Investment Tips

[Rvrwind]

I am going to run this thread along the same lines as the Employment thread.

These are not concoted or made up they are actual reports from government agencies & private agencies allueding to changes in the market place. I have in the past sent others by PM's to a select group who I am happy to say were adventerous enough to try them out & made a little coin. I often get tips on the stock market well ahead of the market players as well & will post them in this column.

So if your a buisness man or a market player you may find something in this column to satisfy your apitite & make you a few $'s.

I will require a nominal contribution for your success however;).

RVR

[Rvrwind]

<tit>IN THE NEAR FUTURE CELLULAR COMMUNICATION WILL YIELD THE FIRST PLACE IN GROWTH SPEED TO FIXED-LINE COMMUNICATION AND INTERNET SERVICES

Year 2006, may become a turning point for the Russian communication industry. Cellular communication that has been pushing the market forward for a long time will yield first place according to speed of growth to fixed-line communication and Internet services. Analysts predict that in 2006, revenues from data transmission services will grow 45% to 49 billion roubles and the Internet boom will trigger development of the hi-tech industry. For 2006, experts predict rapid growth of the market of products and services related to the Internet, first of all, the market of computers.

Mobile communication has been an unchanged locomotive of the Russian communication market in the last seven years. Now cellular communication accounts for almost a half of the telecommunication market in money terms. Thus, in 2005, mobile communication operators earned $10.7 billion, whereas the aggregate volume of the telecommunication market reached $24.2 billion (this sum included all kinds of electric communication and post services). Very soon, this trend will change. Cellular market is approaching its objective ceiling. By the end of 2005, the number of cellular communication users reached 120 million. Andrei Bogdanov, director of the analytical service of Alfa-bank, comments, "In 2006, penetration of cellular communication will approach 100% and the speed of growth in revenue of the operators will slow down. The stock market already ceased perceiving cellular companies as rapidly growing ones and preserving of the existing EBITDA margin became the main task of the largest players of the mobile communication market."

Fixed-line operators and Internet providers will add new momentum to development of the market. According to experts, in 2006, they will become locomotives of growth of the entire telecommunication sector. According to the Communication and Information Technologies Ministry, in 2006, turnover of the telecommunication sector will grow 15% to 767 billion roubles. Mobile communication services will receive the major part of this sum (366 billion roubles) like in previous years but according to the speed of growth they will lose leadership to Internet providers. According to the Communication and Information Technologies Ministry, in 2006, turnover of operators in this segment of the market will amount to 48.6 billion roubles or will be 25% more than in 2005. Some analysts consider forecasts of the ministry excessively reserved. According to experts of iKS-Consulting and J'Son & Partners, revenues of participants of the Russian Internet market will grow 40-45%.

Experts name broadband Internet access services as the main engine of growth in revenues of participants of the market of fixed-line communication and Internet. According to Cominfo-Consulting, in 2006, the market of broadband Internet will repeat the records that cellular communication operators have been setting since the end of the 1990s, until recently. In comparison to 2005, the volume of broadband Internet market will grow 200-300%.

Analyst Tatiana Tolmacheva of iKs-Consulting comments, "Besides the factors that have been influencing the market for the last few years like growth in well-being of consumers and reduction of prices of services some other trends are registered on the market of Internet access too. Audience of the Russian segment of Internet changed qualitative. Russian Internet users grew more experienced and understood all advantages of broadband access. The Russian segment of Internet changed too. Growing sophistication of the websites, appearance of multimedia applications that should be downloaded from the web encourages demand for broadband lines."

Market players agree with forecasts of analysts. CEO of ACBT, Anastasia Ositis comments, "We expect growth of the market of broadband Internet in Russia in 2006, as well as growing interest of investors in fixed-line companies and Internet providers. Investments will be directed both in traditional business of participants of the fixed-line communication market and in projects connected with introduction of new technologies. For instance, now investors are attracted by WiMAX technology. They are convinced that after its introduction broadband radio access to the Internet will become a mass service."

Bitter competition already started among the operators that provide broadband access services. Competition is especially noticeable in Moscow. There fixed-line companies and Internet providers behave as aggressively as cellular companies three or four years ago. In one district of the city, a resident of Moscow may buy broadband services from MTU-Intel, Comcor-TV, Corbina Telecom and two or three home network operators. Some providers are already prepared to connect "dedicated lines" for free. Along with this, expenditures on users on broadband Internet usually do not exceed $15-20 a month now.

Market players do not have a common opinion as to if development of telecommunication environment and Internet an incentive for purchase of computers by Russian consumers or if possession of computers push consumers towards use of the Internet and other IT services. Along with this, experts agree that in 2006, Internet boom will be overlaid on unprecedented growth in sales of computers. According to the Communication and Information Technologies Ministry, at the end of 2005, there were 17 million PCs in Russia. J'Son & Partners predicts that 7 million PCs will be sold in Russia in 2006, and in money terms the sales will amount to 5.2 billion roubles. Growth of sales in comparison to 2005, will amount to 20%. Share of revenues from sale of computers in the aggregate turnover of the Russian IT market amounted to 18.7% in 2005, along with the overall turnover of IT market amounting to $23 billion. In 2006, the IT market is predicted to reach $26 billion and the share of computers in this sum will reach 21%. Sergei Shcherbina, PR Director of Quasar Micro concludes, "Synchronous growth of the computer market and market of Internet services is a natural phenomenon. Growth of the number of dedicated lines leads to growth in demand both for computers and multimedia and business applications like ERP systems because it is pointless to use them in slower Internet environment."
<ref>Kommersant, January 25, 2006

[Rvrwind]

<tit>RENOVA SELLS OUT GOLD MINING ASSETS
Renova group is negotiating on sale of its gold mining assets to the Canadian company Barrick Gold, the world's third largest gold company, reports a source on the market of precious metals. Now Renova controls Koryakgeoldobycha (Ametistovoe and Aginskoe, Zoloto and Baranyevskoe deposits) and a 25% stake in the Kazakh company Charaltyn that is currently accomplishing the deal of merger with the Canadian company Eurasia Gold. According to the source, the value of these assets may amount to $200-500 million. It was impossible to obtain comments from Renova. Vice President of Barrick Gold for corporate relations Vincent Borg said that "deals with Russian assets are not a priority for the company yet" but emphasized that "in the long run the company is very interested in making a contribution to development of the gold mining industry of Russia."
<ref>Kommersant, February 20, 2006

RVR

[Rvrwind]

<tit>ECONOMIC DEVELOPMENT AND TRADE MINISTER GREF PRESENTED INVESTMENT PROJECTS ON THE RUSSIAN REAL ESTATE MARKET WORTH $3 BILLION

On March 14, Economic Development and Trade Minister German Gref presented a number of investment projects in three regions of Russia worth more than $3 billion to Russian and foreign businessmen at the international real estate exhibition MIPIM 2006. The biggest quantity of projects was announced in the Krasnodar Territory. This is primarily construction of objects included in the program for preparation for the Olympic Games of 2014 in Sochi.

Gref reported, "For normal development of projects in Russia now we need at least tenfold more investments. That is why we brought such record quantity of projects to the exhibition for the first time to attract not only domestic but also foreign investments."

The major part of the projects was announced in the Krasnodar Territory. Experts explain that this region is a candidate for organization of Winter Olympic Games in 2014.

Whereas Krasnaya Polyana project had been known for a long time, three investment projects were presented by Governor of the Krasnodar Territory Alexander Tkachev for the first time.

For example, it is planned to invest $600 million in development of the Blagoveshchenskaya Spit with area of 600 hectares. Another large project will be developed in Gelendzhik. According to Tkachev, development of resorts there will require $800 million. Authorities of the Krasnodar Territory also plan to attract about $1 billion for development of the Nikitskaya Valley not far from Adler. As a result, the Olympic Village will be arranged on a territory of 1 million square kilometers.

Projects of the Kaluga and Kaliningrad regions were presented at the conference too. For example, this is development of Vorfino industrial zone (500 hectares), construction of a techno-park in Obninsk and multifunctional center in Kaliningrad ($200 million). Tkachev announced, "At MIPIM Russia presented a real investment supermarket. There has never been anything like this before."

Real estate market experts presume that it is quite realistic to attract $3 billion. Sergei Yeliseev, director of the marketing and advertising department of Incomnedvizhimost corporation, comments, "This is a very small sum in the overall volume of direct investments in Russia." Konstatin Kovalev, managing partner of Blackwood, agrees with him. Kovalev comments, "Construction of only one modern elevator at any mountain skiing resort costs a few million dollars, leaving apart the entire infrastructure."

Yeliseev predicts that attractiveness of investments in Russian projects will depend directly on terms of investment contracts. Yeliseev adds, "Foreign investors invest in such projects in Russia cautiously and it is necessary to offer beneficial cooperation to them."

Stanislav Gripas, director for development of regional projects of Vesco Reality, presumes that investors will be primarily attracted by objects of the Olympic Village. However, according to Kovalev, the Olympic Games act only as a catalyst for acceleration of investments. Kovalev is convinced that "if they do not take place the projects will be developed anyway."

Market players say that besides the Olympic Games large foreign investors may also be interested by a possibility to build an autonomous city in the prestigious resort area of the Nikitskaya Valley. Gripas says, "Nonetheless, without significant investments on the part of the state in reengineering the transport infrastructure of Sochi the project will hardly be launched." According to him, the part of the railway between Tuapse and Sochi poses a significant difficulty for developers. This railway seriously reduces attractiveness of a part of the coastline for construction of luxurious housing and resort infrastructure.

Gripas adds that bearing in mind low costs of land in these areas developers will be able to develop modern ambitious projects there like Russian Switzerland or Kommunarka in the Moscow Region. The project for development of resorts of Gelendzhik has the highest chances for implementation. The expert concludes, "Renovation of the transport infrastructure has already begun and coming of large players to the region is only a matter of time."
<ref>Biznes, March 15, 2006

RVR

[Rvrwind]

<tit>GAZPROM PREPARES FOR AMBITIOUS REFORM
Gazprom, Russia's most expensive company, will face a grandiose reform. On March 29, its management will present a plan of internal restructuring of the company in the Board of Directors. This restructuring will be aimed at increase of transparency of the company. The reform will lead to blooming of bureaucracy and growth of administration costs of Gazprom by $100 million a year on average. However, real expenditures of the company will be clearer and its capitalization may grow by more than $30 billion.

Gazprom is the largest gas company in the world. In 2005, it produced 547.9 billion cubic meters of gas (and exported 151 billion cubic meters of this quantity) and 12 million tons of oil. In the first nine months of 2005, net profit of Gazprom according to international standards amounted to 232.1 billion roubles and revenue amounted to 902.2 billion roubles.

Conversations about the reform of Gazprom were going on for many years. The goal of the reform is to understand how much the company spends on production, a business where competition is possible, and how much is spent on transportation, to which the company is obliged to give access to everyone. For more than ten years, Gazprom has been stubbornly resisting attempts of the authorities and investors to split it into transportation and producing companies, even if the latter remains within the structure of the monopoly. In 2002, CEO of Gazprom, Alexei Miller, warned President Putin that such proposals posed a threat to the energy security of the country. Since then, the President hinted frequently that Gazprom should be treated cautiously. After all, even Economic Development and Trade Minister German Gref, the most consistent support of reforms, abandoned the idea of splitting the gas corporation.

In any case, a wish to know how much gas production costs and how much its transportation costs forced Miller to start a reform from the inside. Nikolai Axenenko had to act in the same way having transformed the Roads and Transportation Ministry into joint stock company Russian Railways. Anatoly Chubais had to do this and achieved splitting of RAO EES Rossii. On March 29, management of Gazprom will present a detailed plan with a structure of the company's reform for discussion to the Board of Directors.

Working out the plan of the reform Gazprom used the experience of restructuring of E. ON RWE. Its essence is the following: non-core kinds of business will be separated from the existing subsidiaries of Gazprom that are now simultaneously occupied with production, transportation and transportation of gas. A manager of Gazprom reports that 17 enterprises of Gazprom that own or rent 80% of its entire property will be restructured. All separated assets except for the upstream ones will be included into six new special divisions. For example, Gazprompererabotka will consolidate processing assets of Urengoigazprom, Surgutgazprom and Severgazprom. They will reassign property worth 28.8 billion roubles to Gazprompererabotka (including property of the upstream enterprises worth 7.4 billion roubles and property of Gazprom worth 21.4 billion roubles that Gazprompererabotka will rent from). Gazprom estimates capital assets of the new company, Gazprom-PKHG, at 28.9 billion roubles including property worth 27.3 billion roubles to be rented by the new company from Gazprom.

Gazprom plans that the restructuring will be performed in two stages. According to a manager of the company, it will take about two years. In the first stage subsidiaries of the gas monopoly ("donor companies") will separate their non-core business into special so-called "buffer companies." In the second stage these "buffers" will be united according to the kinds of business (one company will be the main and the rest will be merged with it). The upstream enterprises and seven transportation companies ("transgaz" companies) will remain independent.

An official close to the Board of Directors of Gazprom compares the reform of Gazprom and the reform of RAO EES, where the main task has also been splitting of regional energy companies into new companies according to kinds of business. The difference is that in energy generation and in energy sales it is planned to create competition and Gazprom is not going to privatize anything yet, adds the official.

The source continues that the reform of Gazprom will be a paradise for bureaucrats because it will evidently require hiring of dozens of new managers. Gazprom plans that the reorganization will cost it just 597.8 million roubles. Expenditures on separated kinds of business and hence the tariffs formed on their basis will grow 2-8% due to the growth of the "managerial staff." A source in Gazprom estimated this growth at $100 million a year.

In any case, experts believe that these expenditures will pay back quickly. Sergei Glazer, of Vostok Nafta fund, that owns about 2% of Gazprom shares explains that the reorganization will enable the management of Gazprom to finally evaluate real efficiency or unprofitability of each business line of the gas monopoly. Glazer believes that the reform will enable investors to see real transportation, processing and production costs of the corporation. A source in ON RWE adds that Gazprom will finally be like a Western corporation. Steven Dashevsky, director of the analytical department of Aton investment company says, "This will inevitably lead to growth in capitalization of Gazprom." Dashevsky added that due to the reform of the electric energy industry shares of RAO EES grew more expensive by 137% since January of 2004. Dashevsky presumes that if Gazprom manages to implement its reform its capitalization will be able to grow at least 20%. On March 24, capitalization of the company amounted to $184 billion.
<ref>Vedomosti, March 27, 2006

RVR

[Rvrwind]

I recently mentioned to a few people in private, that if they had some extra cash to play with that they should buy stock in Rosneft...at that time I wasn't sure of the payback period but I would say it has been moved up considerably. I mentioned at that time that Rosneft was going to aquire all of Yukos' assets & it seems I am right. They bought out Yukos' debt to the banks just as the banks were forcing Yukos into bankrupcy.  Sergei Bogdanchikov, President of Rosneft said some months back that Rosneft would aquire all of Yukos' assets, one way or another. It seems he is keeping that threat/promise. Rosneft is 100% State Owned so chances of losing your investment are very slim but chances of making some money on this are very big. IIRC Rosneft stocks trade on the LTS & Micex &  the RTS.

JMHO

<tit>PROVISIONAL MANAGERFOR YUKOS ON THE PROCEDURE OF HIS APPOINTMENT AND STRATEGY OF HIS ACTIVITY

Eduard Rebgun, appointed on the post of provisional manager of YUKOS by the arbitration court on March 28, on the procedure of his appointment and strategy of his activity.

Question: Why were you appointed provisional manager of YUKOS?

Rebgun: International banks that submitted an application about bankruptcy of YUKOS chose the self-regulating organization of arbitration managers of the Chamber of Commerce and Industry of Russia in which I was a member. The choice of the banks is understandable. This is the largest self-regulating organization in the country accredited with the international association of self-regulating organizations. Officials of our organization proposed my candidacy among the others and I decided that I had sufficient expertise for fulfillment of the tasks set. I with my team performed dozens of bankruptcy procedures and was arbitration manager of many enterprises. The best known of them are the Moscow gelatin plant, Unisstroy and Mosbiznesbank. For fifteen years, I have been the head of Comyur company and for five years I have been the head of Business-Lotsiya company specializing in multi-profile consulting. I also participate in the legislative process and teach, thus I know bankruptcy as a theoretician and as a practitioner.

