January 19_ 2009

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					                                                                  January 19, 2009

This is bne's Central & Eastern Europe credit weekly newsletter, a list of the top
stories last week. You can receive the list as a plain text or html email, or as a pdf.
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1. Emerging Weekly - Polish rate cut of 50 bps seen
2. Czech economy shows further signs of weakness
3. Fitch: Gazprom International S.A. notes not immediately impacted by gas dispute
4. IMF approves $2.46bn loan to Belarus
5. Improving Czech current account deficit developments
6. Latvia inflation hits 15.4% in 2008, seen dropping to single digits in 2009
7. Support grows for Polish euro adoption
8. Ukraine industrial production down 3.1% YoY in 2008, despite MoM better
RUSSIA macro news
9. Central Bank of Russia releases monthly banking sector statistics
10. Medvedev suggests lowering interest rates as part of anti-crisis efforts
11. Ruble devalued amid gas row
12. Ruble falls to 6-year low vs dollar
13. Ruble sees 15th cut as outflows balloon
14. Russia could revise budget based on oil price of $32 per barrel
15. Russian capital outflow strikes an absolute record in 4Q08
16. Russian inflation hits 10-month low
RUSSIA bonds
17. Creation of united metals and mining company to be discussed
18. Domestic Russia debt strategy - FX trading still most profitable activity
19. Gazprom Neft redeems Eurobonds for $500m
20. Fitch assigns city of Moscow's RUB1.417bn bond 'AAA(rus)' Rating
21. RBC Information Systems meeting bondholders in bid to restructure debt
22. RBC reportedly offers bond holders to restructure USD 100mn rouble bond debt
23. Russia's VTB24 plans RUB14bn in mortgage bonds in Q1
24. Samruk-Kazyna to place $992mn in bonds in Oct 2009
25. XXI Century Investments cuts Lisnyky project from Eurobond collateral
RUSSIA loans
26. Comstar UTS interest rate on Sberbank loan raised; soft launch of WiMax in
27. EU, Russia considering loan for Ukraine
28. Kyrgyz premier heading for Moscow to discuss $2 Bln loan
29. Mechel agrees to $255m credit facility from Gazprombank
30. MMK agrees to RUB20bn of credit facilities from two Russian banks
31. Russias' Uralsvyazinform to raise RUB1bn
32. Russia's Glavmosstroi still struggling with debt
33. Russia's Sistema confirms tough medium-term debt payment schedule -
concerns remain
34. Russia's Svyazinvest applies to state banks for $1.2bn financing for regional
35. Transmeridian misses interest payments
36. Transneft chief: Russian-Chinese loan negotiations need political approval
37. VTB Bank opens 10 bln rbl credit line to Russian construction company
38. EBRD considers loaning Ukraine's Lviv up to €100m
39. Georgia approves 2009 budget
40. Preliminary data suggests 3.7% drop in Ukraine's FX reserves in December
41. S&P takes Odesa's ratings off Creditwatch
42. Ukraine's foreign reserves down slightly, to $31.5bn, in December
43. Ukraine's Dnipropetrovsk plans debut bond issue
44. Ukraine's trade gap declines to $1.6bn in November
45. Ukraine's Ukrzaliznytsya pays off 50% of debt to Kryukiv Wagon
46. Ukrainian Hryvnia continues to lose value
47. Czech target for euro adoption to be set in 2009
48. Demand for Polish bonds still upbeat
49. Has the recent currency weakening caused unease with central bankers so far?
50. Hungarian national bank could continue rate cutting cycle
51. Industrial output shrinks in Hungary
52. Lithuania FDI inflow falls 20.7% in Jan-Nov
53. Lithuania real estate market falls by 30% in 2008
54. Rate cut expectations boost demand for Polish bonds
55. Zloty falls below €4
56. Croatia sees strong decrease in inflation
57. Economic activity slows in Romania
58. Lowest GDP growth since 2000 for Croatia
59. No changes at the Romanian central bank rate setting meeting
60. Romania looks for the 2009 budget plan
61. Romanian producer prices downturns accelerates
62. Turkey's Koc holding raise $770m loan
63. Consumer inflation in Kazakhstan declines to 9.5% on yr in Dec
64. Kazakh banks could have been "premature" on debt restructuring
65. Kazakh central bank indicates an increase in foreign reserves
66. Kazakh Real GDP growth exceeds 3%
67. Kazakh Stressed Asset Fund to issue bonds within two months
68. Kazakhstan's BCC raises $10mn from EBRD, $40mn from Citibank
69. Kazakhstan's Halyk Bank sells $40m worth of bonds

