Property rights overshadow crude revenues in Russia MARKET INSIGHT:
ByLine: By 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 Dollars 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 Dollars 1 per barrel in the price of
Urals crude over and above the original Dollars 22 budget target adds an
extra Dollars 1.5bn in budget revenues. The Urals blend is currently at an
average of about Dollars 30 a barrel, making for an additional Dollars 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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RUSSIA IN FACTS
