 10 at the min rate of 15%.

Outgoing: OUTGOING Lombard loan repayment Direct auction REPO Payback RUB218.6bio on Monday Direct fixed-rate one-week REPO Payback RUB21.2bio on Monday and

RUB39bio on Tuesday. Unsecured loan auctions Payback RUB94.2bio on Wednesday. Fond GKH Payback RUB19bio on Wednesday

Gg

_5_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

GLOBAL EQUITY & OIL

30

40

50

60

24-Dec 31-Dec 7-Jan 13-Jan 20-Jan 26-Jan 30-Jan 5-Feb

850

900

950

1,000

1,050

1,100

CEB GLOBAL EQUITY INDEX WTI, $/bbl

RTS & RUBLE VS GLOBAL EQUITY

700

800

900

1,000

1,100

1,200

24-Dec 31-Dec 7-Jan 13-Jan 20-Jan 26-Jan 30-Jan 5-Feb

2728293031323334353637

USD/RUB CEB GLOBAL EQUITY INDEX RTS, FL

FINANCIAL INSTITUTIONS

700

800

900

1,000

1,100

1,200


700

800

900

1,000

1,100

1,200

NASDAQ FIN HANG-SENG FIN E300 BANKS

USD INDEX & EU-US 2YR SWAP SPREAD

1.25

1.30

1.35

1.40

1.45


50

75

100

125

150

EU-US 2Y SWAP SPREAD EUR / USD

REGULATION At this section we would like to divide by two pieces. First is what the CBR did – it hiked fixed-rate REPO and Lombard loan rates about which we wrote at the very beginning of our report. The second direction is about overall policies which the State adjusted substantially compared to what previously was announced. Igor Shuvalov announced important changes policy directions last week. Here are major of them: (1) the CBR will not create any ”Bad-Bank” to help all banks survive in the crisis pointing out that this could negatively impact on further banks’ risk valuation. (2) The Government stopped providing help through Vnesheconombank to companies and banks in refinancing foreign loans. Remember that previously the Government planned to use for that purpose $50bio which were transferred to Vnesheconombank. But only $11bio was actually spent. The program is stopped. The explanation was like this: banks accumulated foreign currency assets playing versus the Ruble in the recent Ruble devaluation tale and they have enough foreign currencies to pay foreign debts in 2009 without the help of the State. The remaining $39bio will go to increase of the capital of the banking system. (3) Last week the information appeared on some list of 81 banks structurally important for the State. The list was not announced officially. Banks from that list could get the priority access to Government’s supporting instruments. (4) the number of banks which will have access for subordinated loans from the State was cut from 100 to 50. (5) It was mentioned also that the State will continue to provide banks with the support, in particular VTB and Sberbank will receive additional capital, also commercial banks will receive injections. Furthermore it was announced that the injection into capital could be made not only at 50%-State / 50%-owners ratio. The State is ready to make concessions.

RUSSIAN BOND MARKET Interest to corporate Eurobonds decreased because the market is closer to the expected end of the devaluation of the Ruble. NDF yields fell substantially when the market felt that the CBR will act to make banks sell foreign currency. But they still remain high. We expect that as soon as somewhat stabilization of the Ruble comes and when NDFs fell from current 25-35%, investors start cautious buying of ruble bonds. Corporate bankruptcies continue to appear – see pages 13-15 for the detailed look into this. Alfa-bank raised subordinated loan from Vnesheconombank for RUB10.2bio. Terms of the loan push owners of the bank to make same injection to keep the parity with the Regulator. Thus the State showed the support to the largest private bank of the country which makes the confidence in eyes of investors higher. Despite this positive fact, the situation with the Ukrainian daughter of the bank is cloud since many suppose that Ukraine could go bankrupt in the result of which the country could set moratorium to pay all debts to external partners which pressures Eurobond keepers from buying in ALFA-Ukraine debts. The Russian debt becomes more sounding on foreign markets. Thus the largest broker GFI reported that CDS of Gazprom was the winner among CDSs of European corporations while CDSs on Russian sovereign debt were most tradable among all sovereign CDSs.

Gg

_6_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

RUSSIAN ECONOMY Rosstat published the data on Russia’s GDP in 2008. In real terms the economy of the country grew by 5.6% in 2008 while in 2007 the growth amounted to 8.1%. In nominal valuation the GDP stood at RUB41,540bio in 2008. In Q4 2008 GDP grew by only 1% compared to Q4 2007. But compared to many developed economies, it grew at least.

