May 14_ 2008 - BNE by jianglifang


									                                                                       May 14, 2008

This is bne's Russia daily newsletter, a list of the top stories and analysis. You can
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1. Government changes; few surprises - ready for next phase
2. Medvedev forms his administration
4. Putin tells shipyards to build energy carriers
5. Gazprom boost gas production by 2% in 4 months
6. Lower IPO Volumes Likely to Support Russian Market
7. Market Overview: Slight easing ahead of inflation report
8. Rosneft: Threatened license withdrawal no more than a reprimand
 RBL On the website today
9. Sow now to reap agro profits
10. Aeroflot to purchase Dalavia
11. Fitch Ratings downgrades Sistema-HALS' outlook from Stable to
12. LSR Group acquires land plot at Leningradskoe Highway
13. Mosinzhstroy publishes RAS FY07 financials
14. Raven Russia pre-lets warehouse development to global logistics
15. Sistema to cooperate with DAS Holding
16. Sitronics' telecom solutions division wins EUR40mn contract
17. URSA Bank starts raising syndicated loan for $50mn
19. Gazprom Neft may disappoint with dividends
20. Kazan Helicopters publishes FY07 financials
21. Rhythm releases RAS FY07 financials

                     RBL TOP STORY
1. Government changes; few surprises - ready for next phase
May 14, 2008

A few surprises, mainly positive. The new cabinet announced on Monday provided a
few surprises - mainly positive - but generally the structure is very much in keeping
with the expectation that the government will now press ahead with the next phase
of the Putin plan. That means a greater focus on investment, and advancing the
reforms required to improve the business and investment environment. (For further
details see our note published yesterday.)

 Positive for the oil industry, particularly Rosneft. The new cabinet structure is a net
positive for the equity market and has helped lift the RTS above the 2,300 level for
the first time since mid-December. At Monday's close the market was less than 2%
off its record high on 12 December 2007. The changes should also be very positive
for the oil sector, as Igor Sechin's appointment greatly strengthens the lobbying
power of the industry, and is particularly positive for Rosneft. The appointment of
Sergei Naryshkin, who is deputy chairman of Rosneft, as Dmitry Medvedev's chief of
staff, also improves the outlook for the industry and for Rosneft in particular.

2. Medvedev forms his administration
May 14, 2008

Yesterday (13 May), President Dmitry Medvedev made several appointments to his
administration. The recently inaugurated president selected six aids, five advisors, a
press secretary and a head of protocol. Most of the presidential aids have been
reappointed from Vladimir Putin's presidential administration, including Arkady
Dvorkovich, who headed the president's expert division and Dzhakhan Pollyeva who
was Putin's speechwriter. Among the five advisors, two also come from Putin's
administration (Yuriy Laptev - cultural issues and Veniamin Yakovlev - judicial
system issues). Two former ministers Leonid Reiman (IT and telecommunications)
and Mikhail Zurabov (healthcare) are among the newly appointed advisors.

On Monday, Medvedev appointed Sergey Naryshkin, who served as deputy prime
minister in Zubkov's government, as head of the administration. The seats of the
deputy heads of the administration will be held by representatives of Putin's
administration. These include First Deputy Head Vladislav Surkov and two Deputy
Heads of the Administration Alexey Gromov and Alexander Beglov.

May 14, 2008

Prime Minister Putin has decided to split the Industry and Energy Ministry into two
separate bodies, while at the same time closing the Federal Energy Agency.

Sergei Shmatko, the former head of Atomstroiexport, has been appointed to lead the
new Energy Ministry. UES was surprised by the appointment of Shmatko, having
expected the appointment of Dmitri Akhanov, head of the old Federal Energy
Agency, Interfax reported yesterday. Still, the company was reportedly pleased with
the reform, especially while UES is being restructured.