Question: After all, it was Rosneft and not banks that influenced the appointment.

Rebgun: Its representatives probably had an opportunity to get acquainted with candidacies. At least, they did not complain about absence of time unlike the lawyers of YUKOS. Moreover, so that Russian consultancies are sufficiently known and even if another candidate became the manager of YUKOS we could provide him significant assistance.

Question: Who composed the list of candidates for the post of manager presented to the court and on what was it defended?

Rebgun: This was a choice of the expert commission of our self-regulating organization. I do not know what were their guidelines but I submitted an application for inclusion into the list of candidates.

Question: Why did Rosneft reject Arkady Cherkasov who was the first on the list of the candidates?

Rebgun: Probably Rosneft had some reasons. I did not know which criteria were determined there. Arkady Cherkasov is a professional and he has performed many bankruptcies.

Question: Did Rosneft hold any negotiations with you on the eve of the meeting?

Rebgun: Of course, no. They confirmed the choice of the banks with regard to the self-regulating organization and with regard to the candidacies they probably weighed all factors, especially professional qualities and reputation.

Question: What will be the strategy of your activity in YUKOS?

Rebgun: The strategy is outlined by the law on bankruptcy and it is hardly possible to invent something new. The law makes the provisional manager a neutral figure observing the interests of the debtor company, creditors and entire society. Now I will do financial and economic analysis of the company and control a part of the deals. However, it is difficult to evaluate the volume of work yet. This primarily depends on interaction with the debtor. If the management of YUKOS provides the information required by the law it will be simpler for me to work.

Question: Why is the supervision introduced not for seven months unlike in majority of cases but only for three?

Rebgun: This question should be addressed to the court.

Question: Will you manage to do financial analysis on time?

Rebgun: I will do my best. Our team is professional. In any case, if I fail to do this on time I will have the right to request the court about prolongation of the period and the court may allow this request.

Question: This means that it is impossible to say that there will be external management or liquidation procedure in YUKOS from June 27?

Rebgun: I will understand this when I see the volume of work.

Question: Are there many claims of creditors expected that the court will have to hear and how much time will their check take?
 
Rebgun: I have no idea about this but the quantity of creditors absolutely does not scare me. In Mosbiznesbank I had thousands of creditors. Thus, the methods of analysis and registration have already been tested.

Question: What do you think will be in YUKOS after supervision: financial readjustment, external management or liquidation?

Rebgun: It will be up to creditors, the debtor and the court to decide if it is necessary to restore solvency of the company or to liquidate it. In accordance with the law, this will also be determined by our analysis. This is the most important component of the supervision procedure.
<ref>Kommersant, March 30, 2006

<tit>INTERFERENCE OF THE KREMLIN IN ACTIVITIES OF THE MARKET DEVALUES RUSSIAN SHARES

The fact that since November of 2005, Russia has not been letting to the country Bill Browder, the asset manager and struggle for rights of shareholders best known in Russia, may turn investors into "bears" playing for lowering of quotations. In any case, it seems that this circumstance has not abashed Browder and his investors. Browder, who manages the hedge fund Hermitage Capital Management worth $4 billion, comments, "Russia presents the biggest investment opportunities in the world. We participate in the history of undervaluation based on goods and lasting for many years."

Because authorities of the UK, US and Russia are trying to solve the problem that has placed Russia in an awkward position, Browder, British citizen of American origin, hopes that he will be able to return to Moscow soon.

From his point of view, when people recall about this incident they will recall about it only as about a moment when Russian bureaucrats and corrupt businessmen have enjoyed strong influence in the economy.

Meanwhile, the huge market of "bulls" playing on increase of quotations that has increased his fund by 2,292% since April of 1996 will evidently continue its rapid growth. The fund grew 43% since the time when issue of a visa was denied to Browder. He says, "My colleagues say jokingly that I need to remain aside of the business more often."

Since the visa problems of Browder "due to the national security reasons" became known in March of 2006, all conversations were focused on the parties that might be standing behind this. Gazprom, Surgutneftegaz and other objects of his critique in activities aimed at protection of shareholders are mentioned as suspects but nobody knows the truth.

Browder blames a certain company that "has all grounds to be discontent with his activity" connected with bureaucrats who have a possibility to prohibit his entrance into the country and to block his reformist efforts.

Browder states, "It is obvious that Putin is not standing behind this." Browder believes that the Russian President has learnd about the visa problem only from newspapers.

Putin takes much effort to improve the investment climate after many foreign investors have been frightened by the judicial attack on Mikhail Khodorkovsky, the former richest person in Russia, and at his company YUKOS started in 2003.

Browder is a well known supporter of Putin and Russian markets. He stated that all actions against Khodorkovsky were justified but were taken clumsily.

Market revival is a remarkable element for the Browder's case. It shows that a growing base of investors of the country shares the belief of Browder in Russia.

After the consultation held with 180 participants investors of Browder seemingly have an optimistic attitude. According to available information, Hermitage received bids for buyout of 3.4% of its assets.

Hermitage employs 14 people who are doing research in Russia. Browder remarks, "Strong presence in Russia is necessary to invest successfully because so far it is impossible to believe what companies and intermediaries say."

Apprehensions of investors regarding interference of the Kremlin in activities of the market and shareholder culture result in trade in Russian shares with discount. Despite that, Russia has been on the rise since 1999, the coefficient of quotation-revenue on the Russia market amounts to 11.4%, which makes it one of the cheapest markets in the world. Along with this, this is a market rich with natural resources, which can boast the largest or at least the most expensive oil and gas companies in the world.

If there is a market where it is necessary to struggle for rights of shareholders, this is Russia. Having investigated in assets draining from Gazprom, buyout of shares in Surgutneftegaz and dilutions through issue of shares of Sberbank, Browder received powerful enemies. At the end of the 1990s, he needed bodyguards.

At any rate, the steps that he took attracted much more supporters than critics to him and helped attraction of other foreign investors. Probably the optimism of Browder is one of the many illusions surrounding the common of the financial manager and Russia?

His grandfather, Earl Browder, was a candidate for presidency in the US and was the head of the American communist party. His grandson went to Russia in 1996, to help the maturing society to come to mature capitalism. Efforts of Browder junior have proven to be more fruitful but he does not think that they are too far from the efforts of his grandfather. He explains, "Indignation about injustice is in our genes."
<ref>inopressa.ru, March 29, 2006; newsru.com, March 29, 2006

RVR

[Rvrwind]

<tit>LUKOIL IS THE LEADER AT THE LSE
LUKoil is the leader among Russian companies shares of which are traded at the London Stock Exchange (LSE). In March of 2006, turnover of deals with securities of LUKoil exceeded $6 billion, which accounted for about one-third of turnover of all deals with Russian securities. Interest of the market in LUKoil is warmed up both with oil prices and with the continued buying up of LUKoil shares by ConocoPhillips.

In March, the company broke a record both in the turnover of trade in securities that amounted to $6.298 billion and in the number of deals that amounted to 12,083 transactions. Representatives of LUKoil say, "This is another record in a month since the beginning of trade, which confirms the highest liquidity of securities of LUKoil." The previous record was registered in October of 2005, when the turnover of trade in securities of LUKoil at the LSE amounted to $4.657 billion. The PR service of LUKoil emphasizes, "We are the leaders among the issuer companies at the LSE from all East European countries in the last six months."

Analyst Igor Vasilyev, of Financial Bridge investment company, quotes the data of Bloomberg saying that in March, LUKoil outran Gazprom following it in the top 5 of Russian issuers by more than 100%. Turnover of trade in securities of Gazprom amounted to $3 billion.

The gas monopoly is followed up by RAO EES Rossii with $2 billion, Surgutneftegaz with approximately $1.5 billion and Norilsk Nickel with about $1 billion. In general, LUKoil accounted for about one-third of the turnover of trade in securities of Russian companies at the LSE.

The records of LUKoil are connected with the favorable raw materials market situation. Trader Igor Prokhaev, of Troika Dialog investment company, noted that in March, raw materials markets grew and the turnover of trade was growing not only on account of LUKoil. However, the trader states that securities of this company are the most liquid and understandable and have the highest growth potential among the Russian issuers.

Investors also expect that a decision on buying out of a certain quantity of shares by the company itself will be made at the next meeting of the Board of Directors of LUKoil. This circumstance also warmed up demand for shares on the part of investors counting on beneficial resale of the shares.

The recent statement of principal shareholder of LUKoil, ConocoPhillips, about buyout of 20% of LUKoil shares by the end of 2006, was beneficial for the company too. For achievement of its goal, the American company should buy 0.3% of shares per month or 1% per quarter. Vasilyev presumes that after satisfaction of the demand of ConocoPhillips the trading situation may grow worse for LUKoil but not very much because the American shareholder acts cautiously on the market.

Analyst Artem Konchin, of Aton investment company, remarks that in general the upward price trend for the Russian company will depend on raw materials prices on the global market. The price of a barrel of oil exceeded a level of $70. Some market experts expect a growth to $90-100 per barrel within a year. Growth in oil prices will serve for increase of turnover of trade in shares of other companies of the Russian fuel and energy sector.
<ref>gazeta.ru, April 17, 2006

RVR

[Rvrwind]

THE DAY OF THE IPO OF ROSNEFT IS APPOINTED
Trade in shares of Rosneft will be started on July 14. By that day Rosneftegaz plans to sell shares of Rosneft worth $8 billion including shares worth $3 billion in Russia, partially sold to private individuals. Organizers of the IPO confess that it will not be easy to prepare a “people’s” IPO so quickly but it is dangerous for Rosneft to postpone the action because the season of vacations begins in August, and it will be more difficult to conduct the IPO.

Rosneft belongs to state-run Rosneftegaz 100%. In 2005, the company produced 74.6 million tons of oil. In 2005, revenue of the company according to Russian standards amounted to 486.7 billion roubles and net profit amounted to 56.6 billion roubles. On January 1, net debt of Rosneft amounted to $10.9 billion.

The authorities planned to organize an IPO of Rosneft on the London Stock Exchange and on Russian exchanges to enable Rosneftegaz to pay off the debt to Western banks (the credit worth $7.5 billion and interest on it). Initially it was planned that Rosneft would offer its shares to investors too, to pay off a part of its multibillion debts but this decision was not made yet. A “people’s IPO” in the form of sale of Rosneft shares to private individuals via Sberbank is being prepared together with the IPO on the exchange.

An investment banker participating in organization of the IPO reports that shares of Rosneft may come to exchanges on July 14. According to him, beginning of the road show is scheduled for June 26. Two federal officials acquainted with the IPO schedule confirmed these dates. Several investment bankers mentioned the end of June for the road show and the middle of July for the beginning of trade.

Two investment bankers and a state official acquainted with the plans of Rosneft reports that banks are tasked to place shares worth $8 billion (the debt of Rosneftegaz and the interest), including shares worth $3 billion to be placed in Russia and some of them to be sold partially to private individuals. One of the bankers emphasizes that the task is to place as many shares among private individuals as possible. The state official explains that the IPO will be held simultaneously on the London Stock Exchange and on Russian exchanges.

According to Dan Rappoport, Managing Director of Center Invest, a wish to sell shares worth $8 billion means that 15-16% of Rosneft shares will be offered for sale proceeding from its estimate at about $50 billion. At the end of 2005, Rosneft cherished more ambitious plans and planned to receive $20 billion for 30% of its shares.

The bankers say that so far all these parameters are only approximate. A spokesperson for Rosneft confirms, “The main parameters of the IPO including the size of the stake will have to be approved by shareholders.”

Maxim Shein, from Brokercreditservice, stated that Rosneft set an ambitious deadline. One of the organizers of the placing comments, “The difficulty is only in preparation of the retail IPO because there is too much technical and legal work there.” Rappoport agrees, “People’s IPO is a big job that can postpone the entire issue.” It is possible to conduct the placing in two stages but shares of the second installment will have to be sold at the prices established on the market by then. If the IPO is postponed until autumn interest rates on the credits of Rosneft will grow further.

Rappoport explains that there will be a “dead” season of vacations on the market between July and September. Turnover of trade decreases then and it is better not to place shares. Four years ago, Russian authorities made sure of this. In early August of 2002, the government refused to sell 5.9% of LUKoil shares at the London Stock Exchange because investors offered less than $700 million. The placing was postponed correctly. In December of 2002, this stake was sold for $775 million.

Shein says that there is no guarantee that in autumn the market situation will be more favorable and thus Rosneft needs to hurry to place the shares on the warmed up market. At any rate, all polled organizers say that they are observing the deadlines. A spokesperson for Rosneft states that the company “is doing everything that depends on it according to the schedule.”
<ref>Vedomosti, May 18, 2006

NET PROFIT OF MECHEL DOWN 30%
Low profitability of Mechel group is not an obstacle for the company. In 2005, net profit of Mechel according to US GAAP fell 30% to $381.18 million and profitability decreased to a record low level of 19%. However, shares of Mechel are the cheapest among the shares of Russian metallurgical companies now. As a result, majority of investment companies recommend their clients to buy ADRs of Mechel. Experts predict that in a year, their price will grow 30-50% and it will be possible to make a good profit on securities of Mechel.

In 2005, Mechel produced 15.6 million tons of coal, 4.5 million tons of iron ore concentrate and 5.89 million tons of steel. The main co-owners of the company are Chair of its Board of Directors, Igor Zyuzin and General Director Vladimir Iorikh. Free float of Mechel amounts to 23%.

A year ago, ADRs of Mechel were favorites of investors. In 2004, the company made record net profit in its history amounting to $1.3 billion and in the first quarter of 2005, profit of the company tripled to $169.5 million in comparison to the same period of 2004. At that moment EBITDA margin of Mechel, amounting to 26.65% was comparable to profitability of the leaders of the industry. Mechel owed this success to high coal prices of $85-90 per ton. In any case, coal prices fell to $55-60 per ton already in the second quarter and steel prices fell too. As a result, in the second quarter steel making business of Mechel brought loss of $14 million to the company. That is why analysts called the low financial results of Mechel according to US GAAP for 2005, published on May 18, expected. Along with a 20% growth in the revenue to $3.8 billion, EBITDA of the company fell 20% to $726.25 million and net profit fell 28.9% to $381.2 million. If the revenue received by Mechel from sale of MMK shares was taken into account in profit of 2004, it turned out that in 2005, net profit of Mechel decreased by more than 70%. EBITDA margin of Mechel was also among the worst in the industry amounting only to 19.1%. For Evraz this parameter amounted to 28.4%, for Severstal it amounted to 26.1%, for MMK 28% and for NLMK 47%.

Executive Director of Mechel, Alexei Ivanushkin, told investors, "We are frustrated by results of the year. It proved to be very difficult." At any rate, Mechel promises improvement of the situation on account of mass investments in mining business. Experts agree that it is too early to neglect Mechel. Analyst Alexander Pukhaev, of Deutsche UFG remarks, "Clearly, they could not succeed in 2005, but in case of growth of steel prices they will be able to restore profitability faster." Alexei Morozov from UBS believes that Mechel will work better already in 2006. Morozov predicts that revenue of the company will remain unchanged, EBITDA will grow to $798 million and net profit will grow to $445 million.

In case of Mechel, the main paradox is that low financial parameters may be even beneficial for the company. Vyacheslav Smolyaninov from UralSib explains, "Now these are the cheapest shares in Russian metallurgy." On May 18, ADRs of Mechel cost $23.81 on the New York Stock Exchange. Analysts expect that prices of company’s ADRs will grow. Metropol recommends purchase of these shares and sets target price for the shares at $32-38 per ADR.

