July 1        - The Tax Ministry made new demands on YUKOS to the tune of 98 billion rubles after reviewing the company’s 2001 taxes.
                  -  Ernst & Young refused to certify Tafneft reports for 2003 according to international standards of financial accounting (ISFA). The company’s shares lost 5.6%.
                  -  OMZ released its results for 2003 according to international standards of bookkeeping and demonstrated earnings and gross profit growth.
                  -  OMZ and Power Machinery (Silovye Mashiny) cancelled their crossholding deal. 
                  -  LUKoil releases its first quarter results according to US GAAP.
July 2        - Standard & Poor’s lowered YUKOS’s credit rating from CCC to CC.
July 3        - Law enforcement officials search YUKOS headquarters.
July 5        - YUKOS received default notification of $1 billion from a consortium of creditors. The company’s stock fell by 6.6%.
                  - Gazprom signed an agreement to increase natural gas transportation via Ukraine in 2005.
July 6        - Standard & Poor’s announced that it does not plan to raise Russia’s sovereign rating in the near future.
July 7        - Mikhail Khodorkovsky recommended handing over the shares of YUKOS’s main shareholders to pay back taxes. The company’s stock gained 12.4%.
                  - The Central Bank decided to lower the mandatory deposit rate to 3.5% in order to stabilize the banking sector.

Trouble in the banking sector caused the dollar exchange rate to break out of the customary 29.02-29.04 rubles to the dollar range. The dollar gained 7 kopecks over the week, climbing to 29.10 rubles to the dollar, the highest rate in the last six months. It seems highly likely that the ruble will continue to fall in the near future, despite the influx of oil dollars into Russia and the dollar’s shaky position on world exchanges. The lower mandatory deposit rate frees up around 110 billion rubles, and some of this money will undoubtedly end up on the currency market.
On the ruble debt market, quotes fell significantly. Most likely, banks tried to get rid of their longs on the securities market to improve ruble liquidity. For the week, GKO-OFZ bonds lost an average of 80 basis points, falling back to mid-June levels. At the July 7 auction to place an addition issue of OFZ-AD bonds, only slightly more than 20% of the offered securities sold despite the record-high premium offered by the Finance Ministry.
The corporate and sub-federal bond market saw the largest declines last week. Prices for corporate bonds fell more than 1.5% for the week, while municipal bonds fell by an average of 1.2%. Liquidity on the market remained low and as a result the market was volatile. Out of the auctions planned for the week, Irkutsk Province did not hold its auction and Sibirtelekom’s bonds forced the yield on telecom issues in circulation upwards to 12-12.5% p.a.
Tensions in the banking sector and the shifting news surround YUKOS led to a further decline in Russian eurobonds. Standard & Poor’s announcement that the agency was not prepared to raise Russia’s sovereign rating in the foreseeable future added to the negative atmosphere. As a result, Russia’s spread increased from 306 points early in the week to 329 at week’s end. Prices on Russia-30 bonds fell to 90.7% of face value. Russian corporate and bank bonds also performed poorly on foreign markets. The yield on Alfa Bank and MDM Bank eurobonds rose by 3.3% and 2.8% respectively due to bad news from the banking sector.
Trading on the stock market was extremely tense. All the market indices rose and fell along with YUKOS’s fortunes. The RTS Index fell from 585 to 560 points but by the end of the week it had risen to 573.9. Tatneft and Mosenergo ended up as this week’s outsiders, losing 11.3% and 7.8% respectively. LUKoil, Surgutneftegaz, and Norilsk Nickel ended up ahead of the game, gaining from 0.4%-1%.

The Financier’s Date Book

July 19 Irkutsk Province plans to place 150 million rubles in bonds
July 21 OPEC meets

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