We believe that the creation of a dedicated Energy Ministry,rather than keeping its
functions part of a larger body, is good news for the electricity sector. It appears that
the new ministry will take over therole of sector supervisor from UES, after the
company is broken up later this year. At this point, it is difficult to draw conclusions
about Shmatko,as this is a new role for him (Atomstroiexport is a general contractor
forthe construction of nuclear power plants abroad). It remains to be seen what
Shmatko's team will look like, and whether Akhanov will join it and contribute his
knowledge and experience of the sector.


Prime Minister Putin yesterday nominated Igor Shegolev to become the new
Telecommunications and Mass Media Minister. The news is mildly positive for the
sector, as the notorious Leonid Reiman has left the position. We expect the new
minister to have a more independent and less biased approach to handling sensitive
issues such as frequency distribution (positive for VimpelCom), and he may take a
fresh look at Svyazinvest's privatization (which would be positive for Comstar-UTS).

Our assessment could be overly optimistic, though. Shegolev seems to come from
inside Putin's team (since 2000), which is known for its attempts to centralize the
power vertical in Russia. The question here is whether this could mean further
"centralization" of control over the country's telecom sector. It is also uncertain
whether Shegolev will replace the favoritism that flourished under Reiman (but still
left room for market forces in the mobile sector) with more state control (in which
case Svyazinvest's sale might again be delayed again), or with more liberal, pro-
market regulation (in which case it would still happen).

On another note, the new minister seems to have no background in the telecom
sector, but plenty in mass media. He has linguistic training, and has worked as a
journalist; in 1998-99, he was a government representative for Russia's largest TV
channel, Channel One. This begs the question of whether his primary task is to
supervise the TV and mass media segments or the telecoms sector. In this context,
we would not rule out Reiman re-emerging as Shegolev's deputy

4. Putin tells shipyards to build energy carriers
May 14, 2008

Prime Minister Vladimir Putin said May 14 that the purpose of naval yard reform was
to build a tanker fleet for Russia's energy sector. In the course of reshuffles
connected with his move to head the government, he appointed close ally Igor
Sechin deputy prime minister in charge of industry and chairman of the board of
state-owned holding company United Ship-building Corporation.

"The principal direction is the creation of a complete line of ships and equipment to
extract and transport oil and gas from offshore deposits. This includes drilling
platforms, ice-class gas carriers and icebreakers," Putin told a meeting of top officials
in St. Petersburg, May 14, according to Reuters.

"In the past 10, years only 6 percent of ships ordered by Russian owners have been
built at national docks," Putin told the meeting.

A federal program has been launched worth R136bn rubles ($5.71bn) to refloat the
sector under the umbrella of a newly created state shipbuilding corporation.

Deputy Prime Minister Sergei Ivanov who has spear-headed the economic
diversification drive, which includes along side ship building aircraft and helicopter
construction and nanotechnologies, said at the same meeting:

"We will start from western Russia," Reuters cited Ivanov as saying. "Priorities have
been decided - this is maritime equipment for sea shelf deposits ... We have enough

Industry and Trade Minister Viktor Khristenko said private companies were keen to
participate, according to Reuters. He mentioned a plan to build new dockyards in the
area proposed by Bank Rossiya, controlled by Yury Kovalchuk, said to be close to

Khristenko said that in Russia's Far East, South Korean shipbuilders could collaborate
in building a new shipyard. Russia's main offshore oil reserves are located on the
Pacific shelf.

St. Petersburg's Admiralteiskiye Verfi shipyard will deliver the first oil tanker for
Gazprom's Prirazlomnoye offshore field by November, an official said Tuesday, as the
world's biggest gas producer develops a fleet to transport energy resources in the
Arctic, Bloomberg reported.

The ice-class tanker, the Mikhail Ulyanov, has a deadweight of 70,000 tons and will
be ready by November, said Andrei Veselov, the chief of ship construction at
Admiralteiskiye Verfi, according to Reuters.

Kommersant reports today, however, that the formation of the United Ship-building
Corporation (USC) is still bogged down. The USC had had problems from the very
start over a year ago, and has already changed general director once. Kommersant
now reports that there are rumours that current director Yury Yarov will soon be

replaced by Andrei Dutov, until this week head of the Federal Agency for Industry,
which was disbanded this week.