GDP, LIQUIDITY, RUSSIAN EQUITY

1400

1200

1000

800

600

400

200

0

200

24-Dec-08 15-Jan-09 29-Jan-091400

1200

1000

800

600

400

200

0

200

CBR Transactions, Liquidity Balance, bioRUB

0

200

400

600

800

1,000

1,200

Apr-07 Apr-080

200

400

600

800

1000

1200

NASDAQ FINANCIALS

RTS FINANCIALS

-3.6

%

1.4%

-6.5

%

6.4%

10.0

%

5.1%

4.7%

7.3%

7.2%

6.4% 7.

7% 8.1%

5.6%

0200400600800

1,0001,2001,4001,6001,800

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

-8%

-4%

0%

4%

8%

12%

NOMINAL GDP, BIO USD ANNUAL GDP YoY %

Source: CBR, MICEX, CEB Treasury Research.

Tariffs on natural monopolies will be increased by two digit numbers in percentage valuations, an increase of import duties on some goods, the sharp fall of the Ruble versus USD and EUR – how all these can make population save in rubles? An increase of consumer loan interest rates makes real purchasing power lower. We have now in Russia signs of stagflation while inflation is growing and the economy is stagnating. No doubts that the Budget gained from the Ruble devaluation but inflation wipes out long term investment and savings. Simple observation which we made showed that in January prices grew by more than 10% in January.

Gg

The CBR’s balance of operations with the market still substantially higher than C/As plus deposits

RTS fell deeper than overseas brothers.

Perspectives of GDP growth in 2009 look grim but we still expect somewhat small growth.

Real purchasing power of the population falls. Expenditures are growing with higher prices on essential basket of good. Consumption falls dragging the economy down.

_7_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

RUSSIAN ECONOMY (CONTINUATION)

Let us make some interesting comparison. Take BRIC countries. The proportion for all countries is taken the same – 45% EUR and 55% USD. Let us look at the appreciation/depreciation of local BRIC currencies versus basket. In addition we took Korean domestic currency. So below is what we came to:

Domestic currency depreciation versus basket Etalon basket is taken as 55% USD and 45% EUR. BRIC BRAZIL 9.93 % RUSSIA 29.63 % INDIA 10.19 % CHINA 13.34 % OTHER COUNTRIES SOUTH KOREA 43.54 % Minus means appreciation versus basket

Thus Russia takes the second place in our sample list after South Korea in terms of the fall of domestic currency. Last week the CBR published the data on M2 which grew by 2% in December compared to November. The reason why the number appeared to be below the level which many expected was the high demand on foreign currency in Q4 2008. Net buying of cash foreign currency in Q4 stood at more than $30bio while the total outflow of capital from Russia in Q4 amounted to $130bio. In January 23-30 Russia’s gold and fx reserves grew by $1.5bio. The fall of reserves stopped.

RUBLE, BASKET

400300200100

0100200300400

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec4003002001000100200300400

20082009Net Inflow of money to UIFs, Monthly Data, mio USD, 20062007


g

RUBLE, BASKET

4020

020

4060

80100

94 95 96 97 98 99 00 01 02 03 04 05 06 0708

-Q1

08-Q

208

-Q3

4020

020

4060

80100

NET CAPITAL INFLOW / OUTFLOW BYPRIVATE SECTOR, bio USD

0

10

20

30

40

50

60

2004 2005 2006 2007 20080

10

20

30

40

50

60

STATE DOMESTIC DEBT, BIO USD


Gg

Gg

The level of confidence among population is low. People continue to withdraw funds from asset managers.

Fitch cut sovereign rating of Russia by one step to BBB (main reasons mentioned: еру sharp drop of oil prices and reserves) and kept negative outlook. Russian markets almost did not react to that news.

_8_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

RUSSIAN BANKING SYSTEM In December 2008 assets of the Russian banking system grew by RUB2.1trio to RUB27.2trio as of January 1, 2009. This was mostly due to loans of the CBR to banks which amounted to RUB1.2trio in December. Also RUB846.3bio clients put on deposits and current accounts which showed that an outflow from banks somewhat stopped. The rest was the injection from owners and stockholders of banks which is also pleasant. Banks received solid profit on currency speculation due to the Ruble devaluation tale. Moreover the Regulator eased some rules which helped banks to decrease losses after revaluation at the end of the year. The clean-up of the banking system continues. Approximately 20 banks lost licenses after failures to keep up enough liquidity. Not were good sign is also that Sberbank and VTB actively tried to get additional funds from Regulators for RUB500bio and RUB200bio respectively. There was also news that the Government reserved $40bio to buyout additional issues of banks.