1. Emerging Weekly - Polish rate cut of 50 bps seen
January 19, 2009

n     Poland: December's inflation below 3.5% means that a 50bp rate cut will be
supported even by the hawk members. We expect industrial output growth data, to
be released this week, to be very disappointing and to support our view that the MPC
will deliver a further 50bp cut.

n   Hungary: This week's data agenda will be empty, thus investors will focus on
January's rate-setting meeting of the Hungarian Monetary Policy Council. It is widely

expected that after a rate cut of 50bp in December, the MPC will continue the easing
cycle and the base rate will fall to 9.50%. This is still one percentage point above the
level prior to the extraordinary 300bp rate hike in October 2008.

n     Czech Republic: We expect the CNB to cut its rates at its upcoming meeting in
early February by 75bp to 1.50% (consensus view -50bp). We believe that the CNB
will then continue to cut its key interest rates to 1.0% and the risks are still rather
on the downside.

n    Romania: The RON's fall is justified by the country's very large current account
deficit and drifting public finances, in an environment of scarcer capital flows.
Although the central bank is likely to continue to intervene, this can only slow the
downward trend.

n    Russia: The "gradual" devaluation policy of the CBR has fuelled expectations of
further devaluation. In such difficult conditions, it is very hard to support RUB
further. The only way out now is to simultaneously switch to a floating exchange rate
regime and inflation targeting with the target for this year set near the 10% level.

2. Czech economy shows further signs of weakness
January 16, 2009

 As expected the recent macroeconomic data releases confirmed a further
deceleration of the Czech economy and abating inflation. CPI inflation dropped to
3.6% yoy in December, down from 4.4% in November, and PPI dipped into negative
territory in yearon-year terms. Industrial output plunged by 18.5% yoy, i.e. even
below our pessimistic forecast of minus 11%. Czech National Bank (CNB) board
member Miroslav Singer stated that the CNB's alternative scenario has become more
likely. The CNB's alternative scenario assumes a real GDP growth of just 0.5% for
2009. With such statements and the worsening data, the CZK weakened beyond
EUR/CZK 27.0. Government bond yields continued to decrease. Market outlook It is
obvious that the CNB will continue in its rate cutting cycle. After the recently
published data and given the comments from CNB board members it is possible that
the key 2-week repo-rate could be cut by more than 25bp from the current level of
2.25%. On the other hand, the weakening CZK could keep the CNB from cutting
more aggressively. Government bond yields still have significant room for further
decline unless the global financial crisis escalates again. However, given the
persistently high bid/ask spreads we stick to our short-term neutral recommendation
for Czech government bonds, while we still recommend long positions in the Czech
government bond market for a 3-month or longer horizon

3. Fitch: Gazprom International S.A. notes not immediately impacted by gas dispute
Fitch Ratings
January 14, 2009

Fitch Ratings says today that the ongoing dispute between Gazprom and
Ukrtransgaz, on the terms and conditions of the transfer of Russian gas through
Ukraine to European off takers, has had no immediate impact on the ratings of notes
issued by Gazprom International S.A. (the Issuer).