                         RBL NEWS
5. Gazprom boost gas production by 2% in 4 months
May 14, 2008

Gazprom produced 199.4 billion cubic meters of gas in January-April, provisional
results state. Gazprom told Interfax that this was 4.2 billion cubic meters (2.2%)
more than in the same period of last year.

6. Lower IPO Volumes Likely to Support Russian Market
May 14, 2008

> A reduction in IPO volumes by 30% is likely to be supportive for the market. We
are downgrading our probability-weighted forecast for IPOs and SPOs in Russia this
year from $38 bln to $26 bln on the back of global market weakness. This implies a
30% fall over our forecast at the start of the year and a 17% drop in the volume of
IPOs compared with the record levels in 2007.

> Sectors hit by the credit crunch are the most affected. We mainly reduced our
capital-raising forecasts in the real estate, financial, media and consumer sectors. In
addition, the delay of the UC RusAl IPO has reduced the volume of initial offerings in
the metals sector significantly. Other major IPOs that we no longer anticipate taking
place this year are those of SU-155, Russian Land, KIT Finance, Euroset and Prof-

> But infrastructure sectors are increasing their capital raising. We have upgraded
our forecast level of IPOs in the infrastructure sectors: in telecoms (where we expect
Megafon's listing to be larger than we did previously), in utilities (OGK-1) and in
transport (Far East Shipping). Other expected IPOs that we have included are
UralChem and Tractor Plants.

> Private placements have become an IPO alternative. Facing stock market
weakness, some companies are carrying out private placements as an alternative to
IPOs. This effect is especially important in the financial and consumer sectors, where
companies are still fundamentally attractive but suffer from market volatility.

* Top IPOs for 2008. We now expect the Megafon IPO to be the largest this year at
around $6 bln. Other big deals for 2008 are Metalloinvest ($3 bln), Gazprombank,
Mechel's carve-out of some of its coal and mining assets into "Mechel Mining", and
OGK-1 ($2 bln each).

7. Market Overview: Slight easing ahead of inflation report
May 14, 2008

 Bourses likely to start of lethargically. The local markets are likely to follow the
Asian trend today with a pull-back at the opening this morning. This is because the
US markets did not hold onto the opening strength that helped push Russian indices
higher into the close yesterday. But any weakness is not expected to be significant,
as the price of oil traded at yet another record high yesterday. The main item facing
investors today will be the US inflation report. From that traders will base their view
of the US dollar, and where that goes will affect the price of commodities.

Edging higher. The local equity markets opened yesterday's session with the
intention of taking a breather after last week's dramatic rally. But after spending
most of the day with a minor loss, the opening strength in the US equity market plus
yet another record high price for crude oil persuaded investors and traders that the
market is well supported by fund flows and sentiment. The rally over the closing hour
brought the RTS up 0.8% for the session, while MICEX gained 1.0%. At the close of
session, the RTS was up 2.1% YtD and within 0.9% of its mid-December record.
MICEX still has some way to go and is down 2.6% since 1 January and 6.6% off its
record high. Rosneft continued the recent rally and the company's position is
considered to have improved with the appointment of its chairman to head the
country's energy sector. Rosneft added 2.7% on the RTS and 1.9% on MICEX
yesterday. Surgutneftegaz was the best performer in the oil sector, posting a rise of
3.6% on MICEX, as it played catch-up with its peers. Inter-regional telecoms had
another strong session on hopes of progress on the Svyazinvest privatization, which
coupled with growth indicators, combined to push valuations up. Volga Telecom, one
of our top picks in the sector, led the way with a gain of 6.6%, while another
favorite, North-West Telecom, added 3.8%. It was a mixed session in the London
GDR market. Chelyabinsk Zinc had a rare good day, rising 4.3%, as the price of zinc
rose in response to news that production in China has halted due to the recent
earthquake. Amtel investors suffered a bout of nerves that led the share price to fall
5.9%. Uralkali closed down 2.8% on dividend news. Evraz bucked the trend in
metals with a rise of 1.3%.