RUBLE, BASKET

0100200300400500600700800900

1,000

2001

2002

2003

2004

2005

2006

2007

H1-

08Q

3-08

01-D

ec

01002003004005006007008009001000

TOTAL ASSETS OF RUSSIAN BANKINGSECTOR, BIO USD

GR=720%

GR=28.1%

0

2

4

6

8

10

12

14

Jan-07 Jul-07 Jan-08 Jul-08 Jan-090

2

4

6

8

10

12

14

OBLIGATORY RESERVES OF CREDITORGANIZATIONS IN CBR, bio USD

1

0

1

2

3

4

5

6

Jan-07 Jul-07 Jan-08 Jul-081

0

1

2

3

4

5

6

LOANS TO HOUSEHOLDS, % MoM

0

1

2

3

4

5

6


1

2

3

4

5

6

LOANS TO CORPORATES, % MoM

8

6

4

2

0

2

4

6

8


6

4

2

0

2

4

6

8

HOUSEHOLD DEPOSITS, % MoM

15

10

5

0

5

10

15


10

5

0

5

10

15

CORPORATE DEPOSITS, % MoM

Source: CBR, CEB Treasury Research.

G Gg

Banks substantially strengthened requirements on loan issuing to households. Banks are afraid of not getting money back due to the wave of job cuts.

Despite the crisis and different troubles with refinancing as domestically as externally, assets of the Russian banking system showed good growth in 2008.

_9_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

RUSSIAN BANKING SYSTEM (CONTINUATION)

Overall outlook at the Russian banking sector remains negative. In September-November we saw an outflow of household deposits. But in December the trend changed and households brought RUB313.3bio to banks. Legal entities brought RUB564.9bio to banks from which RUB105.8bio moved to deposits and RUB459.1bio to current accounts. However, most inflow amount corresponded to banks with non-resident-control. Top 20 banks accumulated 81.5% of all funding from the CBR while 62.3% corresponded to State-owned banks as of January 1, 2009. In December loans to corporations grew by RUB190.9bio or 1.6%, loans to households fell by RUB61.4bio or fell by 1.5%. The quality of loan portfolios continued to worsen. Overdue loans in corporate segment reached 2.11% versus 1.92% a month ago. Overdue loans in households segment grew by 3.66% versus 3.52% a month earlier. However, after the CBR applied low adjustments and allowed banks to be flexible in classification of overdue loans, we assume that the real numbers on overdue loans are worse. As of January 1, 2009 the volume of reserves two times exceeded the volume of overdue loans which says that in coming months we will see worsening numbers on overdue-related data.

RUSSIAN BANKING SYSTEM

0

20

40

60

80

100

120

Jan-06 Jan-07 Jan-08

INVESTMENT INTO STOCKS

INVESTMENT OF CREDIT ENTITIES INTOBONDS, BIO USD

6789

10111213141516

Jan-07 Jul-07 Jan-08 Jul-08678910111213141516

VOLUME OF BONDS ISSUED BY BANKS, PARVALUES ARE TAKEN, BIO USD

150160170180190200210220230

Q1-

07

Q2-

07

Q3-

07

Q4-

07

Q1-

08

Q2-

08

Q3-

08

150160170180190200210220230

NUMBER OF CREDIT ORGANIZATIONS INRUSSIA WITH NON-RESIDENTS' SHARE INAUTHORIZED CAPITAL

Less than

1%; 38 100%; 74

1%-20%; 63

20%-50%; 22

50%-100%;

24

3*

5*

Figure 1: share in capitalFigure 2: number of banks* actually controlled by resident bodies

Source: CBR, CEB Treasury Research.

g

Gg

_10_

WEEKLY REPORT


09.02.2009

Good Luck, Guys!

