December 3 -         Yukos subsidiary Samaraneftegaz was slapped with an $8.5-billion-ruble tax bill for 2002. The company’s accounts for 2001 and 2003 are still under review.

December 6 -          Energy and Industry Minister Viktor Khristenko announced that UES assets will be divided up proportionally as early as the end of 2006. UES shares gained 77%.
                                - Gazprom and the Turkish gas company Botas signed a cooperation agreement.

December 7            - The investment bank Dresdner Kleinwort Wasserstein announced that it values Rosneft at between $5-6 billion.
                                - Gazprom announced plans to raise 10 billion euros in one-year unsecured syndicated credit on the foreign capital market in order to participate in the Yugansk auction. Gazprom stock gained 2.11%.

December 8           - The Federal Tax Service presented VimpelCom with a bill for back taxes from 2001 totaling $157 million. This news made the RTS Index lose 5.51% in a day and VimpelCom’s ADR fell by 21.7%.
—Gazprom’s board of directors approved of company’s participation in the December 19th Yugansk auction.

December 9           - MegaFon was presented with a back tax bill of 110 million rubles.

Last week was lively on the currency market. The dollar managed to lose ground rapidly versus the ruble and then just as rapidly gain it back. The decline came on Friday and Monday and as a result the exchange rate fell to its lowest level in four years, 27.84 rubles to the dollar. The ruble could have grown even more had the Central Bank not gotten actively involved in the market. Beginning on Tuesday, the dollar gradually gained back 19 kopecks, but the previous decline cancelled out this gain, making it seem like a mere market adjustment.

Prices were up on the federal ruble bond market. Short- and medium-term OFZ issues were in particularly high demand from investors. This trend will continue in the near future as banks buy bonds actively before the start of the New Year. For the week, the yield on GKOs and OFZs maturing in 2004 was 3.7% p.a., 7.6% for those maturing in 2010, and 7.9-10% for those maturing in 2018.

Two big events hit the corporate and municipal bond market this week and both of them came on Wednesday. The first big event came as three issues of Russian Railways (RZD) bonds placed for a record 12 billion rubles and at very good yields: one-year bonds at 6.7% p.a., three-year bonds at 7.9% p.a., and five-year bonds at 8.5%. Right after the RZD issues placed, news came about the VimpelCom tax bill, which led to a sharp decline on the market. The energy sector fared worst, while metal producers were spared. Municipal bonds could not withstand the local crash, either, and joined the general downward trend, though only with minor losses.

The foreign debt market saw a notable increase in Russian eurobond prices early in the week. However, the VimpelCom tax announcement was perceived very negatively by foreign investors and led to extensive sales. The situation is likely to stabilize in the near future and prices should begin to rise once again. For the week, Russia-30 bonds fell by 0.2% p.a. The bad news also had an effect on corporate eurobonds. VimpelCom’s seven-year bonds fell by 5% of face value, which equals a one-percent increase in yield at maturity.

The RTS Index fell by 8% last week to 546.11 points, lower than the level the index began the year at. Trading was slightly heavier than usual, while Wednesday saw record volumes at all the exchanges. News of new tax bills for Yuganskneftegaz and Tomskneft was overshadowed by similar claims against VimpelCom and MegaFon. Rostelekom (12.7%), Norilsk Nickel (12.7%), and Surgutneftegaz (4.8%) all lost. The blue chips grew, however: Gazprom gained 1.4%, RAO UES 1.9%, and Mosenergo 2.1%.

The Financier’s Date Book

December 15      Perm places 200 million rubles in bonds
                            Voronezh Province places 600 million rubles in bonds
December 16      Barnaul places 200 million rubles in bonds
December 19      Auction of the Yugansk stake