Principal shareholders of Mechel are very interested in such growth of quotations too. At the beginning of the year, Vladimir Iorikh decided to sell his stake to the partner. Zyuzin decided to raise money for buyout of the stake of his partner on the market. In March, UBS sold about 16% of Mechel shares to investors. The placing was unsuccessful. ADRs were sold at $22 with almost an 8% discount to the market price. Zyuzin increased his interest in Mechel to 47%. Iorikh retained 25.8% that he wanted to sell too. However, since the moment of announcement of the deal the stake of Iorikh grew cheaper by 34%. Analyst of Metropol, Denis Nushtaev, presumed that the partners could fix the level of price at the beginning of the deal. Nushtaev remarks that this means that to pay off the partner Zyuzin will have to wait until ADRs of Mechel grow more expensive or will have to seek alternative financing options.
<ref>Vedomosti, May 19, 2006

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<tit>FLEMING FAMILY & PARTNERS ESTABLISHES A SECOND FUND FOR INVESTMENTS IN RUSSIA
Fleming Family & Partners (FF&P) decided to establish its second investment fund in Russia with portfolio that might reach $1 billion. For this purpose, 100% of shares of FF&P Russia Real Estate Development will be offered for sale at the alternative investment market (AIM) in London in the near future. The proceeds from the IPO will supposedly amount to about $300 million and this sum will be invested in developer projects in Moscow and in the regions. The company also plans to attract additional $700 million in the form of borrowings. The fund will be managed by Property Advisor company established by FF&P too.

FF&P was one of the first Western funds that invested in existing real estate objects in Russia. The volume of the first fund amounted to $150 million. The new fund will be fundamentally different from the first. Oleg Myshkin, one of the managing partners of Property Advisor and one of the founders of Colliers Int. reports, "We are going to invest $1 billion not in purchase of the already built objects but in pure development."

All 100% of shares of FF&P Russia Real Estate Development will be soon offered for sale at the alternative investment market (AIM) in London. Overall, the company will place 300 million shares with a price of $1 each. So, the company will be able to earn $300 million from the IPO.

According to Myshkin, it is planned to attract $700 million further. Property Advisor company was established specifically for management of the fund. The main owner of this company is FF&P (more than 50%) and remaining part of shares is distributed among the partners of the company. FF&P also plans to buy out a 10% stake in FF&P Russia Real Estate Development.

Property Advisor plans to spend $1 billion in 18 months but the objects in which the fund will invest are not known yet. Myshkin only said, "The major part of investments will go to the Moscow Region."

According to market players, coming of the fund to the market of development is connected with accumulation of serious experience by the company. Ivan Vashurin, senior consultant of the financial markets and investments department of Knight Frank, comments, "Western funds that operate in Russia have certain criteria in accordance with which they choose strategy for their development on the market. Choice in favor of developer projects manifests readiness of the fund to undertake additional risks in exchange for a possibility to receive a bigger return on investments."

Along with this, there is nothing new in attraction of money for investments in Russian real estate through IPO. This instrument was already frequently used both by Russian and by foreign investors. Victor Makshantsev from Jones Lang LaSalle, comments, "First of all, these are such companies as Raven Russia, shares of which are traded on the London Stock Exchange, Eastern Property Holdings (Swiss Exchange) and Open Investments fund that placed shares on the RTS back in 2004. Plans of Sistema-Gals to hold an IPO at the London Stock Exchange at the end of the year were announced recently." Thus, experts say that it is possible to call the decision of FF&P logical. In circumstances of excessive liquidity, that is a situation when the volume of money both in Russia and abroad is much bigger than the assets available on the market, investors demonstrate increased interest in any IPOs of such kind.
<ref>Biznes, June 09, 2006
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<tit>J. P. MORGAN TO BECOME A SHAREHOLDER OF BANK OF MOSCOW
Bank of Moscow controlled by the Moscow government may become another Russian bank with foreigners among the shareholders. American investment bank J. P. Morgan is going to become a minority shareholder of Bank of Moscow buying out a part of an additional issue of shares amounting to 4.5% of the authorized capital.

The Bank of Moscow is controlled by the Moscow government. The property department of Moscow has about 48.7% of its shares and Moscow Insurance Company has 13.5%. According to Interfax economic analysis center, as of Aril 1, 2006, assets of Bank of Moscow amounted to 258.8 billion roubles (fourth place), equity amounted to 21.9 billion roubles (seventh place), profit amounted to 1.3 billion roubles (13th place) and private deposits amounted to 66.7 billion roubles.

The Board of Directors of Bank of Moscow decided to issue additional shares in December of 2005. The bank announced then that it would issue 29 million shares (about 24.7% of authorized capital). It was planned to place the shares at 519 roubles apiece. In March of 2006, the Board of Directors of the bank reduced the quantity of shares to be placed to 5.6 million (4.5% of authorized capital). Representatives of Bank of Moscow explained that they took into account independent assessment of the market value of the shares and the current needs of the bank for capital. As a result of the additional issue the bank will receive 2.9 billion roubles.

On June 22, J. P. Morgan reported that it was considering the possibility of participation in increase of capital of Bank of Moscow in the framework of an additional issue of shares to be placed through public subscription after fulfillment of the preemption right by the existing shareholders. This period ends on July 25. If shareholders of Bank of Moscow do not use their rights, it will be possible to buy new shares by August 3.

It was impossible to obtain comments from J. P. Morgan. Bank of Moscow refused to comment too.

In its report, J. P. Morgan called participation in capital of Bank of Moscow a "minority financial investment" and added that it was necessary to obtain a permit of the regulating authorities for participation in capital of the bank.

In May, President of Bank of Moscow, Andrei Borodin, did not rule out "a possibility of attraction of a specialized financial institution to capital of the bank." Borodin remarked that the block of shares that the bank was ready to offer to such investor "will not be very big being in the limits of 1-2%" and did not rule out that this might be a part of an additional issue of the bank’s shares. According to Borodin, the bank already held negotiations then, but he did not name the potential investors. One of the Moscow officials spoke about possible cooperation between the banks back in summer of 2005.

The last deal with shares of Bank of Moscow was struck on the RTS in the middle of March at a price of $27. Capitalization of the bank exceeded $3 billion. Now shares of the bank are quoted in brackets from $17 to $30.

Proceeding from the value of placing the bank is estimated at three capitals. According to Alexei Buzdalin, chief expert of Interfax economic analysis center, proceeding from the size of the block and specific of business of the bank (the bank has a big share of settlement functions and settlement accounts of legal entities account for approximately 70-80% of liabilities) assessment of the bank is adequate. Recently, German Bayerische Hypo und Vereinsbank (HVB) bought 26% of IMB shares from Scandinavian Nordea Bank for $395 million and the entire bank was estimated with coefficient of 2.3 of capital. When Rosbank sold 10% of its shares to French Societe Generale it was estimated with a coefficient bigger than 4. Impexbank was estimated with a coefficient of about 3.

Analyst Ekaterina Trofimova, of Standard & Poor's comments, "As a rule, in developing countries J. P. Morgan acts as a portfolio and not a strategic investor." According to her, the bank buys a minority block for further development of investment operations with this institution or for resale to a strategic investor. Trofimova adds that Bank of Moscow suits this goal ideally, "This is one of the largest banks with good clients. Participation in capital also makes access to municipal bodies easier."

Minority shareholders of Bank of Moscow were delighted by banks of J. P. Morgan. Vladimir Kirillov, General Director of managing company KIT Finance, stresses, "This is an indicator of confidence of the international financial community. Presence of such shareholder will increase attractiveness of the bank also for international investors." Kirillov adds that presence of J. P. Morgan in capital of Bank of Moscow will also serve as a kind of guarantee of observance of the rights of other minority shareholders.

According to analyst Mikhail Zak, of Gazprombank, "The deal leads to a thought that very soon Bank of Moscow may conduct an IPO" and J.P. Morgan may be one of its organizers.

Trofimova is convinced that this is only the first deal of such kind and other deals will follow on the Russian banking market.
<ref>Vedomosti, June 23, 2006; Biznes, June 23, 2006
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<tit>STATE OFFICIALS ESTIMATED ROSNEFT AT $60-80 BILLION FOR IPO
The authorities appointed the price for shares of Rosneft, which is $5.85-7.85 per share or $60-80 billion for the entire company. The Board of Directors of the company approved this corridor on June 23. Big debts and actions of the Russian government were indicated as the main risks of Rosneft.

On June 26, Rosneft starts a road show. On June 23, state officials approved parameters of the company’s IPO at a meeting of the Board of Directors. Several organizers of the IPO reported that the price brackets were set proceeding from capitalization of Rosneft of $60-80 billion. Three sources explain that this is a price of the company after consolidation of its subsidiaries. According to them, the price of one share will amount to $5.85-7.85. A spokesperson for Rosneft says that results of the meeting of the Board of Directors will be disclosed on June 26.

It will be decided how many shares will be sold after closing of the book of bids. According to two bankers, the "basic" volume of the IPO is $8.5 billion. According to corrected data, Rosneftegaz needs this sum to repay its debt to banks and to pay the tax on profit from sale of shares. If Rosneft places 400 million of additional shares (4.4% of capital) at the upper border of the price brackets it will be able to raise $3 billion more. One of the bankers reports that overall Rosneft will place 14-16% of shares, which will enable it to raise $8.4-12.8 billion.

This is not all. A draft memorandum for the IPO says that simultaneously with the placing of shares Rosneft may also sell bonds convertible to GDRs. The structure of the issue, the size and the terms will be determined depending on the market situation. One of the organizers of the IPO reports that it is planned that these will be three-year bonds. Organizers of the IPO explain that this is an additional tool for raising money and stress that decision on placing the bonds will also be made after closing of the book of bids.

Recently, analysts of the banks organizing the IPO estimated Rosneft at $63-120 billion and majority of them called $70-90 billion a just price. However, one of the organizers of the IPO explained that it was finally necessary to go below the average estimates because the market situation was not quite favorable. Two sources close to the IPO confessed that last week state officials and managers of Rosneft were considering abolishment of the IPO seriously but changed their mind later.

Analyst Denis Borisov, of investment financial company Solid, says that abolishment of the IPO would mean a big blow on the entire Russian stock market. According to Borisov, in such brackets it is possible to conduct a successful IPO even now, if the market situation does not grow worse. Managers of majority of investment funds said that they would not pay for Rosneft more than LUKoil would cost at that moment. On June 23, LUKoil cost $59.9 billion on the RTS and its maximum value of $80.6 billion was registered on May 6.

In its draft memorandum, Rosneft described the investors that would be able to buy its shares. The company warns honestly that it has certain "priority candidates" (legal entities and private individuals) for which shares will be allocated first of all. However, the document says that there will be no other preferences for them including the price preferences. One of the organizers of the IPO reports that these are strategic investors, most likely companies from China and India. Another organizer adds "rich people" but does not name them. It is planned that along with all other equal terms bids of these candidates will be preferred. The source remarks that there is nothing unusual in this because in the course of any IPO the seller can choose to whom it sells its securities. Earlier, President of Rosneft Sergei Bogdanchikov said that the company did not plan to sell more than 1.5-2% to one investor and strategic investors including the majors from South East Asia will have to stand in a common queue.

In Russia, it will be possible to buy shares of Rosneft in branches of Sberbank, Gazprombank, UralSib, Aton or All-Russian Bank for Reconstruction and Development, subsidiary bank of Rosneft. On June 23, Rosneft announced that the minimum price of subscription for private individuals would amount to 15,000 roubles. Initially, the banks proposed making the entrance ticket more expensive pricing it at 20,000 roubles.

In the US shares will be offered to qualified institutional investors according to rule 144-A. It determines the procedure for purchase of shares that are not traded on the American exchanges by American investors. American funds will be able to buy shares from a brokerage in the US and the brokerage will be able to buy them in Russia or in London. Rosneft also describes some terms for purchase of shares by investors from the European Union, Japan, Singapore and other countries. For instance, shares can be bought by companies from the European Union employing not less than 250 people, having assets not less than EUR43 million and turnover of EUR50 million, says the memorandum.

Rosneft made provisions for options for the global organizers of the IPO, that is ABN Amro, J.P. Morgan, Morgan Stanley and DrKW. They will be able to buy shares of the company at the price of placing within 30 days after the IPO. For the options, the company plans to allocate up to 10% of the volume of placing. Options can be used only if the demand exceeds the supply.

To maintain the price the company will choose a so-called "stabilizer" that will be able to maintain the price of shares within 30 days. This is a standard procedure in case of an IPO.

The coordinators will be able to receive receipts from the depository before it receives the shares but on the day of the book closing. The coordinators will return the securities to the depository using the option or buying the shares in the framework of stabilization. The volume of this operation (Pre-Release) cannot exceed 10% of the placing volume. Dan Rappoport, Managing Director of CenterInvest, explains that this is done to start the trade right after closing of the book before the shares come to the depository physically. The memorandum says that shares of Rosneft will be traded at the LSE, MICEX and RTS under ROSN symbol.

In its memorandum, Rosneft warns investors about the risks in purchase of its shares.

A significant part of the memorandum is dedicated to description of risks connected with acquisition of Yuganskneftegaz. For example, the company writes that the existing relevant risks may have "negative impact on financial parameters of the company." Moreover, Rosneft confesses that it may encounter additional claims regarding the acquisition of Yuganskneftegaz about which nothing is known yet."

Attempts to make Rosneft liable for the rulings that may be issued against Russia are also possible. All these circumstances may increase liabilities of the company. Moreover, the IPO may lead to additional claims that in turn may interrupt or abolish the placing of shares.

Rosneft does not reflect possible consequences of these claims in its reports because it is actively defending itself from the risks and is going to do this in the future.

Acquisition of Yuganskneftegaz brought not only legal risks to Rosneft. The company admits that its image may suffer from negative coverage of its activities (negative publicity) because of the conditions of Yuganskneftegaz acquisition.

The multibillion debts that the company acquired partially to pay for Yuganskneftegaz may lead the company to a default, says the memorandum. At the end of the first quarter, debt of Rosneft amounted to $11.6 billion. Big liabilities limit the company in new acquisitions, guarantees and loans. Rosneft points out that the risk of default is also connected with breached terms of some credits worth more than $3 billion. The company will also have to obtain agreement from some of its creditors for consolidation of its subsidiaries; otherwise a default on a part of the credits is possible.

Consolidation also bears some other threats including a possibility of lawsuits of minority shareholders discontent with the terms of the shares exchange. Shareholders of the Komsomolsk refinery already proposed suing Rosneft because they considered assessment of the refinery to be too low. Rosneft also writes that after consolidation, YUKOS will hold 9-10% of Rosneft shares and its likely attempts to sell this block may have negative impact on the price of shares. In the course of consolidation, licenses belonging to subsidiaries of the company will not go to Rosneft automatically and the company points at a risk of loss of a part of shares. According to the terms of the IPO, within 180 days after the IPO Rosneft and Rosneftegaz will be unable to issue new shares without prior written permit of the coordinators. In September, Rosneft was going to issue additional shares for consolidation. This means that it will have to obtain a permit.

Even actions of the Russian government bear a risk for Rosneft. Rosneft writes, "They may create a difficult business climate in Russia." The government may exert serious influence on the oil and gas companies of Russia also through "informal channels." Formerly, the government limited export, forced companies to sell foreign currency revenue and determined the quantities of oil, gas and petroleum products supplied for state needs to certain consumers including the military. The memorandum says that although these actions are legal they are not marketing ones and can have a priority.

Borisov says that many companies have indicated such risks, but in the memorandum of Rosneft this looks funny. For potential investors in Rosneft Russian government as the main shareholder also adds other risks. The company writes that interests of the government may not coincide with interests of other shareholders and having majority in the Board of Directors the government may force Rosneft to run business not in a way contributing to increase of its equity value.

The auditor of Rosneft sent a letter to the Board of Directors pointing at drawbacks in the system of internal audit of the company. For instance, the level of control over detection of mistakes and cases of fraud is low. This norm deals with American auditing standards and does not have any consequences for Rosneft.

Rosneft belongs to state-run Rosneftegaz. In 2005, it produced 74.6 million tons of oil. In 2005, its revenue according to US GAAP amounted to $23.95 billion and net profit amounted to $4.2 billion. The Federation Service of Financial Markets permitted placing and circulation of 22.5% of Rosneft shares outside of Russia.
<ref>Vedomosti, June 26, 2006

<tit>POLYUS ZOLOTO SUBMITTED DOCUMENTS FOR ADR PROGRAM TO THE SEC
Polyus Zoloto, Russia’s largest gold producer, submitted documents for registration of an ADR (American depository receipt) program to the US Securities and Exchange Commission (SEC).