CURRENCY POSITIONING

40,000

20,000

0

20,000

40,000

60,000

EUR CHF GBP JPY AUD CAD

40,000

20,000

0

20,000

40,000

60,000

1/20/2009 1/27/2009 2/3/2009

CFTC, F&O, Net Change, Non-Commercial Positions

GLOBAL COMMODITY & GOLD

300

350

400

450


750

800

850

900

950

GOLD SPOT, $/OZ GLOBAL COMMODITY

RISK APPETITE MONITOR 1

50

100

150

200

250


900

950

1000

1050

1100

1150

1200

iTRAXX EUROPE CROSSOVER GEN 5 YR

3mLIBOR - 3mUST, SPREAD

3m EURIBOR - 3m BUND, SPREAD

RISK APPETITE MONITOR 2

500

600

700

800

2-Jan 8-Jan 14-Jan 21-Jan 27-Jan 2-Feb 6-Feb

0.65

0.70

0.75

0.80

CITI MACRO RISK INDEX JPM EMBI+Index, spread to UST

PIVOT YEAR FOR THE GLOBAL ECONOMY RUSSIA NOT EXCEPTION

US GDP in 2008 fell by 3.8% while the market consensus bet for a 5.5% decline. However the detailed look at the figure showed that without the growth of inventories the US GDP fell by 5.1%. Thus the perspective on US GDP for the first quarter of this year is grim. We expect that it will fall by more that 5%. As expected in the reaction to that news the DOW fell by almost 2%. It was reported that administration of Obama will demand that US banks increase issuing loans to non-financial sector if they request support from State. “Bad Bank” which the US is going to establish to buy out crappy assets from US banks will make actual transfer of losses to the Budget deepening its deficit. Overall the US is worrying of deflation. So interest rates will remain low to boost credit activity, liquidity, without paying much attention to inflation. It is necessary that till that moment the banking system successfully raised capital compensating writedowns of losses (look at page 12 of our special report from January 19, 2009.) Despite all that, the LIBOR-OIS spread shows that it if far from real easing. Overall the spread fell substantially from its peaks but the rebound is far not full. US manufacturing and non-manufacturing ISM slightly increased however they are both still in the recessionary zone. Household expenditures decreased, savings gradually increase. Savings rates as % from disposable personal income increase to 3.6%. Jobless claims again increased and overshoot the numbers expected by the market. Non-farm payrolls showed a sounding cut of 598k. The previous number was also revised down substantially. This week the US plans to place US Trys for the record amount of $67bio. It was also said that 7-year bonds will be again placed. Consequently yields on US Trys started to grow. Moody’s cut Barclays’ rating by two steps to Aa3 due to worries on future losses of the bank. Moody’s announced that it expected that in the US the number of defaults in real economy will increase by three times to 14% among companies rated below investment grade, while for the corresponding sample in Europe was said to stand at 18%. According to IMF, the writedown of losses related to the US assets worldwide will amount to $2.2trio versus current $1.4trio. Thus deleveraging will continue and risk appetite will remain constrained. Kazakh Central Bank devaluated the domestic currency by 18% at one single day last week. Remember about the “devaluation war”, ideas on which we wrote one or two reports ago. Here we go. It became known that Kazakh banks BTA and Alliance would be nationalized by the Government. BoE cut interest rate by 50bps to a new historic low of 1% to stimulate the economy and stave off the deepening recession. ECB left benchmark interest rate unchanged at 2%. Trishet said he did not rule out march rate cut.

g

_11_

WEEKLY REPORT


09.02.2009

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PIVOT YEAR FOR THE GLOBAL ECONOMY RUSSIA NOT EXCEPTION

(CONTINUATION) Brazilian Petrobras (analogue of Gazprom) placed $1.5bio bond with yield at 8.125%. This is actually a good sign since it shows that the external borrowing is not destroyed completely yet and at least benchmark sovereign companies could hope for placements at still reasonable cost. Sharp contraction in the global demand continues to pile up. Look at the US trade data for November 2008 which showed the biggest contraction in the trade deficit for 12 years. Remember that the US remains the single biggest source of net external demand for EM. This is the best example. EM exports, growth and job prospects will remain under substantial pressure. China's economy is a good example as most dependant on the external demand. Export, job prospects and growth of the country will remain under substantial pressure in coming two years. Already huge number of people was laid off in China with respective social and economic consequences but we assume that the country has relative immunity to the vulnerabilities of the crisis and has an evident ability to respond with offsetting policy. Going deeper in the US trade deficit we see that both export and import contracted but the fall of import was a sounding and broad-based showing the extent of the contraction in the economy. Rising unemployment will highlight social and political tension among other important issues. A lot of stimulus packages in many countries are still in pipes only but the situation already went worse…

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WEEKLY REPORT


09.02.2009

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RUSSIAN BONDS DEFAULT LIST (PART 1)

G

ISSUE VOLUME, RUB FAIL TYPE

PLANNED DATE OF

EXECUTION

DATE OF EXECUTION WITHIN TD

ACTUAL DATE OF

ECECUTION STATUS PAID-FAILED

DVTG-Finance, 1 1 000 000 000 Cupon 03.02.2009 10.02.2009 Technical default

Sibir Airlines , 1 2 300 000 000 Buyback option 03.02.2009 05.03.2009 Arrears on put option

Derzhava-Finance, 1 1 000 000 000 Buyback option 30.01.2009 01.03.2009 Arrears on put option

Derzhava-Finance, 1 1 000 000 000 Cupon 27.01.2009 03.02.2009 Technical default Amount of unsettled obligations: RUR 82.27m