US Fed chairman hits markets. The US equity market opened yesterday in a positive
mood, but a series of bad news items reversed that by midday. Good news did come
from the Commerce Department's retail sales report, which recorded a rise of more
than twice that what was expected. The US consumer is alive and well it seems. But
then a report from the National Association of Realtors was released and it showed
house prices falling in two-thirds of US cities, at an average of almost 8%. This is the
biggest decline in 29 years and took the edge of the market. But an additional nail in
the coffin came from comments by the US Fed chairman, who said that financial
markets remain very "far from normal", and he expects financial companies will have
to raise more money. Chris Weafer,


8. Rosneft: Threatened license withdrawal no more than a
May 14, 2008

Rosprirodnadzor may withdraw license from Rosneft.

Following a series of regular inspections conducted by Rosprirodnadzor (an
environmental protection agency) in several regions, Rosneft (ROSN - Not Rated)
was warned by the watchdog of a potential license withdrawal at its Veninskiy block
in Sakhalin, according to Vedomosti today. The reported reason for such punitive
action was the violation of ecological norms, particularly fuel spills during tanker
fueling operations. As commented by Rosneft, the violations refer back to a 2006
inspection. Rosneft drilled one exploration well on the site in 2006 and ran 680 sq
km of 3D seismic in 2007.

Low risk for Rosneft.

 Veninskiy block is part of the Sakhalin-3 offshore field, which also includes
Vostochno-Odoptinskiy, Ayashskiy and Kirinskiy blocks. The Veninskiy project is
74.9% controlled by Rosneft and 25.1% by Sinopec (China's state-owned oil
company). Sinopec finances 49.8% of the exploration operation under a carry-
finance arrangement. We should note that despite, according to Vedomosti, Gazprom
having expressed interest in the license for the Kirinskiy block several days ago, it
does not suggest that the company is interested in Rosneft's valuable offshore assets
in the Sakhalin-3 project. Nor would we pay attention to rumors that Gazprom might
gain control of the West- Kamchatka block, currently operated by Rosneft on a 60/40
basis with Korean National Oil Company. We strongly believe that these two state
giants will never go to corporate war for offshore oil fields, but will rather cooperate.
Indeed, Gazprom would be interested only in licenses for gas saturated layers, while
Rosneft would go for oil bearing layers. Besides, logistically Rosneft will probably bid
for the Ayashskaya structure, which is adjacent to its Veninskiy block.

Regular inspections never led to license withdrawal.

Rosprirodnadzor conducts ecological and other type of inspections (license
agreement compliance inspections) on a regular basis. These inspections rarely lead
to license withdrawals from the oil companies. We believe that Rosneft will probably
receive a memorandum from the agency with a recommendation to clean-up the oil
spill. Given Rosneft's long-term commitment to operating in the Sakhalin offshore
project, it will undoubtedly comply with the ruling. We believe that all of the offshore
projects are of great importance to Rosneft and assume that the company will
defend its license at Veninskiy block.

                  RBL On the website today
9. Sow now to reap agro profits
Mike Collier in Vilnius
May 14, 2008

Investors looking to grow a bumper profit need to don their green wellies and head
for the farm. One of the main messages to emerge from the East Capital summit
held in Vilnius mid-May was that agriculture is set to be the sector that produces
Central and Eastern Europe's healthiest harvest over the next few years.

"It is interesting to get exposed to agricultural companies now," said East Capital
partner Aivaras Abromavicius, picking the sector as one of three current investment
targets, along with a hugely optimistic assessment of Russia in general ("the best
ever macroeconomic situation") and a more cautious "stock-picking" approach to the
Baltic states, including a fresh injection of funds into Hansabank's Swedish parent
bank Swedbank, which East Capital considers undervalued at the moment.

As well as boosting investment returns, improvements in the agricultural sector will
also help ameliorate one of CEE's main economic blights, inflation. "The number one
risk is inflation," says East Capital's chief economist Markus Svedberg. "The primary
reason is that food makes up such a large proportion of the consumer basket here -
more than 20% compared to 10% somewhere like Sweden."

