31 October 2003 01:52
Stocks slide further 8% on uncertainty over future of property rights MARKET REACTION:
Russian financial markets reacted with alarm yesterday to news that the
government had impounded 44 per cent of shares in Yukos.
The Russian stock market fell 8.1 per cent, bringing losses since the arrest
of Mikhail Khodorkovsky, Yukos' major shareholder, last weekend to 16.5
per cent. Shares in Yukos have fallen 25.8 per cent this week.
The slide in share and bond prices comes just weeks after Moscow's stock
market breached the highs recorded before Russia's 1998 financial
crisis.
It also follows a move this month by Moody's Investors Service to raise
the government's credit rating to investment grade, a development that
opened Russian financial markets to a new class of international investors.
Moody's said the conflict between the authorities and Russia's
biggest company did not constitute grounds for a change in its Baa3 credit
rating or stable outlook for the sovereign debt. The agency, instead,
emphasised Russia's robust public finances.
Jonathan Schiffer, lead analyst for Russia, said: "To service the
government's traded debt - about Dollars 40bn - in the next three to
four years will take no more than 3-6 per cent of the central
government's revenues. We consider this to be an investment grade
risk."
The seizure of Mr Khodorkovsky's shares yesterday, pending criminal
investigations, raised fears on property rights and potential for revisions
in privatisations of state assets in the 1990s.
Philip Poole, emerging market research head at ING Financial Markets, said:
"The question is whether this will become a general redistribution by
the Kremlin. The key point is so far this hasn't been extended beyond
Yukos and Khodorkovsky."
Yukos is the biggest Russian company by market capitalisation and trading in
its shares regularly accounts for about one third of the market's
trading volume.
Trading in the international bonds of Russian companies fell to a trickle as
uncertainty about property rights prompted investors to withdraw from the
market.
Prices for the government's international bonds also fell, albeit less
severely, given Russia's strong public finances and a widespread
perception that the conflict between the authorities and Yukos would be
contained.
The rouble, however, hardly moved - because of intervention by the central
bank to support it.
Yesterday's developments took the markets by surprise, considering that
equity prices had recovered some of the losses sustained immediately
following Mr Khodorkovsky's arrest.
Dominique Audin, senior investment manager at Pictet, the Swiss fund manager,
said: "It appears to be a lot worse than people were expecting. What is
going to happen to the companies that were moved to private ownership through
the loans-for-shares schemes in the 1990s is a difficult call."
Edward Parker at Fitch, which rates Russia at the top speculative grade
category, said: "There are significant structural weaknesses and
political risks in Russia, which reinforce our view that an investment grade
rating is premature." Additional reporting by Adrienne Roberts
[FTI [The Financial Times]] |
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