DVTG-Finance, 2 5 000 000 000 Cupon 22.01.2009 29.01.2009 Default Initial amount of unsettled obligations: RUR 261.943m Amount of unsettled obligations as of 26.01.2009 : RUR 246,074,160

RIGroup, 2 1 500 000 000 Cupon 21.01.2009 28.01.2009 Default Amount of unsettled obligations: RUR 112,185,000

INPROM, 2 1 000 000 000 Buyback option 21.01.2009 20.02.2009 Arrears on put option

Energosberegayushie Resursy, 1 128 000 000 Cupon 20.01.2009 27.01.2009 27.01.2009 Technical default Amount of unsettled obligations: RUR 6,522,880 in

coupon payment and 20.48m worth of principal DIXIS Trading, 1 1 800 000 000 Cupon 20.01.2009 27.01.2009 Default Amount of unsettled obligations: RUR 113,418,000

Motorostroitel-Finance, 2 1 000 000 000 Buyback option 16.01.2009 15.02.2009 19.01.2009 Arrears on put option Amount of unsettled obligations: RUR 986,841,000

Agroholding-Finance, 1 1 000 000 000 Cupon 16.01.2009 23.01.2009 Default Amount of unsettled obligations: RUR 24б,687,915.42 Gross Plants, 1 1 000 000 000 Cupon 15.01.2009 22.01.2009 Default Amount of unsettled obligations: RUR 34.28m

Energocenter, 1 3 000 000 000 Buyback option 13.01.2009 22.01.2009 Non-execution of put option

Amount of unsettled obligations: RUR 2,065,053,000 According to the issue prospectus a default on put option occurs in case of missing the payment by more than 10 days.

Volga Textile Company , 1 1 000 000 000 Buyback option 12.01.2009 11.02.2009 Arrears on put option Amount of unsettled obligations: RUR 944,556,000

RosT-Line, 1 1 000 000 000 Cupon 11.01.2009 18.01.2009 15.01.2009 Technical default Amount of unsettled obligations: RUR 72,300,000 Stroyindustriya PSK, 1 1 000 000 000 Cupon 11.01.2009 18.01.2009 Default Amount of unsettled obligations: RUR 36,330,750 Makromir-Finance, 2 1 500 000 000 Cupon 11.01.2009 18.01.2009 14.01.2009 Technical default Amount of unsettled obligations: RUR 1,155,070

RIGroup, 1 1 200 000 000 Buyback option 30.12.2008 29.01.2009 Non-execution of put option

Shans Capital, 1 1 000 000 000 Cupon 24.12.2008 31.12.2008 Default Amount of unsettled obligations: RUR 79,780,000

EUROKOMMERZ, 1 1 000 000 000 Buyback option 23.12.2008 22.01.2009 Non-execution of put option Amount of unsettled obligations: RUR 890.571m

EUROKOMMERZ, 3 3 000 000 000 Buyback option 23.12.2008 22.01.2009 Non-execution of put option Amount of unsettled obligations: RUR 890.571m

Mostransavto-Finance, 1 7 500 000 000 Cupon 23.12.2008 30.12.2008 25.12.2008 Technical default

Amount of unsettled obligations: coupon: RUR 478.65m principal: 975m Obligations were settled partially: Bondholders were paid RUR 346,913,840,94 worth of coupon payments and RUR 706,656,210 worth of principal.

Incom Lada, 2011 (CLN) 37 500 000 Cupon 23.12.2008 30.12.2008 Technical default Finance Leasing, 2011 (CLN) 100 000 000 Cupon 20.12.2008 27.12.2008 Technical default Volga Textile Company , 1 1 000 000 000 Cupon 19.12.2008 26.12.2008 Default Amount of unsettled obligations: RUR 69,810,000 EUROKOMMERZ, 3 3 000 000 000 Cupon 19.12.2008 26.12.2008 Default Amount of unsettled obligations: RUR 141,810,000 EUROKOMMERZ, 1 1 000 000 000 Cupon 19.12.2008 26.12.2008 Default Amount of unsettled obligations: RUR 59,840,000 SAMARA RESERVOIR PLANT-Finance, 1 600 000 000 Buyback option 18.12.2008 17.01.2009 Non-execution of

put option Amount of unsettled obligations: 599,603 bonds

AirUnion RRG, 1 2 000 000 000 Cupon 18.12.2008 25.12.2008 Default Amount of unsettled obligations: RUR 139.620m Stroymontazh Corporation, 1 1 200 000 000 Cupon 17.12.2008 24.12.2008 Technical default

IzhAuto, 2 2 000 000 000 Buyback option 16.12.2008 15.01.2009 Arrears on put option