According to the deposit agreement signed with Bank of New York, Polyus plans to issue ADRs in early July of 2006, with regard to American depository shares certifying the rights for ordinary shares of Polyus. The company explains that it is planned that the ADRs of the company will be traded on the over-the-counter market of the US and later possibly in other countries.

The Federal Service of Financial Markets reported that it issued a permit to Polyus for circulation of 34.99% of its shares abroad. The par value of one share of Polyus is 1 rouble and authorized capital of the company consists of 190,627,747 shares.

At the beginning of 2006, the quota provided by the Russian law for issue of depository receipts by Russian companies was lowered from 40% to 35% of authorized capital. Meanwhile, Norilsk Nickel from which Polyus was separated into an independent company recently issued its ADRs a few years ago when the quota amounted to 40% of authorized capital.

As a result of separation the structure of Polyus will “mirror” that of Norilsk Nickel. Dmitry Usanov, director of the investor relations department of Norilsk Nickel, reports that all holders of ADRs of Norilsk Nickel will receive ADRs of Polyus despite the reduction of the quota. Usanov explains, “All holders will be able to receive them because earlier a part of shareholders have preferred to convert their receipts into shares.”

Shares of Polyus are traded on the RTS and MICEX stock exchange.
<ref>polit.ru, June 29, 2006
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SBERBANK SHOULD BE ESTEEMED HIGHER THAN DEUTSCHE BANK
UBS has published a paper dedicated to Sberbank, named "Rapid growth and small risks". According to it, the fair price of a Sberbank share should amount to $2.8 thousand. This corresponds to the capitalization of $53.2 billion, privileged stakes not taken into account. As of July 12, 2006, Sberbank's ordinary shares were traded at $.870 thousand (total value $35.9 billion) on the RTS, privileged shares cost $30 each, which adds $1.5 billion to the banks capitalization. As of the middle of June, there are 8 banks in the world with capitalization over $100 billion. 15 more cost $50-100 billion, The Banker reported. If Sberbank was estimated at $54.7 billion, it would be now rated 22nd in the world, higher than Deutche Bank and British Lloyds TSB.
Furthermore, the net percentage margin (difference between the capital formation rate and that of its placement) of Sberbank stood at 7.1% in 2005, while by 2010 it will reduce to 4.4%, UBS experts believe. But if these numbers are not less than 5%, Sberbank stakes must cost $3.3 thousand, accordingly, the company's capitalization is to be estimated at $64 billion, UBS analyst, Bob Commers, says. This rate will place Sberbank 20th on the list of major banks, before French Societe Generale ($59.5 billion).
<ref>Vedomosti, 13/07/06

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SEVERSTAL MAY PLACE UP TO 30% OF ITS SHARES DURING IPO
Owner of Severstal Alexei Mordashov drew conclusions from the unsuccessful merger with Arcelor. Very soon, Severstal will be able to conduct an IPO in London offering up 25-30% of shares to investors for $1.5-3 billion. Experts presume that thus Mordashov will try to increase capitalization of Severstal and may afterwards try to merge the company with some of the international or Russian players.

In 2005, Severstal produced more than 10.8 million tons of steel. Severstal North America produces about 2.5 million tons of steel a year. In 2005, revenue of Severstal according to international standards amounted to $7.5 billion and net profit amounted to $1.4 billion. An 89.6% stake in the company belongs to General Director of Severstal Group Alexei Mordashov.

At the end of 2004, Mordashov stated, “I am not ready to give up control over Severstal but potentially I am ready to reduce the block to the size of simple controlling interest. At any rate, I do not see serious reasons for this now.” Such reasons appeared for Mordashov in summer of 2006. At the end of May, he reached an agreement with management of Arcelor on merger with Severstal. In the united company, Mordashov would receive 32.2% of Arcelor shares and would become the principal shareholder of the world’s largest steelmaker. On June 30, shareholders of Arcelor rejected the deal. They preferred merger of Arcelor with the metallurgical giant Mittal Steel to merger with a little known company from Russia.

After the failure Mordashov decided to place shares of Severstal in London, reported several top managers and employees of investment banks acquainted with plans of Severstal. The case of Arcelor showed that IPO in the West was simply necessary if the owner wanted to use shares successfully in deals of mergers with other steel companies, reported a businessman acquainted with Mordashov. According to him, Severstal already reached an agreement with Deutsche Bank, UBS and Citibank on placing shares on the London Stock Exchange. According to Reuters, Severstal will sell slightly more than 10%. The source presumes that 25-30% of shares worth $1.5-3 billion will be offered to the market and these will be shares of a new issue and shares of Mordashov. Rumors that Severstal has consultations with Citibank about an IPO in London have been circulating since the beginning of the year but representatives of Severstal have always denied existence of such plans. Olga Antonova, spokesperson for Severstal, and representatives of Deutsche Bank, UBS and Citibank refused to provide comments. However, sources close to all three banks confirmed that the IPO of Severstal was being prepared.

A top manager of one of the banks not involved in the deal states that the IPO may take place in autumn 2006. A businessman acquainted with Mordashov and another source close to one of the organizer banks say that the date is not determined yet. A source in one of the metallurgical groups that has already had an IPO remarks that preparation of a memorandum takes up to two months. Approval of a new issue will require time too. Severstal will also have to introduce independent directors in its Board. In any case, Severstal already has a permit for circulation of shares in the form of GDRs on foreign markets. Severstal obtained it in 2003, for 19.9% of shares. A representative of the Federal Service of Financial Markets reported that the company did not turn for a new permit for a bigger block.

Analyst of CenterInvest Group Alexander Yakubov presumes that the IPO of Severstal will be successful. Yakubov remarks that the company has a perfect product range, it is vertically integrated and steel prices are growing now. A top manager of one of the large investment banks agrees that the failure with Arcelor may be beneficial for Severstal because Mordashov and Severstal are now known to entire Europe. For the failed deal with Arcelor Severstal was estimated at $10 billion. On August 1, its capitalization on RTS amounted to $11.9 billion. Analyst Vladimir Katunin of investment company Aton presumes that during the IPO capitalization of Severstal may reach $12 billion. Kirill Chuiko from UralSib considers this estimate too modest. He assesses Severstal at $16 billion. Dmitry Skvortsov from Bank of Moscow estimates Severstal at $14.2 billion.

Chuiko admits that after the IPO Mordashov will try to merge Severstal with a large metallurgical holding abroad once again. There is also another option, when Severstal merges with a Russian competitor, for example, with Evraz. In 2006, Mordashov already proposed such deal to co-owner of Evraz Alexander Abramov, said a manager of one of metallurgical companies.
<ref>Vedomosti, August 02, 2008

FINANCIAL ANALYSTS RECOMMEND PURCHASE OF IRKUT SHARES
Brokercreditservice (BKS) issued "buy" recommendation for shares of Irkut along with the target price of $1.20. Irkut is one of Russia’s largest military aircraft builders. The portfolio of its orders amounts to $5.1 billion and is the largest among Russian aircraft building companies. The defense budget of Russia for the period between 2007 and 2015, amounts to 4.939 trillion roubles (about $185 billion). According to Irkut, its share in the defense order will amount to $8.5 billion. Irkut became the center of formation of United Aircraft Building Corporation (OAK). At the first stage of OAK formation the state will own 75% of its shares and Irkut, according to BKS, will receive 20-25% of OAK shares. At the second stage, Irkut counts on a share of 30-40% in OAK. Analysts name several factors that support shares of Irkut. This is a prospect of growth of orders for company’s products on the part of Russian and foreign consumers, corporate transparency of the company and limited quantity of shares of military aircraft building on the Russian stock market.

Analysts of Troika Dialog say that according to coefficients "price/profit" and "company value/EBITDA" Irkut is undervalued in comparison to international counterparts. Analysts say that the company has the largest portfolio of orders in the industry, the best operating performance and the highest revenue. They recommend their clients "buy" securities of Irkut setting the target price at $1.40. Yesterday, shares of Irkut were traded on the RTS at $1.02-1.09.
<ref>Vedomosti, August 03, 2006, p. A6

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ROSNEFT SHOULD GROW IN PRICE, ANALYSTS BELIEVE
Rosneft may actually cost more than the market values it, analysts for investment banks that organized Rosneft’s IPO believe. They are sure that shares of Rosneft are undervalued and should cost $7.78-9.2. However, only UralSib advises to buy the papers. The market showed no response to the recommendations: the shares are still lower than the placement price.

In July 2006, over 15 percent of Rosneft shares were sold on stock exchanges for $10.7 billion. The company capitalization at the LSE is $70.43 billion.

Organizers of Rosneft's IPO managed to sell its shares at $7.55, near the top of the price range ($5.85-7.85 for one share, based on the company's consolidated capitalization at $60-80 billion). However, after the listing, the shares were mostly traded lower than placement price.

But analysts for investment banks which were selling the shares believe that they are to be more expensive. On August 29, "the period of silence" after the IPO was finished, and many organizer banks can now assign recommendations to Rosneft shares. All of them estimated the company higher than the current quotations and the placement price: from $7.78 for a share (Troika Dialog and Aton) to $9.2 (UralSib). Five of six investment banks recommend to "hold" Rosneft papers, only UralSib recommend to "buy" them.

"Rosneft owns a huge, well diversified resource base, it has much better extraction prospects then any other major Russian company," UralSib explains its position. The bank analysts note low operational expenses of Rosneft. The whole company (taking into account its future consolidation) costs $97.5 billion, they believe, and it is not the end of the day yet: "the estimation looks conservative, taking into consideration the prospects for receiving YUKOS assets." Rosneft's new projects may also raise the price of the company. Rosneft is secured from risks (including those arising from purchase of Yuganskneftegaz) by "efficient management and state control", UralSib believes. Before the IPO the organizer banks evaluated Rosneft at $63-120 billion; UralSib made the highest evaluation, $80-120 billion.

Analysts for Troika Dialog suggest that the current price of Rosneft shares includes the stable production growth, wide-ranging projects and possibility of getting assets of YUKOS (Rosneft is one of the major YUKOS creditors; YUKOS is currently under bankruptcy procedure).

Rosneft has already outstripped the leading Russian oil and gas company LUKoil by capitalization/reserves rate, Troika Dialog estimates (Rosneft is traded at $4.64 for a barrel of reserves via LUKoil's $3.72), and the gap will grow. Rosneft's prospects are more favorable than those of other energy companies, analyst for Troika Dialog Oleg Maximov believes. He says that a great number of offshore assets (Kamchatka, Sakhalin) are Rosneft’s advantage, while shortage in processing volumes is a drawback.
<ref>Vedomosti, 30/08/06

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RUSSIA BECOMES THE LARGEST EUROPEAN MARKET ACCORDING TO QUANTITY OF SOLD COMPUTERS
In a few years, Russia may take first place in Europe according to quantity of sold computers. In the last few years, the Russian market has been rapidly catching up with the leaders and according to analytical group Gartner it already occupies fourth place after the UK, Germany and France. Experts expect that growth in sales of computers will lead to decrease of prices and appearance of special products intended for Russia.

According to Gartner, in the second quarter of 2006, 1.49 million computers were sold in Russia or 14% more than in the same period of 2005. As a result, Russia took fourth place in Europe after the UK (2.08 million computers sold, growth of 1%), Germany (1.95 million computers, decrease of 4%) and France (1.79 million computers, growth of 3%). Gartner added that according to the quantity of sold desktops, Russia took second place in Europe. In three months, 1.16 million desktops were sold in Russia or only 10,000 less than in the UK.

Annette Jump, leading analyst of Gartner, believes that in 2010, Russia will become the largest European market according to the quantity of sold computers – desktops, laptops and servers. She predicts that by that time Russia will rise from the current fifth place in Europe to the third place according to revenues from computer sales. Jump explains the lagging behind of Russia in market share in value terms saying that in the overall volumes of sales in Russia, expensive laptops have smaller share than in some other European countries.

According to the latest census, Russia’s population amounts to 143 million people, which is bigger than population of any other European country including Germany (about 83 million), UK or France (60 million each). Analytical company GfK reported that in 2005, the Russian market of cellular telephones already became the largest in Europe according to the quantity of sold telephones.

Vice President of Formoza, Vladimir Sharov says that international assemblers of computers and manufacturers of components take much effort to capture the Russian market. Already now Russians can buy many computer products at prices 25-40% lower than in other countries.

Gleb Mishin, head of the Russian representative office of Acer, says that Russia will be able to catch up with European markets only if it preserves preconditions for growth in computer sales. He explains, “While the population has a lot of money, customs policy is more transparent than before and import duties are low, the market will grow.” Mishin expects that growth of computer sales will result in appearance of special products for Russia taking into account the local specific. For instance, they will be better fitted for work with Cyrillic fonts. Mishin also expects that computer producers will open their own production in Russia.

Growth in computer sales will also help Russian software developers. Boris Nuraliev, Director of 1C, comments, “Bearing in mind that the level of piracy decreases simultaneously, it is possible to say that software sales in Russia grows much faster than in other large countries. This trend promises good opportunities to competitive Russian projects.” Dmitry Nurkovsky, head of the gaming department of Novy Disk company, predicts that the domestic market will grow even more attractive for Russian software developers and foreign publishers. Nurkovsky expects that multimedia industry will be able to preserve and continue its growth, although in the world in general sales of its products are decreasing.

According to Gartner, in the second quarter of 2006, sales of computers in the world amounted to 54.9 million or were 11% more than in the same period of 2005. Of them 16.7 million were sold in the US (growth by more than 6%) and 3.5 million were sold in Japan (growth of 0.5%). The leaders according to the quantity of sold models were Dell (18% of the market), Hewlett-Packard (15%) and Lenovo (7%) and in Russia these were Formoza (about 7%), Acer (more than 5%) and Rover Computer (less than 5%).
<ref>Vedomosti, September 08, 2006

PRODUCTS FOR CHILDREN APPEAR ON FINANCIAL MARKET
Bitter competition on the American banking market forces crediting organizations to attract very young clients. To increase brand awareness of children and teenagers, banks not only enable them to open accounts for a minimum sum but also make presents.

Since spring 2006, US Bancorp has been offering a new savings account in all branches of Saint Louis. To its owners (children with age starting from five) US Bancorp not simply gives savings-bank books but also offers prizes: a tattoo sticker for contribution of any sum to the account and downloading of a melody for deposits exceeding $100.

The smallest clients of KeyBank – owners of DinoSaver accounts – receive toys and a quarterly newsletter. Teenagers who open a checking account will be able to receive iPod Shuffle.

A program enabling children to open a savings account right at school has been working in Washington Mutual for many years. The initial contribution may amount to $0.25 and the next may amount to $0.10.

Since April 2006, J.P. Morgan Chase started offering gift cards worth up to $25 to students of senior grades at schools and in colleges who opened checking accounts. It is possible to use the cards for payments in the chain of discounter stores Target. For some accounts American children can receive debit cards in their own names, receive information about the account by mail and to check the balance through the Internet.

Some companies including Citigroup, Visa USA, Merrill Lynch and Wells Fargo developed programs for teaching children to manage money. In 2006, specialists of Charles Schwab brokerage started organization of financial seminars for children and their parents.

In Russia banks do not offer deposits that a child at an age of less than 14 years can open independently. Only a few banks try to get remembered by children and teenagers who visit their branches. For example, in International Moscow Bank children who come for signing credit agreements together with parents are given colored pencils.

The maximum with what separate Russian banks agree now is helping children and teenagers to spend parents’ money stored in bankcard accounts. For example, MDM-bank can issue additional bankcards for the parents’ account for children older than six years.

Experts explain this situation primarily by legislative limitations. Lawyer Alexander Yevstigneev of Liniya Prava says, “According to Russian legislation, citizens who reach 14 years of age can open deposits in banks independently. It is possible to draw credits from 14 years but only in case of a written agreement of parents.”

Alexei Aksenov, general manager for retail products and services of International Moscow Bank, mentions another reason: in Russia there are too little children who have sums that can be deposited in a bank. Due to cultural and social reasons Russian children and teenagers earn money independently very seldom, that is why they have money only for entertainment and personal consumption, says head of Interfax economic analysis center Mikhail Matovnikov.

Nonetheless, Aksenov presumes that appearance of products for children similar to the American ones on the Russian market is only a matter of time. Vice President of Promsvyazbank, Valery Kordashovm expects that struggle of banks for children’s money will begin not earlier than in a couple of years.