High commodity prices may have made some investors take agriculture seriously for
the first time in years, but they shouldn't miss the fact that long term, money can be
made by tackling some of the reasons behind those high prices. "Short term, just
having exposure to arable land or potential arable land is paying off right now, but
over time it's more about rural and agricultural development," Svedberg says. "I
think we will see massive investment, especially in Russia, but also in Ukraine and
Kazakhstan. These are fertile areas and, of course, there is scope for productivity
improvements on farms which could do wonders."

Just across town, one of Lithuania's leading businessmen, Gediminas Ziemelis,
agrees. As a partner and main shareholder in the sprawling airlines-to-loyalty cards
empire of Zia Valda, Ziemelis also controls a significant slice of the Lithuanian
agricultural sector via subsidiary Agrowill, which recently gained a pan-Baltic listing
on the Vilnius stock exchange. "The market dictates that agricultural commodities
offer value for investors with huge potential. The essential thing is operational - you
can buy the land, but it's a very difficult process to create an operation on the land.
If you have a couple of hectares, it's not a problem; but if you have 300,000
hectares, it's a question of thousands of people, of technology, strategic
development plans."

Even though investors looking to 'go agro' right now will likely be onto a good thing,
they will be some years behind Zia Valda, which is currently rated Lithuania's most
profitable business. "Who knew that in 2007 agriculture would be a brilliant economic
proposition? We entered this business in 2002," Ziemelis says. "We had problems,
but now we have 270,000 hectares under management and we have seen what the
problems are in managing such a big plot, especially when you are doing business in

quite undeveloped areas. Russia has developed well in the financial sector, but is still
quite undeveloped in agriculture. We became experts in agriculture. That is the basis
of Zia Valda - that we step into an undervalued business and somehow evaluate the

Now Agrowill can apply the lessons it learned in its home market across the vast,
fertile and inefficient fields of its neighbours, Ziemelis believes. "Agrowill group
occupies just 2% of the local agricultural sector. If we look at the surrounding area
of Russia, Ukraine, Moldova and the Black Sea, there are thousands and thousands
of percentages for us to grow."

So while the muck and mud of the farmyard may not do much for the pinstriped
suits of East Capital's clientele, it could well end up making them as happy as a pig
in the proverbial.

                       RBL OTHER NEWS
10. Aeroflot to purchase Dalavia
May 14, 2008

Vedomosti reports that Aeroflot is set to purchase Dalavia, a small Russian airline
based in the Far Eastern city of Khabarovsk. According to the article, Aeroflot will
issue new shares, equal to about 5% of the company's total current equity, to
finance the purchase. This would value the deal at over $230 mln based on the most
recent close of $4.30. Dalavia covers some of the fastest growing airline routes in
the region, with flights to China, the CIS and Siberia; the firm carried almost
700,000 passengers in 2007.

Overall, we view this news as NEUTRAL given that the acquisition was expected by
the market. This will help Aeroflot increase its presence on the domestic market,
where S7 is the leader in number of passengers carried. However, Dalavia has no
Western-manufactured planes, which means that Aeroflot will eventually need to
replace its fleet of 40 Soviet-produced aircraft.

11. Fitch Ratings downgrades Sistema-HALS' outlook from
Stable to Negative
May 14, 2008

As a result of the mounting debt reported in the company's 1Q08 IFRS financials,
Fitch Ratings has downgraded its long-term forecast for Sistema-HALS to Negative.

The company's net debt grew 3.3x over 2H08 to $935 mln. Most of its investments
in 2H07 went to acquire three new projects: Gorki 8 Phase I and II and Lva Tolstogo,
with a total value of $527.1 mln.

The other reason behind Fitch's decision is uncertainty surrounding the Siemens
project. Sistema-HALS is still negotiating on the construction budget overrun, trying
to get either on Siemens or on sub contractors to make up the excess costs. In the
worst case scenario, Sistema-HALS will have to return the prepayment of 64 mln
EUR to Siemens and compensate Siemens other costs.