The next payment under the notes in an amount of USD103m is due in February.
The Issuer holds cash equal to this amount in its account which in Fitch's view will
ultimately ensure a timely payment. This also explains why there is no immediate
impact at this time on the notes in relation to the short-term interruption of gas
deliveries. However, a protracted, or regular short-term, interruption of gas
deliveries could have a negative impact on the notes issued by the Gazprom
International. Gas supply contracts generally foresee termination rights in case of an
ongoing inability of one party to fulfil its obligations. While events beyond the control
of Gazprom could be classified as a force majeure event, some agreements make
use of a more narrow definition that would prohibit the right of renegotiation or
termination. In such circumstances the gas importer either has rights for
compensation that would be expected to be made in the form of discounts on future
deliveries. Such discounts would reduce future collections and therefore dilute the
collateral backing the issuance. Apart from this potential, and at this stage unlikely,
effect, gas prices are already expected to fall compared to 2008 which will narrow
the cash flow which has been at record levels during the course of last year.
Gazprom International's rated notes are backed by export receivables tied to long-
term gas delivery contracts between OAO Gazprom ('BBB'/Stable) and two European
importers located in Italy and The Netherlands. Italian-based ENI Spa ('AA-'((AA
minus))/'F1+'/Stable) and The Netherlands-based Gasunie, both of which purchase
gas from Gazprom, settle their payments through collection accounts held by the
Issuer. The collections collateralise the payments due under the notes which are
rated 'BBB+' with a Stable Outlook by Fitch. As the notes' rating is driven by these
payments acting as security, it is a vital rating aspect that Gazprom is able to fulfil
its delivery obligations to ENI Spa and Gasunie. The receivables supporting the notes
are collected from the two European importers on the basis of them receiving
ongoing gas supplies.
The gas export contracts between Gazprom and Gasunie and ENI Spa detail the
minimum amounts of gas to be delivered annually to the two importers, who are
invoiced on a monthly and annual basis. However, the amount of gas delivered is not
constant every day and is subject to supply and demand, prices, and the operational
restrictions of gas transfer and storage facilities. As such, the current interruption of
gas exports through Ukrainian territory should be able to be made up with increased
deliveries to the two importers after a temporary or midterm solution is found. While
payments due from Gasunie and ENI Spa may be somewhat lower for January 2009,
such a reduction is expected to be made up in coming months subject to the receipt
of gas by the two importers.

4. IMF approves $2.46bn loan to Belarus
January 14, 2009

The International Monetary Fund approved a $2.46bn financial rescue package for
Belarus and said late Monday that a further devaluation in the Belarussian currency
would probably not be necessary.

"The main objectives of the IMF-supported program are to facilitate an orderly
adjustment to external shocks and to address pressing vulnerabilities," the IMF said.

"The program contains strong macroeconomic adjustment measures and addresses a
number of structural issues that are critical to the adjustment and mitigation of
vulnerabilities," it added.

5. Improving Czech current account deficit developments
January 19, 2009

The current account deficit narrowed to CZK -8.7 bil in November, down from CZK -
21.9 bil in October. The improvement is due to a sharp turnaround of the trade
balance, recording a CZK 2 bil surplus. Exports collapsed, down by 18% yoy, but
imports are also falling rapidly: -13.2% yoy. The income deficit fell sharply, although
recording a comparable correction to last year implying it is too soon to draw strong
conclusions from this release (CZK -15 bil, from CZK -24 bil in October).

Positively, the financing showed some improvement relative to October, fully due to
a sharp rise in the other income balance (CZK 43 bil on the month, from CZK -0.2 bil
in October). Net foreign direct investment stood at CZK 8.9 bil, while portfolio
investment recorded a sharp outflow.