At any rate, special programs for youth already appeared on the market. For example, since November 2005, Soyuz bank in Moscow will open a youth card Soyuznick! Visa Electron Instant issue to any person having a passport. This card allows reception of discounts varying from 5% to 40% in various trading, tourist companies, educational and entertainment institutions.
<ref>Vedomosti, September 08, 2006

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GAZPROM CLAIMS 50 PERCENT IN TNK-BP
When Alfa-group, Renova and Access Industries agree with British Petroleum about disposal of their stakes in TNK-BP, Gazprom will buy these assets. Gazprom and Russian stockholders in TNK-BP already started informal talks about the purchase. Price of the deal may reach $20-25 billion.

TNK-BP Ltd. was created in 2003. British Petroleum owns one half of the company, Alfa-group and Access Industries – Renova group concern hold the other half. Founders deposited 96 percent of TNK in the company, 98 percent of ONAKO and SIDANKO, 50 percent of Slavneft (50 percent are held by Gazpromneft), shares in Rusia Petroleum and Rospan etc. In 2005, main assets of the company were passed over to TNK-BP Holding, registered in the Tyumen region. Free float of the company is around 6 percent. In 2005, TNK-BP extracted 75.35 million tonnes of oil. Net profit of TNK-BP International was $4.744 billion in 2005, according to US GAAP gross incomes reached $30.025 billion. Dividends for 2005 reached $5 billion.

Purchase of Sibneft for $13.7 billion only stirred up Gazprom's interest in the oil business. The concern seeks to buy the stake in TNK-BP held by Russian investors, two top managers of Gazprom said. There are no formal negotiations yet, as the deal may be made only in a year: according to a shareholders' agreement, no one may sell shares in TNK-BP until the end of 2007. Gazprom top-managers have discussed conditions of the future deal with Russian holders in TNK-BP, and they "are willing to sell their shares to Gazprom," the source said. "It would be good for our company," Gazprom top manager explains, "we would be able to double our oil production to 80 million tonnes a year, and Gazprom's capitalization would grow several tens of billion dollars."

Russian stockholders are considering selling their shares in TNK-BP: the company's price grew several times since 2003, due to world oil price growth, sources close to TNK-BP shareholders said. They confirmed that the deal has been discussed with Gazprom. According to the sources, each stockholder might sell part of their papers to the monopoly, or Gazprom might buy out the whole stake owned by Russian shareholders.

TNK-BP has the largest free cash flow among Russian oil companies, but risks are also great, so the shareholders would not mind selling their stake, the source explained. Analyst with Solid investment company Denis Borisov estimated free cash flow of TNK-BP for 2005, at $3.8 billion. Free cash flow of Rosneft for the same period reached $619 million; Gazpromneft had it at $1.3 billion, Surgutneftegaz $2.5 billion.

Private companies depend greatly on the state, and this is the main risk. The source reminded, that TNK-BP cannot start production on the gigantic Kovykta deposit for several years because Gazprom is against gas export from Kovykta to China. Meanwhile, officials have the right to revoke Kovykta license if production does not start in time. It is better to sell the stake than lose it, the source concluded. Selling part of the TNK-BP package at an IPO could be another choice, the source said, but he doubted that the officials would agree to that: "Probably, they will name the desirable purchaser." According to the source, there is no consensus among Gazprom top managers about a scheme of the deal. It is not yet clear, whether Gazprom itself or Gazpromneft will be the purchaser.

Gazprom will have to borrow several billion or even tens of billion dollars for the deal. According to the current capitalization of TNK-BP, 50 percent in it will cost no less than $20-25 billion (capitalization of TNK-BP Holding at the RTS stood at $42.06 billion by September 15); when the moratorium for selling stakes expires, the price may grow even more, head of analytical department for Aton investment company, Steven Dashevsky said. He believes that "the deal is worth the trouble": oil business of Gazprom may become as large as that of LUKoil and Rosneft, which will result in 10 to 15 percent growth in capitalization. Gazprom will be able to attract a $25-30 billion loan for the purchase, Dashevsky is sure.

If Gazprom succeeds in purchasing a half in TNK-BP, it will allow settling many problems of the company, Dashevsky noted: Kovykta deposit, now idle, may be put on stream; it will not be necessary to divide Slavneft. But he is not sure if the company will stay effective under Gazprom management. Gazprom will hardly be able to manage the oil business effectively, until it establishes order inside the company, a source close to Gazprom board said.

Spokespersons for Gazprom, Rosneft and TNK-BP declined to comment.
<ref>Vedomosti, 18/09/06


MERGER OF SUAL AND RUSSIAN ALUMINUM MAY NOT TAKE PLACE
Establishment of the new world’s largest aluminum company remains questionable. Having studied the assets of SUAL, Russian Aluminum and Glencore drew a conclusion that Victor Vekselberg and Leonard Blavatnik claimed too big a share in the united company. Experts hope that the deal will not be terminated and its participants are simply bargaining.

In 2005, Russian Aluminum produced 2.7 million tons of aluminum and 3.9 million tons of alumina, had revenue of $6.65 billion and net profit of $1.65 billion. Oleg Deripaska is 100% owner of Russian Aluminum. In 2005, SUAL group produced 1.05 million tons of aluminum. In 2005, revenue of the group according to international standards amounted to $2.7 billion and EBITDA amounted almost to $600 million. Its owners are Victor Vekselberg, Leonard Blavatnik, as well as their partners Vladimir Kremer, Yevgeny Olkhovik and Igor Grinberg.

Russian Aluminum, SUAL and Glencore signed a protocol of intent to merge their assets at the end of August. A few days ago, Vekselberg reported to President Putin, “The united company will immediately occupy the leading position in the aluminum industry. We have a negotiation process going on and, honestly speaking, I hope that it will be accomplished successfully and we will make the final decision in a month.” The approximate structure of the deal is already known, “Russian Aluminum will issue additional shares for which owners of SUAL and Glencore will pay with their assets. In case of Glencore the matter is about 100% of shares of alumina plant Aughinish (capacity of 1.85 million tons) in Ireland, 100% in Swedish aluminum smelter Kubal (102,000 tons) and 93% in Widalco (1.26 million tons). The companies agreed preliminarily that in the “big” Russian Aluminum, Oleg Deripaska would own 64.5% of shares, shareholders of SUAL would own 21.5% and shareholders of Glencore would own 14% and the final agreement should be signed by October 1, 2006. Only the value of the united company and the value of stakes of participants of the deals is unknown. In the deal Russian Aluminum is advised by HSBN and Morgan Stanley and SUAL is advised by UBS and J.P. Morgan Cazenove.

As soon as Vekselberg told the President about the deal an obstacle appeared in its path immediately. Due diligence of the assets of SUAL will be accomplished in the middle of September. Audit showed that assets of SUAL required serious modernization, that is why representatives of Glencore drew a conclusion that SUAL would be unable to claim a 21.5% stake, reported a source close to one of participants of the deal. According to the source, Russian Aluminum supported Glencore. The source explains that for this deal SUAL should be estimated at $3 billion instead of the $5 billion at which the company estimates itself. The source adds that it is impossible to rule out that SUAL may quit the deal. A representative of an investment bank cooperating with the Russian aluminum companies confirms that it is Glencore that insists on reduction of the share of owners of SUAL. Two top managers of large investment banks suspect that henceforth the trilateral merger may fail. Representatives of SUAL, Russian Aluminum and Glencore refuse to provide any comments.

The value of assets is not the only reason for disputes between Oleg Deripaska and his future partners. Managers close to SUAL reported earlier that Vekselberg and his partners had to persuade Deripaska to agree for conduction of IPO of the united company within three years from the moment of the deal. Sources close to Russian Aluminum emphasized that the owner of the company finally agreed with the IPO.

Majority of the polled experts presume that assets of SUAL are not as good as property of its future partners but they do cost more than $3 billion. Investment company Aton estimates the overall value of Russian Aluminum and SUAL at $24.8 billion including the value of SUAL of about $5 billion. Investment company Metropol estimates the united company at $31 billion, assets of Glencore at approximately $8 billion and assets of SUAL at $5 billion. Independent assessor Deloitte and Touche CIS estimated SUAL company uniting only eight of the 20 plants of the group at approximately $2.8 billion.

According to SUAL, in the last three years its investments in modernization and acquisition of new assets amounted to about $825 million. During this period Russian Aluminum invested more than $1 billion in reengineering production alone. Analyst of Metropol, Denis Nushtaev, says that SUAL group also includes aluminum rolling mills and Russian Aluminum, on the contrary, has got rid of them and does not need the mills of SUAL. Nonetheless, the triple merger has an obvious indisputable advantage over the deal of Russian Aluminum and Glencore. The expert stresses that it will result in establishment of producer of primary aluminum number one in the world. Analyst Kirill Chuiko, of financial corporation UralSib, believes that the future partners are simply bargaining about better terms of the merger. Former co-owner of SUAL, Vasily Anisimov, presumes that the deal will not fall apart and Deripaska and Vekselberg will surmount the disputes and will reach an agreement on the merger because this deal is beneficial both for SUAL and Russian Aluminum and is also useful for the image of Russia.
<ref>Vedomosti, September 19, 2006

POLYUS ZOLOTO TO SPEND $1 BILLION ON BUYOUT OF ITS OWN SHARES
Polyus Zoloto starts a road show in the course of which it will announce buyout of its shares worth $1 billion. This is implied by the strategy of the company until 2015, adopted by the Board of Directors. As a result of its implementation Polyus Zoloto established six months ago will enter the top five of the largest international gold mining companies with capitalization of $14-16.5 billion shares, which are quoted at the London Stock Exchange (LSE).

A source close to Polyus Zoloto reported that on September 14, the Board of Directors of the company made a number of strategic decisions that might be announced in a few days. According to the source, management of the company is going to inform shareholders of the company about them in the course of the starting ten-day road show (Zurich, Geneva, Frankfurt, London, New York, Boston and Denver). For example, Polyus Zoloto will report about buyout of its own shares worth $1 billion. About 45% of the company’s shares are currently in free float on the market.

Polyus Zoloto established in March 2006, united gold assets of Norilsk Nickel. In the course of reorganization of Norilsk Nickel Polyus Zoloto received all assets of Polyus (100% of its shares belonged to Norilsk Nickel) and 10 billion roubles. Afterwards shareholders of Norilsk Nickel received shares of Polyus Zoloto on a proportional basis. As of April 4, 2006, the main owners of Polyus Zoloto were offshore entities Bektano Holdings Co. Ltd (2.95%) and Pharnco Holdings Co. Ltd (12.66%) (Vladimir Potanin being their beneficiary), Rinsoco Holdings Co. Ltd (2.95%) and Dimosenco Holdings Co. Ltd (12.66%) (Mikhail Prokhorov being their beneficiary), as well as Interros holding (7.39%). Capitalization of Polyus Zoloto amounted to $8.25 billion. In the first half of 2006, the company produced 15.6 tons of gold.

The source states, “At present, the company has $2.7 billion in cash received from sale of shares of Gold Fields (the sum of the deal for sale of a 20% stake in the South African company that happened in March 2006, amounted to $2.1 billion), as well as from reassigning money of Norilsk Nickel to it. As a result, it was decided to pay $1 billion to shareholders. Because Polyus Zoloto had no profit a scheme of shares buyout was proposed. This is the equivalent of payment of dividends.”

According to the source, as a result of this operation a block of about 8-10% of shares will go to the balance of Polyus Plus affiliate Jenington (earlier it owned shares of Gold Fields). In the future this block will be either sold on the market or used in deals for assets swap with Western companies. The source states that the price for buyout of Polyus Zoloto shares is not determined yet. He adds, “This is being done by Deutsche Bank chosen as the lead manager of the program of buy back of Polyus Zoloto shares. An investment memorandum will be published by the end of September.” At any rate, rumors appeared on the market on September 15, saying that the buyout price would amount to $50 per share. On the wave of these rumors prices of Polyus Zoloto shares grew 6%.

Buyout of shares from minority shareholders is also implied by the new development strategy of Polyus Zoloto approved by the company’s Board of Directors. According to the source, by 2015 the company will more than triple gold production, which will enable it to enter the top five of the largest gold mining companies in the world. This means that if gold prices persist in the brackets of $550-600 per troy ounce capitalization of Polyus Zoloto will amount to $14-16.5 billion. The strategy also makes provisions for capital expenditures of $3.4 billion, as well as expenditures on geological exploration amounting to $800 million. The Board of Directors of Polyus Zoloto also approved bringing company’s ADRs to the LSE. According to the source, these securities may be admitted to circulation at the exchange by the end of 2006.

Representatives of Polyus Zoloto do not comment on the information about buyout of shares from minority shareholders.
<ref>Kommersant, September 18, 2006

VNESHTORGBANK PLANS A “PEOPLE’S” IPO
Another “people’s” IPO is upcoming in Russia. Vneshtorgbank (VTB) is going to follow the example of Rosneft. The first step to the IPO was already taken. The shareholders’ meeting of the bank decided to split shares of Vneshtorgbank. Now they cost not 1,000 roubles but 1 kopeck (0.01 rouble) each.

On September 18, the extraordinary shareholders’ meeting of Vneshtorgbank held in St. Petersburg decided to split shares of the bank. The split will impact only 52.1 million placed shares. Their value will be reduced from 1,000 roubles to 1 kopeck. For this purpose each ordinary inscribed share in the shareholders’ register of Vneshtorgbank will be replaced with 100,000 new shares. Thus, the stakes of the shareholders in authorized capital of Vneshtorgbank will not change (now 99.9% of the bank’s shares belong to the state).

This action will simplify takeover of Promstroibank (PSB) for Vneshtorgbank, for example, the procedure of transition to the common share. Vneshtorgbank reported, “Due to a significant difference in the par value of shares of Vneshtorgbank and PSB that amounts to 1,000 roubles and 1 rouble respectively and a big quantity of minority shareholders of PSB the reorganization procedure requires reduction of the par value of Vneshtorgbank shares.” Minority shareholders of Promstroibank will be offered to exchange their shares for shares of Vneshtorgbank or to sell their stakes.

Vneshtorgbank bought out 75% plus three shares of Promstroibank in 2005. According to the plans of its management, after takeover PSB will cease to exist: its corporate business will go to Vneshtorgbank and retail business will go to VTB-24.

For closing the deal it is necessary to surmount only one obstacle, which is to remove Vneshtorgbank from the list of strategic enterprises. Prime Minister Mikhail Fradkov submitted the relevant bill for signing to President Putin.

As soon as the takeover is completed VTB plans to hold an IPO of up to 25% of its shares.

Experts say that this will be the second “people’s” IPO. Kirill Petrov, head of investment company Ak Bars Finance, presumes, “Most likely, it will be organized according to the same scheme as the IPO of Rosneft and I am convinced that it will be equally successful.” Analyst Dmitry Golubkov of investment company Aton-Line, says, “Why one of the largest banks in the country cannot conduct a people’s IPO. Vneshtorgbank can afford this because it has good dynamics.” Golubkov adds, “In 2005, deposits of private individuals in Vneshtorgbank grew 84%. If private individuals bring money to Vneshtorgbank quietly, most likely they will not be against purchase of the bank’s shares too.”

Splitting shares is kind of more evidence of the “people’s” nature of the prepared IPO. Golubkov says, “Splitting is always used to attract private individuals. If a share costs $1,000 very few ordinary citizens with average incomes can afford buying it.”

Experts believe that for Vneshtorgbank a “people’s” IPO would be profitable. The analyst of Aton-Line comments, “A dramatic surge of interest in trade via the Internet has been registered lately. It attracts a lot of people and significant monetary funds.”

In any case, some specialists do believe that for the bank it would be more beneficial to give up the idea to borrow money from private individuals. Igor Lavushchenko, analyst of investment company prospect, comments, “The volume of the block is such that it would be more interesting for Vneshtorgbank to attract a large strategic investor and not to split the block.” Lavushchenko adds that even if Vneshtorgbank sells only 10% of shares this will already mean a seat on the Board of Directors.
<ref>gazeta.ru, September 19, 2006

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THE WORLD’S LARGEST ALUMINUM COMPANY ESTABLISHED IN RUSSIA
Agreement on establishment of united company Russian Aluminum was signed on October 8, in Moscow. The company will be the world’s leader in aluminum production and in 18 months anyone will be able to buy its shares, although Oleg Deripaska will remain controlling shareholder. Shareholders will be able to receive 50% of the company’s net profit in the form of dividends.