We consider the news as NEGATIVE for the stock but we believe the company may
benefit from cash flow generation arrangements announced by company's

12. LSR Group acquires land plot at Leningradskoe Highway
May 14, 2008

Event: LSR Group announced yesterday (13 Mar) that its subsidiary, CJSC
Mosstroirekonstruktsiya, has acquired two companies - OOO Triada Agency and OOO
Centaur Management, which own land plots totalling 1.8 ha at Leningradskoye
Highway, close to Moscow's Water Stadium metro station. According to the terms of
the deal, the value of the transaction is not disclosed. The deal has been approved
by LSR's board of directors. Mosstroirekonstruktsiya plans to build a multi-purpose
business centre with a total area of 115,000 m2, including 50,000 m2 of offices and
apartments and 14,000 m2 of retail, with 1,200 parking slots. The total estimated
investment exceeds $280 mn. Construction is planned to start in 2010. As of 1 Apr
2008, the market value of these plots in Moscow is $105mn, according to DTZ
independent appraisers. According to research by Jones Lang LaSalle and S.A.
Ricci/King Sturge, rental fees in this area at end-2007 were $600-700/m2/year for
offices, and $1,000-1,200/m2/year for retail space (excluding VAT and maintenance

Action: We regard the news as positive for the company and reiterate our BUY rating
on the stock.

Rationale: We view positively the addition of a new development to the company's
portfolio. LSR Group is searching for new development opportunities, to allow the
company to promote its market presence in Moscow and the Russian regions. So far,
we do not know the purchase price, or how it is related to the estimated market

13. Mosinzhstroy publishes RAS FY07 financials
May 14, 2008

Mosinzhstroy has published its FY07 consolidated RAS financials, which came largely
in line with our expectations. Revenue grew 31% YoY to $831mn (vs $825mn
expected). MIST demonstrated better control over costs, and gross margin increased
to 2.9% (up from 1.0%). Quite strong growth in SG&A costs hindered EBITDA
growth: it appreciated to $14mn, with a respective margin of 1.7% (below our 2.0%
forecast). Significant changes in other income/expense accounts and a lower-than-
expected tax rate (42% vs 65% expected) allowed net income to reach $5.2mn,
despite strong growth in interest expense. The latter reflects growing debt (which
reached $86mn as at the end of 1Q08) required to finance development.

The news is largely neutral for MIST, in our view. We reiterate our HOLD rating on
the stock.

14. Raven Russia pre-lets warehouse development to global
logistics operator
May 14, 2008

Event: Yesterday (13 Mar), Raven Russia Limited announced the pre-letting of the
EG Logistics warehouse development, to the north of Moscow. Raven Russia has
signed preliminary agreements to let 24,130 m2 of the development's total of
55,000 m2 space to Nippon Express, a global logistics operator, for a seven-year
term, at a rent it describes as ahead of expectations. According to Maxim Shakirov,
director of Colliers International's industrial real estate department, the annual rent,
including operating expenses, could be $5.3mn. The building is due for completion by
the end of 2008. The project is now 100% pre-let; with 30,000 m2 already having
been pre-let to EGL for five years.

Action: We do not cover the stock, but regard the news as positive for the company.

Rationale: The supply of quality warehouse space in Moscow remains limited, and
tenant demand remains strong. The EG Logistics warehouse has a premium location
near Sheremetievo airport - an important consideration for Nippon Express, which
specialises in airfreight transportation. The premium location is reflected in the rent
per m2: based on Colliers estimation, and typical operating expenses for Class A
warehouses, we calculate the net rent as $150/m2/year, which is higher than the
average market rent ($130-140) for Class A warehouses. We highlight the seven-
year lease term, which means, first, that the tenant expects no potential correction
in rents; and second, that the deficit of quality warehousing space and related
moving costs is forcing tenants to rent warehouses for longer terms.