Electronika Bank, 2 500 000 000 Buyback option 15.12.2008 14.01.2009 Arrears on put option Amount of unsettled obligations: RUR 373,959,000

Moscow Region Mortgage Agency, 3 5 000 000 000 Buyback option 15.12.2008 14.01.2009

Arrears on put option Amount of unsettled obligations: about RUR5bn

SAMARA RESERVOIR PLANT-Finance, 1 600 000 000 Cupon 12.12.2008 19.12.2008 Technical default Amount of unsettled obligations: RUR 41.886m Incom Lada, 3 2 000 000 000 Cupon 12.12.2008 19.12.2008 Technical default Amount of unsettled obligations: RUR 54.84m TOAP-Finance, 01 2 000 000 000 Cupon 11.12.2008 18.12.2008 Technical default Amount of unsettled obligations: RUR 58,924m

MiG Finance, 2 3 000 000 000 Buyback option 11.12.2008 10.01.2009 Arrears on put option Amount of unsettled obligations: 2,943,641 bonds

EUROKOMMERZ, 2 3 000 000 000 Cupon 11.12.2008 18.12.2008 Technical default Amount of unsettled obligations: RUR 239.34m

Beliy Fregat, 1 1 000 000 000 Buyback option 11.12.2008 10.01.2009 Arrears on put option Amount of unsettled obligations: RUR 717.210m

Source: CBONDS, CEB Treasury Research * Data as of 06.02.2009 gggg

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WEEKLY REPORT


09.02.2009

Good Luck, Guys!


ISSUE VOLUME, RUB FAIL TYPE PLANNED DATE OF

EXECUTION


ACTUAL DATE OF


Nutrinvestholding, 2008 (LPN) 50 000 000 Redemption 11.12.2008 10.01.2009 Technical default Matrix Finance, 1 1 200 000 000 Redemption 10.12.2008 09.01.2009 Technical default Amount of unsettled obligations: RUR1.2bn Electronika Bank, 2 500 000 000 Cupon 10.12.2008 17.12.2008 Default Amount of unsettled obligations: RUR 16.205m Marta Finance, 2 1 000 000 000 Cupon 07.12.2008 14.12.2008 Default Amount of unsettled obligations: RUR 60.16m

Svobodny Sokol, 3 1 200 000 000 Buyback option 02.12.2008 01.01.2009 Arrears on put option Amount of unsettled obligations: 1,195,352 bonds

SpetsStroy-2, 1 2 000 000 000 Buyback option 01.12.2008 31.12.2008 Arrears on put option Amount of unsettled obligations: RUR 6,088,689.42

Derzhava-Finance, 1 1 000 000 000 Buyback option 28.11.2008 28.12.2008 Arrears on put option

287,446 bonds submitted to buyback totalling over RUR305m including ACI (purchase price: 101.83% of par value)

APC Arkada, 4 1 500 000 000 Cupon 26.11.2008 03.12.2008 Default Amount of unsettled obligations: RUR 112.185m

INPROM, 3 1 300 000 000 Buyback option 20.11.2008 20.12.2008 Arrears on put option

Put option postponed due to court ruling Amount of unsettled obligations: RUR 1,130,920,677.04 including ACI

AirUnion RRG, 1 2 000 000 000 Buyback option 20.11.2008 20.12.2008 Arrears on put option

Amount of unsettled obligations: 1,566,943 bonds totalling RUR 1,566,943,000

SpetsStroy-2, 1 2 000 000 000 Cupon 20.11.2008 27.11.2008 Default Amount of unsettled obligations: RUR 33,626,930 Parnas-M, 2 1 000 000 000 Cupon 20.11.2008 27.11.2008 Default Amount of unsettled obligations: RUR 26.93m

RTM, 2009 (CLN) 55 000 000 Buyback option 16.11.2008 16.12.2008 Arrears on put option

Nikoshim-Invest, 2 1 500 000 000 Cupon 13.11.2008 20.11.2008 14.11.2008 Technical default Amount of unsettled obligations: RUR 31,941,348.45 Sugar Company, 1 2 000 000 000 Cupon 11.11.2008 18.11.2008 Default Amount of unsettled obligations: RUR 69.81m AirUnion, 1 1 500 000 000 Cupon 11.11.2008 18.11.2008 Default Amount of unsettled obligations: RUR 41.13m

Polesie, 1 500 000 000 Cupon 11.11.2008 18.11.2008 Default

Amount of unsettled obligations: RUR 4,858,681.78 Cause: termination of all transactions by Electronika Bank, paying agent on the issue

Sorus Capital, 1 1 200 000 000 Buyback option 07.11.2008 07.12.2008 Non-execution of put option Amount of unsettled obligations: about RUR1.1bn