This release shows tentative positive signs of consolidation of the external deficit,
although even in the case of the Czech Republic the financing is gradually reducing.
We reiterate increasing downside risks to the 2009 growth outlook as a result, but
equally we maintain the view that the Czech Republic is overall better position to
withstand (without external assistance) the current turmoil than most of its regional

6. Latvia inflation hits 15.4% in 2008, seen dropping to single digits in 2009
January 19, 2009

Latvian consumer prices last year rose by 15.4% from 2007, reported the national
statistics office reported. However, Inflation is set to drop in Latvia at a fast rate and
is likely to reach a one-digit figure already in the first months of 2009, while average
annual inflation this year might stay below 6.5 %, a representative of the Bank of
Latvia told BNS.

In December, consumer prices rose by 10.5 % year-on-year, while there was a
deflation for a second month, with consumer prices declining by 0.5 % from
November. "With the slowdown of economic growth becoming stronger than
expected inflation decrease beat prognoses at the end of last year, as inflation
reached just 10.5 % in December," said Krista Kalnberzina, a senior economist at
the Bank of Latvia Macroeconomic Analysis Department.

7. Support grows for Polish euro adoption
January 12, 2009

The latest poll presents a strong increase of Poles' support for euro adoption. The
Civic Platform should refrain from any independent decision (entering ERM-2 without
an amendment to the constitution), but it will stick to its euro-adoption plans
(especially before the Europarliament election in Jun-09). One of the Polish dailies
(Rzeczpospolita) presented a poll which signals a strong increase of Poles' support
for euro adoption. In Jun-08, 54% of the survey population was for euro adoption,
while in Jan-09 it is 65%. In the same time 70% of voters expected the referendum
on the euro (though the percentage of decreased from 79% in Jun-08). This change
in voters' opinions should encourage Civic Platform to stick to its euro-adoption plans
(especially before the Europarliament election in Jun-09), but we think the
independent government decision on entering ERM-2 without changes to the
constitution is rather unlikely (the opposition still claims that it will not support the
constitutional amendment as long as Poles will not decide on euro adoption in a
referendum, but the referendum alone is problematic as there is no consensus on
how the question should be formulated and it should only play a consultative role
and not a decisive one). The possibility of ERM-2 entry without the constitutional
amendment was recently mentioned by the Prime Minister and Head of Civic Platform
parliamentary club. We think such a decision will meet the opposition of the NBP
governor (nominated by Law and Justice) and MPC (MPC members prefers to solve
all law-related issues before Poland enters ERM-2 in order to avoid any reason to
speculate against the zloty). The probability of ERM-2 entry in 2009 is decreasing
together with the growing risk for the budget deficit, still high volatility on the FX
market (EC may be against in such an environment) and impossible implementation
of the constitutional amendment in the current Parliament. On the other hand,
government representatives still point out that the current €/PLN level is more
important than the discussion on timing. Investment implications: The Civic Platform
will consider an independent decision on ERM-2 (entering the system without
amendment of the constitution), but we see this as too much of a desperate move

8. Ukraine industrial production down 3.1% YoY in 2008, despite MoM better
January 19, 2009

According to data from Ukraine's State Statistics Committee, despite a 3.2% MoM
increase, industrial production declined 26.6% YoY in Dec 2008, resulting in a 3.1%
drop vs Jan-Dec 2007. In December, all major sectors posted MoM growth in output,
with a 21.7% MoM increase in mining output, and a 12.9% MoM increase in utilities
output (on the back of a further rise in tariffs). Growth in the processing industry
was less notable, at 0.06%, driven by an increase in output from the metallurgical
(16.3% MoM) and engineering (12.6% MoM) sectors. We believe both sectors were
largely supported by hryvnia depreciation, while other industries continued to decline
in December.

At the same time, the slump in the metallurgical sector and refining in Aug-Nov 2008
(as a result of the drop in global commodity prices), resulted in very significant YoY
declines in these sectors in 2008 (10.6% and 15%, respectively), and triggered an
overall decline in industrial production vs 2007. On the back of this, we expect a
slowdown in GDP growth in 2008. According to preliminary data from the State
Statistics Committee, real GDP growth in Ukraine decreased to 2.1% YoY, vs 7.6%
YoY in 2007.