United company Russian Aluminum will be the largest aluminum and alumina producer in the world. Its production will amount to about 4 million tons of aluminum and 11 million tons of alumina a year. After the integration the company will account for about 12.5% of the global market of primary aluminum and 16% of alumina production. In 2005, Russian Aluminum had revenue of $6.65 billion and net profit of $1.65 billion. Oleg Deripaska owns 100% of the company’s shares. In 2005, revenue of SUAL according to international standards amounted to $2.7 billion and EBITDA amounted almost to $600 million. Owners of SUAL are Victor Vekselberg, Leonard Blavatnik, Vladimir Kremer, Yevgeny Olkhovik and Igor Grinberg. Glencore is one of the world’s largest traders with turnover exceeding $90 billion.

Russian Aluminum, SUAL and Glencore planned to sign the final agreement on merger of their assets by the beginning of October 2006, but this happened only on October 9. Sources close to negotiations called the delay “technical.” Dmitry Afanasyev, partner of the legal company Yegorov, Puginsky, Afanasyev and Partners that acted as consultant in the deal, said that the overall weight of the documents signed on the deal amounted to 6 kilograms.

However, the structure of the deal changed in the process of negotiations. At first, the parties planned that Russian Aluminum would issue new shares for payment for assets, reported sources close to the deal. According to the memorandum signed at the end of August, the share of shareholders of SUAL in the enlarged company could amount to 21.5% and Glencore could receive 14%.

On October 9, it was announced that all three parties would become shareholders of the new company, the stake of Glencore would amount to 12% and owners of SUAL would receive 22%. Alexander Bulygin, General Director of Russian Aluminum, explained that stakes of the partners changed according to results of assessment of all assets participating in the merger. General Director of Glencore Ivan Glazenberg said that his company was content with 12%. Glazenberg added, “We are glad to become a shareholder of such company and are not going to sell our stake.”

According to co-owner of SUAL, Victor Vekselberg, united company Russian Aluminum will be established by April 1, 2007. It will have to obtain permits for consolidation of assets from the Federal Antimonopoly Service and antimonopoly authorities of seven other countries. Afanasyev explains that if the regulator blocks inclusion of an asset its owner will have either to agree with reduction of its stake in the united company or to pay the cash equivalent of the asset. According to him, shares of Russian Aluminum, SUAL and plants of Glencore will become property of United Company Rusal to be registered abroad.

Preparation for this deal began back in 2004. Earlier, Russian Aluminum failed to reach an agreement on purchase of an alumina plant in Ireland from Glencore. Afterwards, Glencore defeated Russian Aluminum in the struggle for acquisition of shares of the alumina plant Alpart. Bulygin said that it was necessary to somehow relieve this tension and Russian Aluminum proposed Glencore start negotiations on purchase of its alumina plants. Vekselberg said that simultaneously SUAL was holding negotiations on merger with Russian Aluminum and prepared an IPO and sale of a part of shares to Norsk Hydro, IFC and EBRD as an alternative. Bulygin said that in summer Russian Aluminum proposed both future partners discuss a possibility of triple alliance. According to him, this happened in early August, all fundamental decisions were approved in a week and audit of the assets began. The General Director of Russian Aluminum also said, “This was serious work. Thirty-five employees of Russian Aluminum visited all plants of SUAL, their people arrived at all our enterprises.”

Although the agreement says that the IPO of the new company will be held in three years, the shareholders have set a task of share placing in 18 months, says Bulygin. At any rate, according to him, the company will be ready to come to exchanges in nine to twelve months. According to a source acquainted with details of the deal, the co-owners of the aluminum company will sell not less than 20% of their shares proportionately to their stakes but Glencore will retain not less than 10% and Deripaska will retain controlling interest. Two other sources acquainted with the agreement of the parties report that if the IPO does not take place in three years Russian Aluminum will be obliged to buy out the stake of SUAL at a price, formula of which is outlined in the agreement. After the IPO Oleg Deripaska will have preemption right to buy out stakes of the partners.

The new company will be generous to its shareholders. According to Vekselberg, the company will spend 50% of net profit on dividends. Bulygin will be the head of the largest aluminum company and President of SUAL Brian Gilbertson will be Chair of its Board of Directors.

Analyst Denis Nushtaev of investment company Metropol considers reduction of the stake of Glencore to be unexpected. Nushtaev estimates assets of the Swiss company at $6-8 billion and believes that Glencore may claim a blocking stake. The analyst presumes that the concession of the trader may mean a serious hope for significant growth in the value of the united company by the IPO. Nushtaev believes that taking into account the already announced plans in long-term prospect “big” Russian Aluminum may quite cost about $40-50 billion.

According to Bulygin, in five years synergy from merger of assets will amount to $3 billion on account of stopping competition, exchange of technologies, optimization of the governance structure etc. Revenue of the company will amount to not less than $10 billion and he considers the estimate of the company’s value at $25-30 billion done by analysts to be just. Analyst of Deutsche UFG Alexander Pukhaev remarked that owners of Russian aluminum companies managed to do what steel corporations could not do yet. Despite that Evraz, Severstal, NLMK, MMK and Metalloinvest discussed a possibility of merger frequently, they failed to reach an agreement after all. Pukhaev added that owners of SUAL and Russian Aluminum were more active. In any case, he believes that in the steel sector of Russia it is possible to expect a deeper consolidation in a few years too.
<ref>Vedomosti, October 10, 2006

INTOURIST PREPARES FOR IPO
The first Russian tourist may enter the stock market in 2007. AFK Sistema, owner of Intourist, plans to place 18% of Intourist shares on the LSE in 2007, estimating the company at $1 billion. Analysts forecast successful placing to the tourist operator but remark that success of its business will depend on attractiveness of Russia in the eyes of foreign tourists.

Vyacheslav Kopyev, Chair of the Board of Directors of Intourist told The Times that Sistema owning 66% of Intourist shares planned to sell 18% of the company’s shares in 2007. Kopyev estimated potential capitalization of the company at $1 billion. At any rate, Kopyev remarks that the IPO is at the stage of planning yet and Sistema has not chosen the bank for the role of IPO organizer yet. Along with this, Kopyev says that in the next three years Sistema plans to invest $500 million and a part of this money will be spent on acquisition of companies in the tourist sector. President of Sistema Alexander Goncharuk confirms the parameters named by Kopyev, although he calls them preliminary. Goncharuk explains, “When the IPO date is coming closer we may correct our intentions.”

Sistema announced its strategy of bringing subsidiaries to the exchange. The IPO of Sistema itself was held in 2005. Comstar-UTS, one of telecommunication companies of Sistema, held IPO in 2006. ADRs of Russia’s largest cellular operator MTS belonging to Sistema are traded on the NYSE.

Intourist was established in 1929. It serves about 500,000 foreign and Russian tourists a year. In 2005, turnover of the company amounted to about $130 million. The company is the leader in the segment of incoming tourism and plans to occupy 10% of the market of outgoing tourism.

Before the IPO Sistema is actively increasing capitalization of its tourist subsidiary. At the beginning of 2006, Intourist in cooperation with shareholders of Pipe Metallurgical Company (TMK) announced plans to build a hotel in Syria and to promote this country as an alternative to Turkey. In summer, Intourist acquired more than 51% of shares of tourist operator Skyway and a stake in UTE Megapolus. The company also plans to strengthen positions in the hotel sector. Now the company owns large hotels Cosmos and Pekin in Moscow and several hotels in the regions.

If the plans of Sistema come true Intourist will be the first Russian company in the tourist sector that places its shares on an exchange. Experts say that Intourist has chosen 2007 for the IPO successfully. Analyst of UBS Svetlana Sukhanova explains, “The goal of any portfolio investor is diversification of risks both according to geographical and according to industrial principles. From this standpoint the only traded Russian tourist operator may be liked by investors.”

Analyst of investment bank Trust Alexei Demkin agrees with her. He says that development of incoming tourism will contribute to the IPO on the LSE, “For example, the project for construction of three-star hotels in the regions may increase interest of investors in the company because it is shortage of hotels that hinders growth of business in Russia.” At any rate, experts warn that interest of investors in Russian companies may decrease too. Demkin recalls the recent decrease in quotations of Pyaterochka retail chain after changing the revenue forecast for 2005. Intourist needs to get prepared for communication with investors seriously and to describe all external risks of its business to them. For example, image of Russia in the eyes of foreigners, crime situation and safety of travel inside of the country are very important in the sector of incoming tourism. Non-observance of any of these factors may scare off foreign tourists.
<ref>Biznes, October 09, 2006

SEVERSTAL TO SELL 10% OF ITS SHARES
In a month one of the companies of Alexei Mordashov will be able to sell 10-15% of Severstal shares on the London Stock Exchange for $1.15-1.7 billion. This deal will be the largest Russian IPO of the year after the IPO of Rosneft and will make shares of Severstal the most liquid metallurgical blue chip.

Mordashov started preparing an IPO of Severstal on Western exchanges immediately after the failure of the merger with Arcelor. On October 6, Severstal officially announced an intention to conduct listing of GDRs for its shares on the London Stock Exchange. Mordashov explained, “We should become a public company on the Western market to be able to buy companies for our own shares, to merge with them and to establish various joint ventures.” Citigroup, Deutsche Bank and UBS Investment Bank were appointed global coordinators and co-book runners of the IPO.

Shares of Severstal will be sold by Frontdeal Limited, one of the companies of Mordashov. According to Mordashov, the final parameters of the deal are not determined yet, although the banks start the road show at the end of October. Several sources acquainted with plans of Mordashov report that the IPO will take place approximately in a month. According to them, Frontdeal is going to sell 10-15% of Severstal shares. One of the sources explains that the accurate size of the IPO will be determined during pre-marketing of shares starting this week and will depend on demand of investors.

On October 6, capitalization of Severstal on the RTS amounted to $11.45 billion. Analyst Kirill Chuiko of financial corporation UralSib believes that the IPO will be conducted approximately proceeding from this figure. This means that for 10-15% of shares Mordashov will receive $1.15-1.72 billion and the deal will become the second largest Russian IPO of 2006, after the IPO of Rosneft.

At any rate, Mordashov will return a part of the earning to Severstal. After the IPO in London the company will issue 85 million of additional shares (8.36% of authorized capital after its increase). Companies of Mordashov plan to take part in buyout of shares proportionately to their current stakes using a part of the proceeds from the IPO, says Severstal in its press release. Severstal-Avto conducted its IPO according to this scheme in 2005. The shareholder sold 30% of shares to investors and afterwards bought out about 15% in the course of an additional issue at a price equal to the IPO price. If the IPO of Severstal was held at a price close to quotations on the RTS of October 6 amounting to $12.20 per share Mordashov would return $925 million to Severstal.

Mordashov hopes that investors will evaluate his company at its worth, partially due to the corporate governance reform. Mordashov will become the head of Severstal and the shareholders’ meeting to be held on October 27, will increase the number of seats in the Board of Directors from nine to ten. A half of the seats will be occupied by independent directors. Mordashov promises that Chair of the Board of Directors will be chosen from among them. Directors for Severstal are being searched for by Heidrick & Struggles but Mordashov does not rule out that the company may be unable to find the directors before the IPO. Representatives of the London office of Heidrick & Struggles refused to comment.

Experts do not doubt that the IPO of Severstal will be successful. Analyst Alexander Yakubov of investment bank Trust speaks about advantages of Severstal saying that after the attempt to buy Arcelor both Mordashov and Severstal are known to investors and after consolidation of raw material assets the company became vertically integrated. According to Yakubov, these aspects will help Severstal to become the most expensive Russian steel company outrunning NLMK noticeably. NLMK, in which slabs account for 40% of production, costs about $11.3 billion now. Evraz costs about $8 billion. Yakubov estimates the just price of Severstal at $13 million and Chuiko estimates it at $15 billion. Chuiko says that Mordashov has chosen the moment for the IPO successfully. He adds that after the IPO Severstal will have the largest free float among Russian metallurgical companies exceeding $1 billion. If this happened before Mordashov could have coped with the deal with Arcelor.

In 2005, Severstal produced about 16 million tons of steel. In 2005, consolidated revenue of the group amounted to $11.6 billion and EBITDA amounted to $3.1 billion. An 89.13% stake in the parent company Severstal belongs to General Director of Severstal group Alexei Mordashov.
<ref>Vedomosti, October 09, 2006

[Rvrwind]

FORWARD MARKET MAY BE EQUALIZED TO CASINOS
The new bill on gambling may hit not only casinos but also the forward financial markets. Because settlement futures contracts are considered betting deals in Russia it will be impossible to sell such contracts via the Internet and exchanges will have to move to one of the four gambling zones.

Russian exchanges trade in settlement futures contracts (those that do not imply physical supply) for RTS index, oil and gold (FORTS), interest rates (FORTS and MICEX), as well as currency exchange rates (FORTS, MICEX, St. Petersburg exchange, St. Petersburg Currency Exchange).

After the crisis of 1998, Russian banks that did not wish to fulfill their obligations under settlement forward currency contracts with foreigners managed to persuade arbitration courts that these were betting deals that according to the Civil Code were not subject to judicial protection.

A source close to the Federal Service of Financial Markets (FSFM) reported that this circumstance froze development of the forward market in Russia for a few years. For solving the problem of judicial protection of settlement forward contracts the FSFM developed an amendment for clause “Organization of gambling and bets” of the Civil Code that passed the first reading in the Duma in June 2006. Ilya Yefimchuk, head of Derivative Expert agency, explains that according to the amendment although settlement derivatives are considered betting deals but are subject to judicial protection anyway. Yefimchuk adds that as a result derivative tools will be equalized to betting deals already not on the level of judicial precedents but on the level of the Civil Code. After appearance of the bill on state regulation of activity for organization and conduction of gambling this amendment threatens the entire market of derivatives the turnover of trade of which already reaches $500 million accounting for more than one-fourth of the Russian stock market.

Alexei Timofeev, CEO of the National Association of Stock Market Participants (NAUFOR), says that the bill may be applied to forward deals and to exchanges on which these deals are struck. NAUFOR indicated this problem in the letter sent to the FSFM on October 20.

According to the bill, gambling can be organized and conducted only on the territory of gambling zones (four such zones will be created) and organization of gambling with assistance of Internet is prohibited.

Hence, the forward market will have problems. Yefimchuk explains, “Exchanges and brokers will have to recall the old times of voice trade, although they will have to organize trading halls not in Moscow or St. Petersburg but in one of the four forest and steppe zones.” Andrei Belinsky, Executive Director of Olma, adds that investment companies and banks will have to hedge their risks on Western marketplaces, which contradicts the policy of the FSFM aimed at return of the Russian stock market to the country. Mikhail Temnichenko, director of the stock market department of the MICEX, comments, “I hope that the situation will not reach the point of absurd and the forward market will not be equalized to casinos.” President of RTS Oleg Safonov believes that the most efficient solution for the problem is amending the bill on gambling business.

NAUFOR proposes this in its letter to the FSFM. For example, it is possible to correct the definition of gambling and to stipulate that financial deals do not belong to gambling. Vladislav Streltsov, Deputy Director of the FSFM, reports, “We are actively working with parliament members and know that in the Duma there is a clear understanding of the ways to fulfill this legal and technical task. It is obvious for everyone that forward market as a mechanism of risks redistribution necessary for the economy cannot be equalized to roulette.”

The Duma will debate the bill on gambling business in the first reading on November 17. So, there is time left to make amendments.
<ref>Vedomosti, October 23, 2006

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FAR EASTERN SEA SHIPPING COMPANY TO CONDUCT IPO
The Far Eastern sea shipping company (FESCO), the third largest in Russia, starts preparing for IPO of its shares in London. The IPO may take place in spring 2007. In the framework of the deal investors will be offered up to 24% of the company’s shares and shareholders of FESCO will be able to receive $190-240 million for the stake.

