Russia 090423 Basic Political Developments

Russia's Magnit downgraded to hold by Citigroup

http://www.marketwatch.com/news/story/Russias-Magnit-downgraded-hold-Citigroup/story.aspx?guid={896FB429-EB2A-4FA2-B32B-49F9B20CF3CC}
By Polya Lesova

Last update: 3:38 p.m. EDT April 22, 2009

NEW YORK (MarketWatch) -- Citigroup downgraded the shares of Russian food retailer Magnit to hold from buy on Wednesday, citing "limited potential upside." Magnit was one of the best performing stocks in the Russian market since the beginning of the year -- it soared 40% since April 1 and about 100% year-to-date, said Marat Ibragimov, analyst at Citigroup, in a research note. "In the absence of any near-term catalysts, we believe the upside potential for the stock is largely exhausted," Ibragimov said. Magnit, which is based in the Russian city of Krasnodar, operates convenience stores and hypermarkets throughout Russia. Its shares are listed on the RTS and Micex stock exchanges in Moscow as well as on the London Stock Exchange.
Kommersant

Foreigners will not be able to buy Russian land in border areas

http://en.rian.ru/analysis/20090422/121252393.html

Finnish President Tarja Halonen has asked her Russian counterpart Dmitry Medvedev to allow Finnish citizens to buy Russian land in border areas. Although President Medvedev promised to look for a solution, members of the State Duma, the lower house of parliament, said there was no need to do this.

The 2000 Land Code stipulated a provision banning land purchases by foreigners in Russian border areas. This was done in order to convince the then influential Russian Communist Party to vote for the document.
"This ban could be lifted on the Russian-European border," Viktor Pleskachevsky, chairman of the State Duma's property committee, told the paper.
He said many land plots, including those in border areas, remained vacant, and that new owners would cultivate land and pay taxes to the benefit of the state.
"We are ready to quickly pass the relevant amendments. At any rate, we must act prudently," Pleskachevsky said.
State Duma deputy Konstantin Zatulin said it was unclear whether the Land Code could be amended in order to stipulate exclusive regional land sales to foreigners.
He said "it would be no better to allow Finnish citizens to buy land in Karelia than to allow Japanese citizens to buy land in the Kuril Islands."
"We could sell the Kuril archipelago to Japan, the Kaliningrad Region to Germany and those on the Russian-Chinese border to China, which is already buying our land through front companies," Zatulin said.
Konstantin Kosachyov, chairman of the State Duma's foreign affairs committee, said the sale of border territories could result in their loss because "border territories can be annexed by other states in certain conditions."

Railway transport plummets

http://www.barentsobserver.com/railway-transport-plummets.4582710-16175.html
2009-04-23

The railway transports of timber and wood products along the Russian Northern Railway line is down 24 percent this year compared with the same period in 2008.

According to Regnum, a total of 1340 tons of forestry goods were transported along the railway the first quarter in 2009, which is 23,8 percent less the same period in 2008.

The lower amounts of shipped timber goods is a direct result of the economic crisis, Severinform.ru reports. The crisis has significantly lowered demands for Russian timber goods in Finland, Severinform.ru reports.

Saturn Bid Delayed

http://www.themoscowtimes.com/article/1009/42/376507.htm

The Federal Anti-Monopoly Service said Wednesday that it would wait until June to consider state-owned Oboronprom's application to acquire 75 percent of engine maker Saturn.

The service postponed a decision so it could gather and consider all the necessary information, a spokeswoman said. An Oboronprom spokesman confirmed that it had applied earlier this month but declined to comment on the postponement.

Oboronprom controls 37 percent of Saturn, and its CEO was appointed deputy chairman at Saturn last month. Saturn, which designed the engine for Sukhoi's Superjet, has been under fire since Finance Minister Alexei Kudrin criticized the firm's management last fall. (MT)

Russian Arctic helicopter company for sale

http://www.barentsobserver.com/russian-arctic-helicopter-company-for-sale.4582708-16175.html
2009-04-23

The Russian state is selling shares in the Naryan-Mar United Air Fleet, the biggest helicopter company in the Nenets Autonomous Okrug.

An auction on the company sales will be held on 4 May, Regnum reports. The sales come after a Russian federal decision on company privatization made late December last year, Severinform.ru reports.

The Naryan-Mar United Air Fleet controls major parts of air traffic in the Northwest Russian Nenets Autonomous Okrug. The oil-rich region in the Russian North has no roads leading to neighboring federal subjects and is therefore dependent of aircraft and helicopter transport.

A total of 840 people work in the company.

Ingosstrakh Notes Skyrocketing Fraud

http://www.themoscowtimes.com/article/600/42/376514.htm
23 April 2009

By Jessica Bachman / The Moscow Times

Insurance fraud hit a high in the first quarter as a growing number of individuals felt compelled to take criminal measures to avoid paying off loans, Alexander Grigoryev, chairman of insurer Ingosstrakh, told journalists on Wednesday.

Grigoryev said arson property-loss claims are up fivefold this year and estimated that 80 percent of them are fraudulent.