RUSSIA macro news

9. Central Bank of Russia releases monthly banking sector statistics
January 14, 2009

On the back of severe funding constraints, lending growth effectively came to a halt
in November as retail loans were flat and corporate lending recorded only marginal
growth compared to the previous month. The CBR data reveals worsening asset
quality. Although classification of non-performing loans under the local GAAP
(overdue portion, 1d+) is not compliant with that under IFRS (whole loan body,
90d+) and surely captures technical payment delays due to the usage of the 1d+
timeframe, the numbers remain indicative in our view. While retail deposit outflows
showed signs of stabilisation in November, corporate funds recorded a sharp
decrease as the credit crunch progressed through the local economy putting strain
on the cash position of local corporates. According to local media reports, in
December Sberbank and VTB collected retail deposits worth RUB 168 bn and RUB
39.5 bn respectively.

While this dynamic was clearly positive and the local banking system might have
indeed recorded net inflows of retail deposits in December, we think that most of this
occurred as a result of the local bonus season. In fact, historical data suggests that
December increases were followed by either sluggish or negative retail deposit
growth in January. Our macroeconomists think that rouble devaluation is still not
over, and we anticipate that this time around seasonal deposit base volatility will be
exacerbated by expectations of further rouble weakness. A turnaround on the
corporate deposit side is also not in sight given the current stance of the Russian
economy. In our view, zero retail deposit growth this year is on the cards,
considering our macroeconomists' expectations of increasing unemployment and
rapidly decelerating real wage growth. Corporate deposits might even record
negative growth, in light of restricted access to capital markets and banking credit
for Russian non-financial corporate borrowers and the general macroeconomic
slowdown. On a positive note, however, we think that the worst of the banking
liquidity squeeze is already behind us.

According to our fairly rough estimates, Russian banks received RUB 1,600 bn of
liquidity from the CBR under the collateral-free lending scheme, while we estimate a
total limit of RUB 2,900 bn available for eligible banks (top 100 institutions, more
than 80% of the sector in terms of total assets). Hence, in our view, given zero
lending growth in the coming months, state funding should be able to compensate
for further deposit outflows. Our main concern with regard to Russian banks remains
asset quality deterioration. Among the banks we track on a regular basis, Sberbank,
VTB and URSA Bank are scheduled to report their Q3 IFRS results by the end of the
month. Given the pace at which the market situation has changed over the past
several months, the numbers are likely to appear somewhat out-of-date. Therefore,
we will closely watch for management indications on asset quality matters

10. Medvedev suggests lowering interest rates as part of anti-crisis efforts
Unicredit, Russia
January 15, 2009

negative for ruble

Topic: Russian President Dmitry Medvedev has expressed dissatisfaction with high
interest rates in Russia, and suggested the CBR (Central Bank of Russia) reconsider
the current refinancing rate. Meanwhile, the government has reportedly approved a
new economic outlook, which is to be released on Monday. The developments took
place during a high-profile anti-- crisis meeting headed by Medvedev.

Our view: The CBR's two interest rate hikes in November-December were intended
to stem capital flight from Russia and reduce pressure on the ruble amid a currency
run over the period.

We therefore believe that if the interest rates are reduced the CBR might also have
to abandon its policy of exchange rate control, opening the door to a considerable
correction of the ruble. Presently, we expect the ruble to ease to R34.5/$ in 2009
aop, down from current R31.6/$, but note that with a one-time correction of the
policy, it might overshoot this range in the short term.

Conclusion: According to various media sources, the new forecast for economic
development assumes oil prices at $40/bbl, and a real GDP contraction of about 1%-
2%. Presently, with oil prices at around $50/bbl we expect Russian real GDP in weak
positive territory at around 0.5% growth. Our current forecast of R34.5/$ in 2009
aop assumes average oil prices of around $50/bbl.