FESCO is Russia’s largest maritime transporter of containers (the 39th largest in the world) operates 80 ships with deadweight exceeding 1 million tons. In the first half of 2006, revenue of FESCO according to international standards amounted to $247 million and net profit amounted to $53 million including $37.7 million received from sale of assets. About 82% of FESCO shares are controlled by Industrial Investors group of Sergei Generalov. Remaining shares are scattered among investment funds and private individuals. Capitalization of FESCO on the RTS amounts to $583.5 million.

A year ago, when the state retained 19.8% of FESCO shares, the shipping company tried to persuade state officials to sell this stake at the London Stock Exchange. The state officials did not dare to do this then and finally sold the state-owned stake at an auction for $140 million to the main owner of FESCO in the form of DVMP-Industrial Investors. At any rate, FESCO did not give up the plans of shares placing abroad.

FESCO chose its largest creditor ING Bank for the role of underwriter of the future IPO, reported a source acquainted with the course of FESCO preparation for the IPO. Recently, ING issued a $300-million credit to FESCO for partial financing of its latest acquisitions” a 50% stake in the railway operator Transgarant for $84 million and 50% stakes in two port terminals for $275 million. In its financial statements for the first half of 2006, according to international standards FESCO wrote that for repayment of this credit the company would issue bonds in the second quarter of 2007, and would place a part of shares. Consultants will determine the date of the deal later. So far, FESCO chose two dates, that is spring or autumn of 2007. The overall size of the stake offered to investors may amount to 25%. These will mostly or fully be newly issued securities.

A source close to FESCO confirms such plans too. The source states that Industrial Investors agree with reduction of its stake to 50% plus one share. Now FESCO is preparing an additional issue of shares for the deal with owners of Transgarant to receive remaining 50% of the railway operator in exchange for the shares. After placing the additional issue the stake of Industrial investors will decrease to 65.6%. It turns out that for preserving control, FESCO may offer not more than 23.8% of authorized capital after two additional issues to Western investors. Representatives of FESCO, Industrial Investors and ING Bank refuse to comment.

Experts approve the plans of FESCO because the latest deals have made it a diversified transport holding. First, henceforth placing the company’s shares does not depend very much on the freight rates, which have fallen significantly after their maximum at the end of 2004, says analyst Vitaly Baikin of investment company CenterInvest group. Second, if FESCO has a successful IPO on a Western marketplace it will grow more attractive for investors, adds analyst Rostislav Musienko of BrokerCreditService. In Russia shares of the company are not very liquid, are traded not very actively and the market has not even reacted to the latest acquisitions of the company. The IPO in London will not only increase liquidity of FESCO but will also help investors to understand that FESCO is not just a shipping company but a transport group with diversified business. Musienko presumes that in case of good organization of the IPO FESCO may count on evaluation at $0.8-1 billion (that is $190-240 million for a 24% stake). Representatives of the company believe that the company will cost not less than $1 billion, says a source close to FESCO.
<ref>Vedomosti, October 27, 2006

SHAREHOLDERS OF WIMM-BILL-DANN TO SELL 4.4 MILLION SHARES ON A RUSSIAN EXCHANGE
Shareholders of Wimm-Bill-Dann, Russian producer of juices and dairy products, are going to sell 4.4 million shares or up to 10% of the issues shares in the course of secondary placing on a Russian exchange. In its press release the company says, “Some shareholders of the company decided to take measures for increase of liquidity of Wimm-Bill-Dann shares on the Russian stock market through sale of up to 4,400,000 ordinary shares.”

The company itself will not sell shares and will not receive money from the public placement. The press release quotes David Yakobashvili, Chair of the Board of Directors of Wimm-Bill-Dann, as saying, “I do not sell shares but I support my long-standing partners in their wish to create additional liquidity of the company’s shares on the Russian market.”

Investment company Troika Dialog acts as book runner of the issue.

Now shares of WBD are traded at the New York Stock Exchange.
<ref>polit.ru, October 27, 2006

PIPE METALLURGICAL COMPANY PLACED SHARES AT THE UPPER BORDER OF THE PRICE BRACKETS
Pipe Metallurgical Company (TMK) determined the price of one share and one global depository receipt (GDR) placed in the course of the IPO at $5.4 and $21.6 respectively. The determined placing price is on the upper border of the price brackets announced by the company on October 18 and corresponds to the market capitalization of TMK amounting to $4.714 billion.

In the framework of the IPO TMK Steel Limited, the main shareholder of TMK, will sell 180 million of the company’s shares. The selling shareholder also gave an option for additional placing of 18 million shares for 30 days to its global coordinators. Simultaneously with the IPO TMK Steel Limited will sell additionally 2.65 million shares to employees of the company.

Taking into account the shares offered to employees of the company and taking into account fulfillment of the additional placing option the free float of TMK will amount to about 23% of its capital. If the option is fulfilled the IPO volume will amount to $1.083 billion.

The volume of the bids at the placing price exceeded the supply by more than 1,800%.

Credit Suisse, Dresdner Kleinwort and investment company Renaissance Capital acted as lead managers of the IPO.

Chair of the Board of Directors of TMK Dmitry Pumpyansky said, “We are satisfied with a high level of interest and participation of a broad circle of investors in placing of our securities. TMK enters a new stage of development in capacity of an international public company.”

TMK Steel is going to spend the proceeds on return of accounts payable connected with acquisition of 33% of the company’s shares from a minority shareholder including repayment of loans worth up to $780 million.

TMK manages Volzhsky, Sinarsky and Seversky pipe mills and Taganrog metal plant. In early March 2006, the company also closed the deal for acquisition from its shareholders of a 100% stake in Sinara Handel GmbH, owner of shares of Romanian plants ArtRom and Combinatul Siderurgic Resita. TMK is the largest pipe manufacturer in Russia. Its plants produce more than 44% of pipe in Russia including more than 60% of pipe for the oil and gas sector made in Russia. In 2005, the company produced 2.86 million tons of pipes including 740,000 tons of export.

Authorized capital of TMK amounts to 8.73 billion roubles. Overall, the company issued 873,000,000 ordinary shares with a par value of 10 roubles each.

In 2005, net profit of TMK according to international standards grew 840% to 7.597 billion roubles. Revenue of the company grew 40% to 79.175 billion roubles. EBITDA of the company amounted to 15.88 billion roubles against 6.942 billion roubles in 2004. In the first half of 2006, net profit of TMK according to international standards almost doubled to $229.05 million and revenue grew 9.6% to $1.576 billion from $1.438 billion.
<ref>AK&M agency, October 31, 2006

[Rvrwind]

SBERBANK PLANS AN IPO AT A RUSSIAN EXCHANGE
It seems that Sberbank wins the competition of the state-run banks for the right to be the first to conduct an IPO. Sberbank may offer its shares to investors already in February 2007, whereas Vneshtorgbank will be able to offer its shares not earlier than in May. To reduce the chances of foreign investors to collect a blocking stake Sberbank plans to place an issue of shares worth billions of dollars at a Russian exchange and to sell it to the population.

On October 23, Alla Aleshkina, Senior Deputy CEO of Sberbank, told analysts that Sberbank was considering a possibility of issue of additional shares. President of Sberbank Andrei Kazmin says that the Supervisory Board of the bank may consider this issue at the end of November. According to Kazmin, if the relevant decision is made the volume of placing will be very significant but smaller than $10 billion. He adds, “I think that demand for shares will be very high because the free float is small now. Shares of Sberbank are the leaders among the blue chips and investors sell them unwillingly. Thus, besides the other positive results of the IPO we will also achieve increase of free float and will increase liquidity of our shares.” According to Kazmin, the leading investment banks, hedge funds and private investors permanently turn to the bank with questions about the upcoming issue.

One of the members of the Supervisory Board says that the Board will approve the additional issue with a very high probability, “We already started discussion of technical details. The placing will definitely be public and there are simply no other options. Now we discuss the volume of the IPO.” Alexei Savatyugin, member of the strategic committee of the Supervisory Board of Sberbank and director of a department of the Finance Ministry, reported that management of the bank and the strategic committee already recommended the Supervisory Board approve the IPO. The sources did not name the size of the issue. However, Savatyugin promises that the sum will be huge for the Russian market.

The authorities are concerned about the big share of nonresidents in capital of the largest bank of Russia. A member of the Supervisory Board says, “According to the management, 25% of the bank’s shares already belong to foreigners. This stake can hardly be consolidated but the bigger the marketing part of the additional issue the bigger the probability that in the future foreigners will manage to consolidate this stake. On the other hand, shares may be bought by the Central Bank only on account of issue of roubles but the Finance Ministry is afraid that this will make an additional contribution to inflation.” Even if the Central Bank takes part in the IPO its stake in the capital of Sberbank will decrease, says the source. Savatyugin refused to comment on this saying only that purchase of new shares by the Central Bank should be determined at a meeting of the National Banking Council that did not discuss this topic yet.

One of the members of the Supervisory Board of Sberbank states that management recommends placing at one Russia’s marketplaces. The source explains, “This is simpler and faster. There will be no problems in attraction of nonresidents and they will buy our shares quietly.” According to the source, if the Supervisory Board makes a decision on additional issue in November, “in February shares will already be on the market.” Savatyugin said that management recommended placing the additional issue in the first half of 2007, “but we did not discuss the accurate time and the price yet.”

In this case Sberbank will outrun Vneshtorgbank that plans an IPO worth $4 billion. Kazmin states, “If we choose time for placing the placing will probably be conducted earlier than Vneshtorgbank plans. Thus, I do not think that we will clash on the market.” Earlier, President of Vneshtorgbank Andrei Kostin said that his bank might conduct an IPO already in May 2007. Vasily Titov, member of the Executive Board of Vneshtorgbank, did not wish to comment on the statement of Kazmin.

A source in the Supervisory Board says that the IPO of Sberbank will not become a really people’s IPO. The source explains that now one share costs about $2,300, which is not affordable for majority of Russians although shares will definitely be offered to them.

Investment bankers are convinced of huge demand for new shares of Sberbank. Kamran Ulukhov, Managing Director of UralSib, comments, “This is one of the most demanded shares and it will be bought.” Denis Kuznetsov, Vice President of the department of capital markets of investment company Aton, presumes, “February is a realistic time if we bear in mind that the share is already quoted at exchanges. Investors are already waiting for these shares.”

Dmitry Kulyashenets, trader of investment company Renaissance Capital, presumes that if the IPO is organized worldwide than in current market situation it is possible to sell shares worth even $8 billion. Jacques Der Megreditchian, Managing Director of investment company Troika Dialog, objects, “Here they will raise as much money as in the West.” Kuznetsov says, “Nonresident institutional investors will find a way to buy shares of Sberbank.”
<ref>Vedomosti, November 09, 2006

[Rvrwind]

ROSNEFT CAPITALIZATION EXCEEDED $100 BILLION
Rosneft grew 8 percent during November 9 and 10, on active buyout of stocks on LSE. The buyout did not look like speculative demand, analysts believe. The reasons could be an expected increase in company’s value thanks to the YUKOS takeover, the equally expected addition to Morgan Stanley indices or the possible consolidation with Surgutneftegaz.

Rosneft grew 8 percent, fueling capitalization to above $100 billion. The last deal on RTS on November 10 was clinched at $9.3 per a stock, while the company’s capitalization reached $105.2 billion, 1.5 fold above LUKoil. Of the amount, $15 billion was generated through subsidiaries' takeover.

The foreign traders accounted for the better part of agitation related to Rosneft. The company’s turnover was nearly $65 million on LSE on November 10. "There were several biddings for 5-6 million stocks," trader for Troika Dialog investment company Timur Nasardinov said. "This does not look like speculative demand," head of trading department for Prospekt investment company Nikolai Gusev said. The major part of Rosneft trading, the analysts say, was generated outside the exchange. It means the buyers could have attempted to benefit from some insider information, an unnamed source in a major investment bank says. The traders in Russia were also set in motion. On classic RTS, Rosneft sales that had never soared above $2 million in November, exceeded $5.7 million on November 10.

Asked to specify the insider information, the analysts came up with different ideas. Rosneft has been recently thought a frontrunner for refining assets of YUKOS. Should Rosneft take them over; its capitalization would stand at $110 billion, analyst for Aton investment company, Artyom Konchin estimates.

Another explanation could be adding Rosneft to Morgan Stanley’s indices – MSCI Emerging Markets, which the market forecasts to happen November 14 or in December.

But the most intriguing piece of news could be the merger of Rosneft and Surgutneftegaz, which has been long talked over on the market. In the oil community, however, they refute all rumors about forthcoming consolidation. “A month ago, General Director Vladimir Bogdanov blankly denied the possible sale of Surgutneftegaz. Nothing has changed, as far as I know,” said Surgutneftegaz briefer Raisa Khodchenko. Rosneft briefer didn’t confirm the consolidating rumors either.
<ref>Kommersant, 13/11/06

MAGNITOGORSK METAL WORKS PREPARES FOR IPO
The long-awaited IPO of the Magnitogorsk metal works (MMK) on a Western exchange will take place soon. Details of the IPO will be announced in spring 2007.

Igor Vier, Vice President of managing company MMK, announced the plans of MMK to conduct an IPO. Answering the question about the plans of listing the shares he said that already by April 2007, MMK would announce details of the upcoming IPO in London. Vier said, “This is a global serious work. The IPO will be announced by Aril 2007.” Along with this, Vier stresses that the company plans to actively increase its production: in 2007 it will produce 12.5 million tons of metal (11.4 million tons in 2006) including 7.5 million tons of product for the domestic market (6 million tons in 2006).

MMK was hinting at its wish to pass listing at a Western exchange for a long time but these plans were impacted by the unexpected worsening of the market situation. Due to this factor shareholders of MMK made a principal decision in summer 2005 not to sell shares cheaper than $0.70 a piece. However, in the process of the placing 2% of the company’s shares launched on the MICEX in summer, banks managed to collect twice as many bids as was needed at a price of $0.685-0.695 per share. That is why MMK had to postpone the placing on the MICEX and to forget about coming to the London Stock Exchange for a while. Shares of MMK are traded on the RTS.

The press service of MMK could not confirm the IPO plans of the company. Press secretary Elena Azovtseva explained, “Yes, our company has never hidden plans to come to Western exchanges and we have been trying to comply with European financial reporting standards for a possible IPO for a long time. However, decision on IPO has not been made yet and it is too early to speak about its details.” Meanwhile, some mass media reported that the IPO in London already acquired quite realistic traits for MMK. For example, Renaissance Capital, ABN Amro and Morgan Stanley were allegedly already chosen as organizers of the IPO. In any case, so far it is impossible to confirm or deny this information.

Along with this, the polled experts consider postponement of the IPO until 2007 to be quite explainable. Analyst Igor Nuzhdin of investment company Solid explains, “One of the reasons for postponement of the placing date may be a wish of MMK to prepare financial statements for 2006, results of which will not be bad. It is also simpler for investors to look at full-year financial statements than at interim results.”

Besides, according to Mikhail Pak from investment company Capital, the market is already saturated with IPOs of metallurgical and associated companies. In the last month alone IPOs were conducted by TMK, Chelyabinsk zinc plant, Raspadskaya and Severstal. The two latter IPOs showed that demand was only a little bigger than the supply. That is why postponement of the IPO would be quite logical. According to the expert, “Construction of rolling mill-5000 (only Severstal has a similar mill producing large pipes in Russia yet) may help MMK to score additional points in the struggle for investors.”

Having decided to conduct an IPO MMK will guarantee at least a year of quiet existence for itself without fear of unfriendly takeover. Analyst Yevgeny Bulanov of CenterInvest Group states, “The planned IPO may show that MMK is not going to consolidate with other metallurgical companies.”

MMK is one of Russia’s largest metal works. In 2005, MMK produced 11.3 million tons of steel. In 2005, revenue of MMK according to Russian standards amounted to 147.3 billion roubles. In 2005, net consolidated profit of MMK and its subsidiaries according to US GAAP amounted to $947 million. Dividends for 2005, exceeded $700 million. In the first half of 2006, net profit of MMK amounted to 15.53 billion roubles. At the beginning of 2006, 42.27% of MMK shares were managed by Mecom, 20.78% by Investment Company RFC, 33.93% by U.F.G.I.S. Structured Holdings Ltd and 1.91% belonged to private individuals. Management of MMK headed by Chair of the Board of Directors Victor Rashnikov is considered the main owner of the company.
<ref>Biznes, November 14, 2006

SBERBANK TO PLACE SHARES WORTH $6-8.5 BILLION
In February 2007, Sberbank plans to place shares worth $6-8.5 billion. The strategic planning committee of the Supervisory Board of the bank already approved this range. Majority of analysts and bankers presume that Sberbank will conduct this placing easily.