"If we used to receive claims for one burned-down warehouse, now we are receiving five," he said.

In almost all instances of fraud, the insured property was bought on credit, and the borrower likely couldn't handle the payments, Grigoryev said.

A devalued ruble, climbing unemployment and salary cuts have caused loan-default rates to mushroom in the first quarter. The country's top banks are forecasting a second wave of banking defaults, as overdue loans are expected to constitute 10 percent of banks' portfolios by the end of the year.

"If a guy has a car that's three years old and he has a car loan in dollars, well, if the car 'burns up' it's an insured accident. The insurer pays the bank for the remainder of the loan and the owner is off scot-free," Grigoryev said. "Later, he can apply for another loan because his credit history is unscratched."

And it's not only cars going up in flames this year.

"Most interesting," he said, was the spike in arson claims for insured freight and other retail goods.

"There was a refrigerating unit that stored frozen meat products. It burned up, burned to the ground," Grigoryev said, adding that the refrigerating unit was set to minus 18 degrees Celsius.

"Tell me, how can a freezer set at this temperature just burn up on its own? It can't. It's impossible, there isn't enough oxygen for anything to burn, but somehow it did."

Grigoryev also said Ingosstrakh should be valued at $4 billion to $5 billion if its majority shareholder, Oleg Deripaska, were to consider selling his stake in the company.

He dismissed comments by the director of Generali, an Italian firm that owns 38 percent of Ingosstrakh, who said the company would pay 300 million euros ($388.4 million) if it decided that it wanted a controlling interest.

"This is a ridiculous figure ... and it does not reflect reality," Grigoryev said.

"[Generali] needs to understand how to go about negotiations with a serious majority shareholder and understand the real value of the company."

In a recent interview, Pyotr Aven, the head of Russia's largest private lender Alfa Bank, said the bank is ready to restructure Deripaska's $800 million of debt if the businessman puts up his stake in Ingosstrakh as collateral.

Evroset Appoints VimpelCom’s Alexander Malis as President

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aeZQU069928U

By Maria Ermakova

April 23 (Bloomberg) -- OOO Evroset appointed Alexander Malis, head of broadband development at OAO VimpelCom, as president, Ulyana Smolskaya, a spokeswoman for the mobile-phone retailer, said by phone from Moscow today.

To contact the reporter on this story: Maria Ermakova in Moscow at [e-mail]

Last Updated: April 23, 2009 02:07 EDT
MTS vs. Vimpelcom: Vimpelcom winning the retail war

http://businessneweurope.eu/users/subs.php

Unicredit, Russia

April 22, 2009

Russian SIM card statistics for March 2009 showed Vimpelcom outpacing MTS in net card additions for the third month in a row. Vimpelcom gained 1.7mn new subscribers in 1Q09 vs. 0.5mn for MTS and 0.7mn for Megafon, despite being the only cellular provider to raise base service tariffs from March.

We believe Vimpelcom's 49% stake in Euroset is an important driver of its superior growth in Russia vs. MTS, which is likely to continue. Given the mobile services industry is continuing to grow despite the overall weakening economy, with 8.3mn net adds in 4Q08 and 3.0mn 1Q09, Vimplecom's exposure to Euroset, Russia's largest retailer, with a market share of approximately 40%, gives it an excellent opportunity to continue eating into MTS' share of subscriber additions.

Despite a more extensive TV advertising campaign for its new tariff initiatives in 1Q09, MTS' share of SIM card additions halved from 33% in 4Q08 to 16%, while Vimpelcom's share rose from 31% to 57% over the same period. According to an Admonitor study of TNS data, the total volume of MTS ad spots increased 36% q-o-q to 3,700 minutes in 1Q09, while Vimpelcom reduced its advertising activity by 44% from 4Q08 to 1,600 minutes.

We expect the Euroset factor to strengthen in 2Q09-3Q09, as MTS fully severed its relationship with the retailer in mid-April and several of Euroset's retail competitors went bankrupt amid tight market conditions, including Dixis, Betalink, Cifrograd and Svyaznoy, increasing Euroset's market share.

Vimpelcom's top-line potential for 1Q09-2Q09 vs. MTS is even higher given its recent tariff increases. While all "Big Three" operators raised their roaming tariffs in mid-1Q08 in an effort to compensate for the weakening ruble, Vimpelcom was the only one to increase its local and VAS tariffs across the country (Vimpelcom announced a selective price rise from 25%-50%, which we estimate translates to an effective APPM rise of around 15%). MTS and Megafon limited their tariff initiatives by selective tariff rebalancing. Although Vimpelcom's tariff increases risked possible client migration to MTS and Megafon, 1Q09 SIM card statistics showed the company's net subscriber adds actually rose during the quarter.

We expect MTS to underperform Vimpelcom in the short term. We believe the market might expect a weakening of MTS' subscriber numbers and market position, which suggests weaker 1Q09 and 2Q09 results for MTS (due in June and August 2009 respectively) compared to Vimpelcom, and should drive underperformance in the stock.