11. Ruble devalued amid gas row
January 16, 2009

On 10 January, Russia's capital markets re-opened after a 10-day long holiday that
lasted from 1 January to 10 January. At the beginning of January Russia cut all
natural gas supplies to Ukraine including transit for Europe accusing Ukraine of
stealing transit gas and blocking gas supplies to European customers. Ukraine
returned the accusations, blaming Moscow for stopping gas transit. A week-long
shuttle diplomacy between EU, Russia and Ukraine failed to unlock gas supplies
threatening further escalation of the conflict. Both Russia and Ukraine remain unable
to iron out their disagreements so the transit route for Europe remains shut. Now EU
patience is running thin and the EU Commission is likely to recommend the European
producers to file lawsuits against Russia and Ukraine. This week, on 17 January,
high-level government representatives from EU, Russia and Ukraine will meet
together to find a solution to the gas crisis. However hopes for gas transit to resume
are slim as Russia and Ukraine demonstrate no good faith in negotiations and
distrust each other. Market outlook The rouble depreciation quickened in January as
the central bank allowed the rouble to slide 50 kopecks daily against dual currency
basket consisting of 55 US cents and 45 EUR cents this week. Apparently the bank
wants to complete the major devaluation quick enough so as to be able to bring
rouble interest rates to lower levels. Presently rouble interest rates remain above
20%, largely mirroring rouble NDF market rates and the bank is willing to remove
the devaluation premium existing in the market.

12. Ruble falls to 6-year low vs dollar

January 13, 2009

The ruble slid to the weakest level in almost six years against the dollar after the
Central Bank devalued the currency for a second day as declining oil prices threaten
to deepen the country's economic crisis.

The ruble fell 1.7 percent to 31.05 per dollar, from 30.53 Sunday, extending its
decline to 24 percent since August.

"With the oil price shock, there is an increased burden on Russia's current account,
and that necessitates a rebalancing of the currency," said Ulrich Leuchtmann, head
of currency strategy at Commerzbank in Frankfurt, which rates itself one of the top
10 traders of the ruble in the world.

13. Ruble sees 15th cut as outflows balloon
January 15, 2009

Russia's Central Bank staged the third mini-devaluation of the ruble in four days on
Wednesday, continuing a path of controlled currency weakening to adjust to low oil
prices and a worsening economic outlook.

"The sooner they get [the devaluation] over with the better. According to my
forecasts, they are still 14 percent away from the end," said Rory MacFarquhar,
senior economist at Goldman Sachs.

"The problem is that ... every time the Central Bank or the government tries to ...
stimulate the economy by pushing money out into institutions there is a big
likelihood that this money will very quickly find its way into the FX market."

14. Russia could revise budget based on oil price of $32 per barrel
January 13, 2009

The Russian Finance Ministry could revise the parameters of federal budget revenue
in 2009 based on an average oil price of $32 per barrel and an average exchange
rate of 34 rubles/$1, sources close to the ministry told Interfax.

15. Russian capital outflow strikes an absolute record in 4Q08
UralSib, Russia
January 14, 2009

4Q08 current account remained in surplus ... Yesterday the Central Bank (CBR)
released its preliminary assessment of Russia's balance of payments for 2008. The
two most important conclusions drawn from these figures are: (1) Russia has
managed to maintain its current account and trade surpluses despite the financial

crisis mainly due to a rapid and significant drop in its import volumes; and (2) in the
last quarter of 2008, Russia experienced a massive net outflow of private capital of
$130 bln. While the capital outflow was hardly surprising, its high volume - an all-
time record for Russia - helps to better explain the reasoning that prompted the
Central Bank to increase the speed of the ruble's "gradual devaluation" two months

... despite record capital outflows. In 4Q08, net private capital outflow from Russia
reached $130.5 bln, according to the Central Bank. This brings the volume of net
private capital outflows since the start of the current stage of the global crisis in
early August 2008 to $165.8 bln, which is in line with the level of decline in Russia's
reserves in the last five months of 2008. Overall, in 2008 Russia experienced a net
capital outflow of $129.9 bln, which is higher than the total volume of net capital
inflows the country received during the global credit boom over the preceding two
years (in 2006-07 combined net capital inflow totaled $124.9 bln). The speed at
which the capital movement has reversed as well as the sheer volume of outflows
could mean that the peak in capital outflows - as well as in the devaluation of the
ruble - are now probably in the past.

