02 June 2004 00:00
Market Insight: Property rights outshine crude in Russia
ByLine: Paivi Munter
Share prices in Russia, the world's second-biggest oil exporter, have fallen precipitously over the past six
weeks in spite of heady gains in the crude market.
The pullback follows increased concern among investors about property rights as the government's apparently
politically motivated feud with Yukos, Russia's largest oil producer, draws to a close.
Fears the government would force Yukos into bankruptcy shocked the market yesterday, leaving it at its lowest level
this year and 29 per cent below the record high hit less than two months ago.
The selling was sparked by a Moscow court ruling against Yukos on Monday that paved the way for the demerger of the
company and its peer Sibneft. The deal was struck last year before the arrest of Mikhail Khodorkovsky, the principal
Yukos owner, but Sibneft has since tried to have it annulled.
This leaves Yukos, which faces a $3.5bn bill on back taxes, under the threat of bankruptcy.
The company's shares sank 10.6 per cent to a two-year low yesterday, while the oil-heavy RTS1 index lost 4.13
per cent.
But what was more worrying was volatility in the foreign-listed shares of Gazprom, the state-controlled gas giant,
which suggested that previously sanguine international investors may be growing impatient.
Gazprom American Depositary Receipts fell as much as 12 per cent at one point following a press report citing a
senior company official as saying it would be ready to buy Yukos assets if they became available. Although the ADRs
later recovered, the volatility suggested nervousness among investors even about the companies benefiting from the
government's drive to increase state control in the energy sector.
Anton Khmelnitski at Brunswick Asset Management in Moscow said yesterday's moves in Gazprom were symptomatic of
a wider malaise.
"Russia's risk profile has started to depreciate. This is the strongest indication that the impact of the
Yukos affair is spreading."
Chris Weafer, chief strategist at Alfa Bank, said rumours were rife in the absence of a clear lead from the
government.
News from the several court cases against Yukos and its main proprietors make for confusing reading. Following
Monday's court ruling that went against Yukos, another ruling yesterday appeared to give the embattled company some
breathing space, saying it could not be forced to pay back taxes until its appeals had been heard.
The uncertainty has hit trading volumes, leading to exaggerated price movements. "There isn't a lot of hard
news, which is a perfect breeding ground for rumours," Mr Weafer said.
The Yukos affair has even hit Russian sovereign bond prices at a time when high oil prices are rapidly increasing the
government's budget revenues. According to Alfa Bank, an increase of $1 per barrel in the price of Urals crude over
and above the original $22 budget target adds an extra $1.5bn in budget revenues. The Urals blend is currently at an
average of about $30 a barrel, making for an additional $12bn in revenues.
Some investors have, however, kept their cool. Oleg Biryulov, manager of the JP Morgan Fleming Russia Securities
Fund, said he had recently been buying Yukos. "It's hard to explain that the Russian stock market is trading
at single-digit price-to-earnings ratios when the country is expected to get another investment grade credit
rating," Mr Biryulov said. "This can only be justified if property rights are being questioned and so far I
see no signs of that."
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