Sorus Capital, 1 1 200 000 000 Cupon 06.11.2008 13.11.2008 Default Amount of unsettled obligations: RUR 35,904,000 MARTA Holding, 2008 (CLN) 100 000 000 Redemption 01.11.2008 01.11.2008 Default

Managing Company of Yakovlevsky Textile Holding, 1 1 000 000 000 Redemption 31.10.2008 30.11.2008 10.11.2008 Technical default

Amount of unsettled obligations as of October 31, 2008: RUR 40,399,498 Amount of unsettled obligations as of November 5, 2008: RUR 26,072,914

KD Avia-Finansy, 1 1 000 000 000 Buyback option 28.10.2008 27.11.2008 Non-execution of put option Amount of unsettled obligations: RUR 986,791,000

Banana-Mama, 1 1 000 000 000 Buyback option 28.10.2008 27.11.2008 Non-execution of put option Amount of unsettled obligations: RUR 209,689,000

Banana-Mama, 1 1 000 000 000 Cupon 24.10.2008 30.10.2008 31.10.2008 Technical default Payment amount: RUR 59,840,000

Tomsk-Invest, 1 500 000 000 Buyback option 23.10.2008 21.11.2008 Non-execution of put option

Amount of unsettled obligations: RUR 394,440,000 RUR42.243 was paid on November 24, 2008. Debt restructuring scheme: 59,000 bonds to be redeemed on December 23, 2008; January 22, 2009; February 24, 2009; March 23, 2009; April 23, 2009; May 25, 2009; J

KD Avia-Finansy, 1 1 000 000 000 Cupon 22.10.2008 28.10.2008 27.10.2008 Technical default Amount of unsettled obligations: RUR 79,780,000 Samokhval, 1 1 500 000 000 Cupon 22.10.2008 28.10.2008 27.10.2008 Technical default Amount of unsettled obligations: RUR 108,450,000 Agroholding-Finance, 1 1 000 000 000 Cupon 17.10.2008 24.10.2008 Default Arсtel-Invest, 2 1 000 000 000 Cupon 13.10.2008 20.10.2008 14.10.2008 Technical default Amount of unsettled obligations: RUR 68.560m

APC Arkada, 3 1 200 000 000 Buyback option 10.10.2008 08.11.2008 Non-execution of put option

Amount of unsettled obligations: RUR 1.160bn The issuer intends to buy back the bonds at par by 10.03.10

Russkiye Masla, 2 1 000 000 000 Buyback option 09.10.2008 07.11.2008 Non-execution of put option Amount of unsettled obligations: RUR 988m

Volgaburmash, 1 600 000 000 Redemption 08.10.2008 06.11.2008 15.10.2008 Technical default Amount of unsettled obligations: RUR 600m

NOK, 2 400 000 000 Buyback option 02.10.2008 31.10.2008 Non-execution of put option Amount of unsettled obligations: RUR 347m

Russkiye Masla, 2 1 000 000 000 Cupon 02.10.2008 09.10.2008 15.10.2008 Technical default Amount of unsettled obligations: RUR 62.3m Suvar-Kazan, 1 900 000 000 Cupon 30.09.2008 07.10.2008 01.10.2008 Technical default Amount of unsettled obligations: RUR 68.436m

Radionet, 2 1 000 000 000 Cupon 24.09.2008 01.10.2008 30.09.2008 Technical default

Coupon payment: on 26.09.2008 bondholders received RUR 10,670,748; on 30.09.2008 bondholders received remaining RUR 71,599,251.92

Source: CBONDS, CEB Treasury Research * Data as of 06.02.2009 gggg

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WEEKLY REPORT


09.02.2009

Good Luck, Guys!


ISSUE VOLUME, RUB FAIL TYPE PLANNED DATE OF

EXECUTION


ACTUAL DATE OF


Saturn, 2 2 000 000 000 Cupon 20.09.2008 27.09.2008 26.09.2008 Technical default Amount of unsettled obligations: RUR 125.34m

SZLK-Finance, 1 1 000 000 000 Buyback option 04.09.2008 04.10.2008 Non-execution of put option

SZLK-Finance, 1 1 000 000 000 Cupon 02.09.2008 09.09.2008 Default Amount of unsettled obligations: RUR 57.34m

ALPI-Invest, 1 1 500 000 000 Buyback option 26.08.2008 25.09.2008 Non-execution of put option Amount of unsettled obligations: RUR 1.44bn

Derzhava-Finance, 1 1 000 000 000 Buyback option 07.08.2008 06.09.2008 Non-execution of put option Amount of unsettled obligations: RUR 199m