4Q08 imports down by 13% QoQ. Yesterday's CBR data points to another important
conclusion: despite falling crude oil prices and the accompanying decline in export
revenues, Russia has managed to retain its double surpluses.

According to the CBR's preliminary assessment, in 2008 Russia's exports totaled
$469 bln (URALSIB forecasted $462 bln), while imports stood at $292.5 bln (we
forecasted $291.7 bln). This brought the trade balance for the year to $176.5 bln, or
35% higher than in 2007. Even in the critical 4Q08, the trade balance remained in a
surplus of $22.1 bln (in 3Q08 the surplus was $52.5 bln).

The strong trade balance has supported Russia's current account, which closed 4Q08
in a surplus of $8.1 bln and the full year in a surplus of $98.9 bln.

16. Russian inflation hits 10-month low
January 17, 2009

Russia's inflation rate reached a 10-month low in December as gasoline prices fell,
though the government still missed its annual target for the eighth time in nine

The rate dropped to 13.3 percent from 13.8 percent in November, the State
Statistics Service said Sunday.

RUSSIA bonds
17. Creation of united metals and mining company to be discussed
January 19, 2009

According to Vedomosti today (19 Jan), Norilsk Nickel's largest shareholders, UC
Rusal and Interros, will today submit to deputy Prime Minister Igor Sechin a plan to
create a united global metals and mining company, to be discussed tomorrow at a
meeting with Sechin. According to the proposal, the united company should include
not only Norilsk Nickel and Metalloinvest, but would also include large metals and
mining companies with significant debt burdens and loans from state-controlled
banks. Evraz Group and Mechel are mentioned as potential participants, which have
problems with their debt issues and owe large amounts to the state-controlled
institutions. Vedomosti, citing a source close to Norilsk Nickel's shareholders, says
that Uralkali (which still has an unresolved issue over the flooding at its Mine 1)
could also join the holding, while Russian Technologies could also transfer its
VSMPO-Avisma stake into the combined company. According to the plan, the state
could convert the loans to the abovementioned companies into equity in return for a
25%+1 share stake in the new holding, thereby becoming the single largest

If the deal proceeds, we would view it as overall neutral to slightly positive in the
short term for bondholders of Norilsk Nickel, Evraz and Mechel. Norilsk Nickel's only
eurobond is due in September and in our view it will not be possible to conclude the
deal by that time. With regards to Evraz and Mechel, in the current market
conditions their timely debt servicing depends on the availability of new financing
and rolling over of existing debt from state-controlled financial institutions. Hence, if
Evraz and Mechel were to join a larger entity whose single largest shareholder was
the state, it would not change much for creditors: They would still be exposed to
decisions taken by the government. We also remind investors that Evraz13 and
Evraz18 bonds have a change of control put option clause, which potentially
(depending on the deal structure) could be triggered if the deal goes through.

18. Domestic Russia debt strategy - FX trading still most profitable activity
January 19, 2009

The Central Bank of Russia (CBR) widened the rouble/basket rate band five times
last week (by some 50 kopecks each time), thus provoking, we believe, extremely
aggressive speculative trading against the rouble. The regulator's tactics of gradual
rouble devaluation are giving market players the chance to obtain extra-large profits
on the forex market. In these circumstances, all other investment strategies fall out
of favour, and it is no coincidence that activity on the rouble bond market this year
has been close to zero.