15. Sistema to cooperate with DAS Holding
May 14, 2008

Event: According to Kommersant, Sistema has entered into a cooperation agreement
with DAS Holdings which has a 40% stake in mobile operator Etisalat.

Action: We see the news as neutral for the stock and reiterate our BUY rating for the

Rationale: The agreement should facilitate and reduce the risks associated with
Sistema's venture into African and Asian markets. Etisalat has been developing
aggressively in Africa and Asia and as a result has better market insight than
Sistema, for which cooperation with Etisalat would be very helpful. However,
competition in Africa is likely to be intense with the other conglomerate mobile
operators like Zain, Qtel, MTN, Millicom also developing their operations.
Additionally, supported by DAS Holdings, Sistema could also bid for the third GSM
licence in Iran where Etisalat is not present.

16. Sitronics' telecom solutions division wins EUR40mn
May 14, 2008

Event: According to ITAR-TASS, Sitronics has won a contract to build a national
wireless network in Syria. Worth EUR40mn ($61mn), the deal was concluded
between Intracom Telecom and SWO (Syrian Wireless Organization) with a 22-
month timeframe. Sitronics previously confirmed this contract at its FY07 results
presentation and included it in the announced new business of around $450mn.

Action: We see the news as neutral for the stock.

Rationale: In 4Q07 Sitronics announced around $150mn of new-business wins, the
vast majority of which were in its telecom solutions division. In 2008 this has been
followed by a further approximately $300mn including the Syrian contract. We would
expect around 80% of new business to be booked this year, which suggests Sitronics
is making reasonable progress to our 2008 telecom solutions forecast revenue of just
under $600mn. However, there is still some way to go and at its FY07 results, we
viewed Sitronics' market guidance as being relatively more cautious than earlier in
the year. Trading around current levels, around 49x 2009E earnings, the stock does
not offer good value and is expected to be net income negative in 2008. We view the
outlook for 2008 as being largely contingent upon a recovery in its telecom solutions
division and at this stage further material contract wins are required to underpin our

17. URSA Bank starts raising syndicated loan for $50mn
May 14, 2008

Event: Yesterday (13 May) citing a source at URSA Bank, Interfax reported that the
bank has started raising a $50mn syndicated loan at LIBOR+1.6%. Arrangers of the
deal include Raiffeisen Zentralbank Austria, ING, ICICI Bank and Calyon Bank.

At the beginning of March, URSA Bank raised a $125mn syndicated loan at
LIBOR+1.2%. Later in the month Igor Kim, URSA Bank's CEO, announced that the
bank planned to raise approximately $500mn during 2008.

Action: Moderately positive for URSA Bank stock, in our view

Rationale: Any new wholesale funding coming to the bank is welcome in the current
environment. URSA has approximately $340mn of debt falling due this year and our
forecasts highlight net new wholesale funding of $281mn over the year. As such, any
wholesale funding is a positive development. Delivery on funding (both deposit and
non-deposit) will be key to URSA Bank's delivery on its ambitious growth targets for
2008E and hence any sustained recovery in the share price, in our view.

May 14, 2008

Pharmacy Chain 36.6 has announced the complete sale of its healthcare business
unit, the European Medical Center (EMC) group of companies, to Goldencorp
Enterprises. The sale affects all companies making up the unit including general
medical care clinic and hospital (the European Medical Center),dental clinic (the
European Dental Center) and clinical laboratory. The total enterprise value is $110
mln and the proceeds of this transaction should be available to Pharmacy Chain 36.6
by June 1.

Our model assumes the disposal of the EMC for $100 mln, and the ability to organize
this transaction was a key criterion to reach our 2008 performance estimates. Based
on this announcement, we expect Pharmacy Chain 36.6 to have sufficient funds to
repay its short-term debt and realize development plans without needing to dispose
of Veropharm. As such, we consider this news as positive for the stock.