Marta Finance, 3 2 000 000 000 Buyback option 06.08.2008 05.09.2008 Non-execution of put option Amount of unsettled obligations: RUR 1.202m

Agroholding-Finance, 1 1 000 000 000 Buyback option 03.08.2008 02.09.2008 04.08.2008 Arrears on put option Amount of unsettled obligations: RUR 266m

Marta Finance, 3 2 000 000 000 Cupon 02.08.2008 09.08.2008 Default Amount of unsettled obligations: RUR 155.42m

Naftogaz, 2009 (LPN) 500 000 000 01.08.2008 31.12.2008 31.12.2008 Technical default Technical default due to a violation of a publication date for 2007 financial information

Derzhava-Finance, 1 1 000 000 000 Cupon 29.07.2008 05.08.2008 01.08.2008 Technical default Amount of unsettled obligations: RUR 82m

Mostransavto-Finance, 1 7 500 000 000 Buyback option 24.06.2008 26.07.2008 25.06.2008 Arrears on put option Additional put option announced by Mosobltransinvest

GOTEK, 2 1 500 000 000 Buyback option 23.06.2008 23.07.2008 17.07.2008 Arrears on put option Amount of unsettled obligations: RUR 1.035bn

Arbat and Co, 1 1 500 000 000 Redemption 20.06.2008 20.07.2008 27.06.2008 Technical default Amount of unsettled obligations: RUR 1.5bn

Minnesko Novosibirsk, 1 500 000 000 Buyback option 16.06.2008 16.07.2008 Non-execution of put option Amount of unsettled obligations: RUR 435m

Minnesko Novosibirsk, 1 500 000 000 Cupon 12.06.2008 19.06.2008 Default Amount of unsettled obligations: RUR 34m Marta Finance, 1 700 000 000 Cupon 22.05.2008 29.05.2008 26.05.2008 Technical default Amount of unsettled obligations: RUR 52m Marta Finance, 1 700 000 000 Redemption 22.05.2008 21.06.2008 26.05.2008 Technical default Amount of unsettled obligations: RUR 700m Euroservice Meat Corporation, 1 1 500 000 000 Redemption 18.12.2007 17.01.2008 19.12.2007 Technical default Amount of unsettled obligations: RUR 1.5bn OSMO Kapital, 1 1 000 000 000 Cupon 10.12.2007 17.12.2007 17.12.2007 Technical default Amount of unsettled obligations: RUR 25m Stroimetresurs, 2 525 498 000 Redemption 21.06.2007 21.07.2007 Default VINAP-INVEST, 1 400 000 000 Redemption 15.08.2006 14.09.2006 Default Amount of unsettled obligations: RUR 10m Soyuzobschemashbank, 1 200 000 000 Cupon 15.01.2005 22.01.2005 Default License revoked on January 19, 2005

Soyuzobschemashbank, 1 200 000 000 Buyback option 15.01.2005 14.02.2005 Non-execution of put option License revoked on January 19, 2005

Promeximbank, 1 200 000 000 Cupon 14.09.2004 21.09.2004 Default

Promeximbank, 1 200 000 000 Buyback option 14.09.2004 14.10.2004 Non-execution of put option License revoked on July 29, 2004

Credittrust, 1 500 000 000 Buyback option 02.06.2004 02.07.2004 Non-execution of put option License revoked on June 24, 2004

Credittrust, 1 500 000 000 Cupon 01.06.2004 08.06.2004 Default License revoked on June 24, 2004 Sodbusinessbank, 1 500 000 000 Cupon 25.05.2004 01.06.2004 Default License revoked on May 13, 2004

RusLAD, 1 150 000 000 Buyback option 22.09.2003 22.10.2003 Arrears on put option

MKH, 1 900 000 000 Cupon 22.12.2002 29.12.2002 23.12.2002 Technical default Amount of unsettled obligations: RUR 45m TD - Technical Default D - Default Source: CBONDS, CEB Treasury Research * Data as of 19.12.2008

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WEEKLY REPORT


09.02.2009

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DISCLAIMER AND CONTACTS (CREDIT EUROPE BANK LTD RUSSIA)

REUTERS / BLOOMBERG: CEBM. WEB: www.crediteurope.ru/en/research/ DISCLAIMER: This report is not an offer to buy or sell any security or financial instruments or to participate in any trading strategy. The information and opinions contained within this analytical report are based upon information publicly available at the time of preparation and publication. The value of and income from your investments may vary because of changes in interest rates, tax rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. The value of any investment or income may go down as well as up and you may not get back the full amount invested. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities and financial instruments discussed in this report may not be suitable for all investors. Credit Europe Bank recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of the financial adviser.

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