Although Vimpelcom is a strong Buy on operations, the shareholder conflict means it is only for the brave. Last week the Moscow arbitration court heard Telenor's appeal to overturn the Tyumen court's refusal to suspend the order that Telenor sell its stake in Vimpelcom.

The court decided to revisit the case on April 30, asking Vimpelcom to attend the hearing and state its position on the matter. Thus, the sale of Telecnor's 29.9% stake via auction is unlikely to be completed in less than a month, and we see a risk of high volatility in the stock over this period. However, we reiterate our view that Telenor's potential exit from Vimpelcom would likely be positive for the company's fundamental value in the long run.

We recommend investors who believe the negatives of the shareholder conflict are already in the price play Vimpelcom on its stronger operational positioning vs. MTS. We have a Buy recommendation for Vimpelcom, with a 12-month TP of $11.6.

Billionaires Disappear From Russian Art Auction at Sotheby’s

http://www.bloomberg.com/apps/news?pid=20601088&sid=aRPxr2jzZbrQ&refer=home
By Katya Kazakina

April 23 (Bloomberg) -- An ornate silver and enamel punch bowl and ladle produced in Moscow by jeweler Feodor Ruckert around 1910 sold for $482,500 yesterday, more than double its estimate at Sotheby’s in New York.

Mostly, though, prices were distinctly cooler in the morning and afternoon sessions devoted to Russian art.

Total sales of $13.8 million fell short of the high estimate for $17.5 million. Of the 308 lots, 35.1 percent failed to sell.

The global economic crunch has taken a toll on the number of ultra-rich wishing to acquire symbols of taste and luxury. Moscow has 32 billionaires, down from 110 a year ago, and the 100 richest Russians have lost 73 percent of their wealth last year, according to Forbes Russia magazine.

The punch bowl, which had a presale high estimate of $200,000, stood out in the second part of yesterday’s sale, shining brightly amidst an assortment of Faberge pieces and icons.

The priciest Faberge piece -- a silver toiletry set that once belonged to Russian Prince Gorchakov -- failed to sell. It was estimated to fetch between $300,000 and $500,000.

“For the current economic climate, the results are good,” said Natalia Kolodzei, executive director of the U.S.-based Kolodzei Art Foundation, which promotes Russian art.

“If we saw such results a year and a half ago, it would have been a catastrophe,” she said.

Father and Son

Only two lots topped $1 million. Among them was “Columbus Sailing From Palos,” an 1892 seascape by Ivan Aivazovsky, which fetched $1.6 million.

Works by Nicholas Roerich and his son Sviatoslav attracted active bidding in the morning. Their decorative landscapes and portraits featured striking color combinations and exotic settings.

The senior Roerich’s “Secrets of the Walls” (1920), a small-town scene, fetched $530,500, more than double its high presale estimate of $200,000. Yet his “St. Mercurius of Smolensk,” a vibrant 1919 painting that was featured on the catalog cover failed to sell.

Roerich Junior’s “Three Boddisatvas” (1920s) sold for $266,500, more than three times its high estimate of $80,000, setting an auction record for the artist.

A year ago, Sotheby’s took in $46.5 million on 386 lots of fine, contemporary and decorative Russian art over two days.

“To me, the economic crisis is a gift,” said Georgy Khatsenkov, a Monaco-based collector. “I bought a couple of paintings at lower prices than I had expected.”

Melancholy Nude

Khatsenkov placed a winning $110,000 bid for Pavel Tchelitchev’s melancholy male nude from 1926 and another one, at $37,500, for Dmitri Krasnopevtsev’s canvas depicting an old stove.

Quality was also an issue with bidders.

“There are no masterpieces,” said Alexandre Gertsman, a private New York art dealer, who said that unlike previous seasons he had decided against consigning works.

“It’s not the right time to sell strong works,” he said. “I don’t want to give them away at low prices and I don’t want to risk not selling them.”

Aivazovsky’s “Columbus Sailing from Palos” sold after vigorous bidding between two men in the room. The victor, a dark-haired man in a blue-and-white yarmulke, declined to identify himself. He said he was a New York-based collector.

Father of Futurism

The work depicts the explorer’s departure from Spain in 1492 and appeared at the World’s Fair in Chicago in 1893. It was subsequently acquired by heiress Marjorie Merriweather Post.

David Burliuk, who is known as the father of Russian Futurism, was represented by three canvases. “Blue Rider” was put on the block by the Hirshhorn Museum and Sculpture Garden to benefit its acquisition program, according to the catalog. It sold for $302,500 against the presale estimate of $100,000 to $150,000.

Contemporary art works by Grisha Bruskin and conceptual duo Komar and Melamid also didn’t attract buyers.

Prices include a buyer’s premium, or commission, of 25 percent of the hammer price up to $50,000; 20 percent, from $50,000 to $1 million; and 12 percent, above $1 million. Estimates don’t include the commission.

To contact the reporter of this story: Katya Kazakina in New York at [e-mail].

Last Updated: April 23, 2009 00:01 EDT