President of Sberbank Andrei Kazmin states that the issue of additional shares may be considered by the Supervisory Board at the end of 2006. Kazmin adds that the volume of the additional issue will not exceed $10 billion. Several members of the Supervisory Board of Sberbank report that the bank plans to conduct an IPO in Russia worth a “huge” sum in February 2007.

One of the members of the Supervisory Board of Sberbank reported that the strategic planning committee considered various options of IPO from 2.5 million to 3.5 million shares. As of November 15, one share of Sberbank cost $2,415 on the RTS, which corresponded to the sum of $6-8.5 billion for the entire bank. Another member of the Board reports that in its recommendations the committee indicated the optimal volume of the issue at $8 billion. Two other sources acquainted with documents of the strategic planning committee name the same sum. It corresponds to the value of 3.5 million of Sberbank shares as of November 1.

There was no IPO of this size in Russia before. The biggest IPO held only on the Russian market amounted to $367 million (the IPO of Magnit). Nonetheless, majority of observers are convinced that Sberbank will manage to raise this money inside of the country. Oleg Vyugin, Director of the Federal Service of Financial Markets, comments, “There is deficit of banking assets on the market and any portfolio investor would like to have a balanced country portfolio. Shares of Sberbank are liquid, tested by time and the bank has a good prospect, which is why investors will buy it with much pleasure.” According to Vyugin, if Sberbank had such a wish it could place also 4.7 million shares (the bank can conduct such additional issue through resolution of the Supervisory Board) worth $11.4 billion. One of the members of the Supervisory Board said that management of the bank proposed this very volume. However, Deputy CEO of Sberbank Alla Aleshkina announced that the additional issue would be smaller refusing to name its parameters.

Sergei Vasilyev, chair of the banking committee of the Federation Council, is convinced that $8 billion will be sufficient for Sberbank to increase capitalization. Vasilyev believes that it is possible to raise this sum from the Russian market and the Board will approve this volume. Vasilyev explains, “There is no need to hurry and if necessary it is possible to conduct another issue in a year or two.” Alexander Kantarovich, director of the analytical department of MDM-bank, presumes that it is better to split the issue worth $8 billion in two halves to place one half in Russia and the other half in the West. Kantarovich adds, “Mechanism for placing such a big volume in Russia is not clear to me. Placing in London would give a bigger guarantee of success.” He adds that Sberbank would become a real international marketing company.” David Nangle, analyst of investment company Renaissance Capital, comments, “I thought that the volume of the IPO would amount to about $5 billion. However, demand for shares of financial markets is big on the market now and I think that the placing of Sberbank will be successful.”

Investment bankers are already prepared to participate in organization of a record IPO. A top manager of a Western bank is convinced, “Of course, this IPO will attract all large investment banks.” Look at how well the IPOs of Chinese banks have passed, says Victor Nekrasov, head of investment bank Rothschild for Russia and CIS. According to Nekrasov, investors badly need to have large blocks of shares in anything except for the oil and gas sector. Nekrasov adds that Rothschild in partnership with ABN Amro will try to take part in organization of the IPO of Sberbank. At any rate, one of the members of the Board of Sberbank says that management of the bank does not plan to attract an investment bank for this purpose yet.
<ref>Vedomosti, November 16, 2006

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<tit>LSE TO TRADE IN FUTURES AND OPTIONS FOR GDRS OF RUSSIAN COMPANIES
Trade in global depository receipts (GDRs) of Russian companies on the London Stock Exchange (LSE) reached such volumes that the LSE decided that it would be possible to start trading in futures and options for GDRs of ten Russian companies. Market players expect that this will lead to bitter competition between the LSE and the RTS, the only Russian exchange that offers this instrument.

On November 29, the LSE and the largest Scandinavian exchange OMX announced launching derivatives for GDRs of ten Russian companies included in the electronic international order book (IOB) used for operations with GDRs at the LSE from December 1. The LSE will also launch calculation of indices of these instruments on the basis of FTSE Russia IOB index being also connected with GDRs of ten Russian companies. Among them are GDRs of Gazprom, LUKoil, Surgutneftegaz, Norilsk Nickel, RAO EES Rossii, Rosneft, NOVATEK, AFK Sistema, NLMK and Evraz Group.

Martin Gram, director for markets of the LSE, explains the decision made by the exchange saying that “implementation of new instruments will make access to derivatives of one of the largest and fastest developing markets in the world to a broader circle of players.”

Alexander Morozov, chief economist of HSBC bank, comments, “Among our clients there are those for whom this instrument may be extremely interesting because with its assistance they will be able to hedge their investments in shares of Russian companies.” According to Morozov, development of this market requires two or three years. Derrick Perlin, managing director for trade in shares of MDM-bank, is convinced that reaching turnover of trade in options amounting to $100 million will take more time. Perlin stresses, “This is at least three years or even five years.”

In any case, even during this period LSE may become a serious competitor for the forward market of stock exchange Russian Trading System (RTS) that is trading in futures for shares of the aforementioned companies, says Anatoly Aksakov, deputy chair of the parliamentary banking committee. He explains, “In England deals with derivatives are fully protected by law.” The Duma plans to settle all legal issues by the end of 2007, but time will be against Russian exchanges. Already now many Russian banks hedge their risks not on the RTS but on the Chicago Exchange.

Vice President of RTS Roman Goryunov states, “RTS is not afraid of competition. Success of the project in London is not obvious because the LSE is not among the leading exchanges for trade in derivatives.”
<ref>RBC daily, November 30, 2006

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<tit>GOLDMAN SACHS EXPECTS SIGNIFICANT GROWTH OF ECONOMIES OF BRIC COUNTRIES
Countries of BRIC group (Brazil, Russia, India and China) will be the most rapidly growing economies in the next two years. Goldman Sachs forecasts that between 2007 and 2008, GDP growth of BRIC group will amount to about 8.5% being twice as fast as on average in the world. Experts of Goldman Sachs are convinced that these countries will remain the most attractive for investors in the next decades. Rapid economic growth reflects financial markets of these countries that will remain super profitable a long time ahead.

Experts of Goldman Sachs calculated that since 2001, shares of companies of Brazil brought revenue of 165% to investors, companies of India brought 229%, companies of China brought 348% and companies of Russia brought 713%. Experts say that this is not the limit and growth will continue. Goldman Sachs is convinced that by 2050, the four BRIC countries will become the largest economies in the world outrunning majority of developed countries. Already now the share of BRIC countries in global economic growth amounts to one-third. In the last few years, their share in global GDP grew from 7.8 to 11%.
<ref>Biznes, December 12, 2006

<tit>ANALYSTS ARE CONVINCED OF BRIGHT FUTURE OF THE RUSSIAN STOCK MARKET
Analysts of Alfa-bank, Bank of Moscow, Troika Dialog, Citigroup and UBS are convinced that in 2007, Russian stock market will not frustrate investors. UBS forecasts that RTS index will reach 2,250 points. Shares of electric energy, oil and gas companies are the most promising and banking sector may become the hit of 2007.

The most optimistic forecast is provided by analysts of UBS, namely 2,250 points for the RTS index at the end of 2007. According to Vice President of the shares department of Citigroup Sergei Suverov, in 2007, RTS index will reach 2,200 points. Analysts of MDM-bank forecast 2,160 points and analysts of Alfa-bank forecast 2,150 points.

Analysts of all five investment banks unanimously call shares of RAO EES ($1 a piece on December 8, and the highest recommendation for 2007 from Troika Dialog - $1.30) and Sberbank (42,795 and recommendation of UBS - $3,200) the favorites. Analysts of four banks point at shares of LUKoil ($90.70, recommendation of Troika Dialog - $116). Shares of Gazprom ($11.73, recommendation of Troika Dialog - $15.75), AFK Sistema ($29.70, recommendation of Bank of Moscow - $40.99), MTS ($45.95, recommendation of Bank of Moscow - $67.15) and Norilsk Nickel ($154, recommendation of Citigroup - $185) are called attractive for 2007 by three banks.
<ref>Vedomosti, December 11, 2006

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<tit>FOREIGN INVESTORS BROUGHT SBERBANK TO THE GROUP OF 30 LARGEST BANKS IN THE WORLDForeign investors buying up shares of Sberbank brought it to the group of 30 largest banks in the world and made the fourth largest company in Russia according to capitalization. Although the reason for the growth is not finally clear yet, analysts presume that in a year Russia’s largest bank may cost almost $80 billion. Now investors at exchanges estimate Morgan Stanley ($83 billion) and Societe Generale ($76 billion) at such sums.

The Central Bank holds 63.76% of voting shares of Sberbank (60.57% of authorized capital). According to Sberbank, as of November 1, its capital amounted to 333.7 billion roubles and net profit amounted to 72.9 billion roubles. Among the largest private shareholders of Sberbank are Nafta-Moscow (about 6%), Inteco and Eurocement.

Since the beginning of December 2006, RTS index grew 3.6% surmounting the historic level of 1,850 points. This growth was partially facilitated by the dynamic of quotations of Sberbank shares. To surprise of investors, in a half a month the price of the shares grew 16.6% from $2,495 to $2,910. Oleg Vorotnitsky, senior trader of financial corporation UralSib, says, “What is going on is not logical. A big IPO is upcoming and it would be correct to wait for it and to buy only then.” In the middle of November, it became known that Sberbank was considering a possibility of issuing additional shares worth $6-8 billion in February. Dmitry Kulyashenets, trader of investment company Renaissance Capital, agrees with his colleague, “The price should if not fall then at least stand still because it is difficult to conduct an IPO worth a few billion dollars in local securities.”

Several polled traders deny deliberate buying up of Sberbank shares by one party. Vorotnitsky presumed that shares of Sberbank were bought by nonresidents. Among the clients of Vorotnitsky there were no local buyers. Denis Novikov, chief trader of investment company BrokerCreditService, agrees that quotations are increased by foreign brokers. Christopher Weafer, strategist of Alfa-bank, stated that Western funds had been increasing their positions in shares of Sberbank throughout the year. Between January and October, they increased their positions in these securities 80%. Zinaida Psiola, Vice President of the Swiss bank Clariden managing Clariden Russia fund, reports, “In my portfolio Sberbank occupies first position and its weight has been only growing throughout the year.” In the middle of November, one of the members of the Supervisory Board of Sberbank reported that the share of foreign investors in capital of the bank grew to 25% having grown 50% since summer of 2005.

At any rate, some foreign investors propose another version explaining the growth. A top manager of a large Western bank explains, “Some Russian players accelerate the market preparing for coming of new foreign investors.” According to the law, now non-residents have to obtain permits of the Central Bank for acquisition of any quantity of shares in a bank. Not everyone is prepared to trade according to these rules. As soon as they are abolished Sberbank will see inflow of new investors, says the source. The Duma already passed in the first reading the bill submitted by the government and abolishing permissive procedure for purchase of less than 10% of a bank’s shares.

Due to the efforts of investors since the beginning of the year ordinary shares of Sberbank grew 120% (in comparison to 63.6% growth of RTS index) and their aggregate value ($52.5 billion) exceeded the value of all ordinary shares of Surgutneftegaz. According to capitalization ($57.6 billion together with preference shares) Sberbank is $3 billion behind Surgutneftegaz yet. On December 12, Sberbank had 28th place among the largest banks of the world between Dutch ABN Amro ($57.8 billion) and Belgian Fortis ($53.8 billion). On December 12, ordinary shares of Sberbank grew more expensive by 1.7% to $2,910 at the RTS.

Many analysts are convinced that this is not the limit. Deutsche UFG increased the target price of ordinary shares of the bank to $3,600 and target price of preference shares to $65.40. This estimate corresponds to capitalization of Sberbank amounting to $71 billion. Dmitry Dmitriev from Deutsche UFG writes, “Despite that the Supervisory Board has postponed discussion of the additional issue of shares, we presume that the reasons for this delay are technical and the bank will soon receive a permit for issue of about 3 million shares worth approximately $8 billion.” After the additional issue capitalization of Sberbank will grow almost to $809 billion, which is more than the current value of LUKoil ($75.7 billion). According to Dmitriev, a large IPO will result in growth of liquidity of the bank’s shares, as well as its weight in MSCI indices. Along with this, business of Sberbank will grow rapidly because Russia’s largest companies are going to pursue an aggressive policy of acquisitions and increase of capital expenditures. Explosive growth of the retail portfolio of the bank will continue simultaneously.
<ref>Vedomosti, December 13, 2006

<tit>ROUBLE APPRECIATION MAY CONTINUE
Rapid rouble appreciation is gradually coming to an end. According to the Central Bank, in the first 11 months of 2006, real effective rouble exchange rate grew stronger by 7.7% against the basket of currencies. Most likely, the full-year appreciation will not exceed 8.5%. Thus, the Finance Ministry has good chances to fit the target figure of 9%. In any case, experts presume that it is impossible to expect significant slowdown of rouble appreciation in 2007.

The Central Bank reported that between January and November 2006, real rouble to dollar exchange rate was appreciated 14.9% and rouble to euro exchange rate was appreciated 6.6%. Strengthening of the real effective exchange rate against the basket of currencies of the main trading partners of Russia amounted to 7.7% in comparison to 10.5% in 2005. One of the main reasons for rapid rouble appreciation was high inflation. Thus, in 2005, difference between inflation in Russia and in economies of its main trading partner countries accounted for 7% of the 10.5% of rouble appreciation.

The Economic Development and Trade Ministry forecasts that in 2007, real effective rouble exchange rate will get appreciated 4.8% and inflation will amount to 6.5-8%. According to experts, almost a 50% slowdown of rouble appreciation in a year looks too optimistic.
<ref>Biznes, December 14, 2006

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<tit>INSTRUCTION OF THE PRESIDENT WILL POSTPONE THE IPO OF SBERBANK
On December 18, President Putin instructed the government to conduct a “people’s IPO” of Sberbank. This means that Sberbank will have to split its shares. Now one share of Sberbank costs $3,080. Experts are convinced that this procedure will postpone the IPO of Sberbank until the second half of 2007.

Sources in the Finance Ministry and Economic Development and Trade Ministry state that the idea of the so-called people’s IPO of Sberbank belongs to the Presidential Administration.

According to Dengi magazine, as of October 1, Sberbank was the largest Russian bank according to capital (326.4 billion roubles) and assets (3.155 trillion roubles). The Central Bank holds 63.76% of voting shares of Sberbank (60.57% of authorized capital). Remaining shares are dispersed among a few thousand shareholders.

Initially, Sberbank planned to place up to 4.7 million shares worth approximately $10 billion in the first quarter of 2007. On December 18, one share of Sberbank cost $3,080. Kirill Petrov, director of the department of operations on financial and stock markets of Binbank, presumes, “For private individuals to manifest interest in shares of Sberbank the shares should not cost more than $100 a piece.”

Decisions on split of shares should be made by the shareholders’ meeting of Sberbank. Given the current shareholding structure of Sberbank in which 40% of the bank’s shares are in free float the split will draw out preparation for the IPO.

Along with this, analysts believe that split of Sberbank shares will be taken positively not only by private individuals but also for investors. Alex Kantarovich of MDM-bank explains, “This will be more convenient both technically and psychologically.”

Besides Sberbank, President Putin also proposed inclusion of private individuals in the ranks of shareholders of Vneshtorgbank, Russia’s second largest bank. However, the situation with Vneshtorgbank is much simpler because 99.9% of the bank’s shares belong to the government. In the course of the IPO planned for May 2007, the bank may sell 20-22% of its shares for 90-120 billion roubles. According to President of Vneshtorgbank Andrei Kostin, up to 5% of the bank’s shares may be offered to the population. The price of Vneshtorgbank shares may amount to 0.071-0.085 rouble a piece.
<ref>Kommersant, December 19, 2006