19. Gazprom Neft may disappoint with dividends
May 14, 2008

Event: Interfax reported yesterday (13 May) that Gazprom Neft's board of directors
has recommended a 2007 dividend payment of RUB5.4 per share (an implied
dividend yield of 3.6%). The suggested dividend is much below that what we
originally expected (RUB9.3 per share) and 33% below the 2006 dividend (RUB8.1
per share). Last year, Gazprom Neft's dividend record was closed on May 18.

Action: We maintain our HOLD rating on the stock.

Rationale: We think the dividend record may still be open. Yet, the implied modest
dividend yield may not make much of an impact on the performance of Gazprom
Neft stocks. The decision to decrease dividends for 2007 could be explained by
Gazprom Neft's aggressive growth strategy and capex spending, in our view. Most
recently, Gazprom Neft introduced its capex budget that implies a significant
increase in spending ($11bn over 2008-2010 compared with a historical high just
below $2bn per annum). The company's new strategy envisages reaching crude
production of 90-100mnt per annum by 2020 vs its current production level of
roughly 40mnt (which includes Slavneft).

20. Kazan Helicopters publishes FY07 financials
May 14, 2008

Kazan Helicopters, the largest producer of Mil helicopters in Russia, has published its
FY07 RAS financials, which were better than our expectations. Revenue grew 2% YoY
to $262mn, though it fell in rouble terms. Gross profit was flat in rouble terms, but

increased 6% YoY in dollar terms. The company saw a significant decrease in
commercial expenses (down 59% YoY, or by $37.4mn), allowing its EBITDA margin
to increase to 15%, up from negative 1% in 2006. Along with increased other
income (which doubled to $38mn), this drove net profit into positive numbers. Net
income appreciated to $26.5mn, with a respective margin of 10% (compared with
our 2% forecast).

We reiterate our HOLD rating. Until Helicopters of Russia announces the swap ratios
for the helicopter holding, we expect the share prices of helicopter producers to be
driven primarily by investor speculation.


21. Rhythm releases RAS FY07 financials
May 14, 2008

Event: Rhythm, a leading Russian producer of rail braking equipment, has released
strong FY07 RAS financials. Revenue, driven by core products, grew 81% YoY, on the
back of a strong pricing environment. Improved cost control allowed gross margin to
add 6 ppts, to 46% (one of the highest in the sector). Along with stabilised SG&A
costs, this translated into an improved EBITDA margin, which levelled at 23%, up
from 17% in 2006. Net profit almost tripled, to reach $6.1mn, which is slightly above
our $5.5mn forecast, due to a lower-than-expected tax rate.

We point out two warning signs. Capex is significantly higher than our expectation.
We are inclined to put this down to an acceleration of spending, which would mean
future capex spending will be lower than our forecasts. Second, we highlight
worsening working capital management. Receivables increased 3.6x (from YE06)
while inventories went up around 1.5x. This is only slightly compensated by
increased payables (up only 60%). As a result, Rhythm's cash position is
deteriorating quite rapidly, and the company needs to increase borrowings. Gross
debt went up 6.0x to $5.8mn and net debt became positive as of YE07.


May 14, 2008

Uralkali's BoD has recommended paying dividends for 2007 to the amountof $0.08
per share (R1.90). The shareholder meeting will take place on June 18, and the
cutoff date is May 13.The total dividend payout will thus be $164 mln, or 52% of
expected net income for 2007.

Uralkali is well known for its generous dividend disbursements, and the high payout
for 2007 is in line with the company's strategy. However, given the recent price
appreciation, the dividend yield of 1% for 2007 is unexciting. That said, we expect

the dividend payout in absolute terms to increase substantially in 2008-09 on the
back of rising financial results boosted by potash price hikes.

Uralkali possesses unrivalled cash generation, and with a current EBITDA margin of
around 80% (based on net sales) and net income jumping from $315 mln in 2007 to
$1,892 mln in 2008, the company will be accruing substantial amounts of cash:
some $1.2 bln by end 2008 and $3.6 bln by end 2009. The excess cash could then
be returned to shareholders or used for a potential M&A activity on the potash
market or, with potential targets being obviously very hard to come by, other
segments of the fertilizer sector.


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