This morning (19 Jan) the CBR stuck to its policy and delivered another 50 kopeks
rouble/basket band widening to 37.82 at the upper end. The rouble/dollar nominal
exchange rate is approaching 33.0 on the back of the latest CBR decision.

CBR's interventions growing, REPO volumes setting new records

The biggest drawback of the current step-by-step rouble devaluation, in our opinion,
is the increased rate of reserve spending. From 11 to 16 Jan, the CBR's interventions
on the forex market are estimated at over $25bn; on Friday (16 Jan), the regulator
may have spent another $7bn to support the rouble. The amount of funds provided
under direct REPO are breaking new records: On Friday, the banks borrowed some
RUB450bn from the CBR at two auctions. With no large tax payments last week, the

absence of repayment of large unsecured loans to the CBR and negligible trading
volumes on the bond market, it is clear to us that the main reason for the huge
borrowing at REPO auctions is intense activity on the forex market.

Key bond market event: OFZ placement

The most notable event on the bond market this week will probably be the first
auction in 2009 of OFZ held by the Ministry of Finance on 21 Jan in the amount of
RUB7bn. The placement of one-year Moscow bonds last week demonstrated that
even high-quality debt with a very decent yield premium meets with weak demand.
However, we think the placement of three-year OFZ should become a good
benchmark for the bond market in the new conditions. We estimate the fair yield of
this issue at 13-14%.

19. Gazprom Neft redeems Eurobonds for $500m
VTB Capital
January 16, 2009

largely expected --- indicates stable liquidity position News: Gazprom Neft has
redeemed its five-year Eurobonds for USD 500mn. In order to do so, the company
used its own finances and a loan from the Bank for Development which was taken in
mid-December 2008.

Our View: The redemption was expected. However, given the current tight liquidity
conditions we consider the timely redemption to be slightly positive for the company
as it indicates Gazprom Neft's stable liquidity position.

20. Fitch assigns city of Moscow's RUB1.417bn bond 'AAA(rus)' Rating
Fitch Ratings
January 15, 2009

Fitch Ratings has today assigned the City of Moscow's RUB1.417bn domestic bond
issue, due March 2010, a final National Long-term rating of 'AAA(rus)'. The city's
Long-term foreign and local currency ratings are 'BBB+' with a Negative Outlook,
respectively, its Short-term foreign currency rating is 'F2', and the National Long-
term rating is 'AAA(rus)' with a Stable Outlook.

The bond issue has a fixed-rate 10% coupon and the principal will be paid back on
15 March 2010. The proceeds from the new bond issue will be used for the city's
investment project financing.
The City of Moscow has consistently reported strong economic performance above
the national average over the last five years. Per capita gross city product and
money income of the population accounted for more than 2.5x the respective
national average figures, making the city one of the wealthiest constituents of the
Russian Federation. Moscow demonstrated strong budgetary performance with
significant surplus before debt variation over 2005-2007. During the first 10 months
of 2008, the city accumulated RUB215.6bn of surplus before debt variation. Capital
expenditure accounted for 28% of total expenditure over the same period, leaving

room for manoeuvre in the event of a substantial revenue decline. However, Fitch
expects pressure on revenue proceeds to increase in 2009, mainly due to the
shortfall of proceeds from corporate income tax amid the current economic
Total risk for the city is moderate. A prudent borrowing policy has resulted in strong
debt coverage ratios and a good debt-servicing record: debt/current revenue has
declined from a peak of 26% in 2003 to 8.5% at end-2007. Long-term bonds form
the bulk of the city's debt, while the city remains exposed to un-hedged foreign
currency risk with 28% of RUB114.4bn direct debt (as of 1 October 2008)
denominated in foreign currency. The upcoming bond issue will increase the city's
direct debt by 13%. However, given Moscow's growing revenue receipts, which
accounted for RUB1,106bn over the first 10 months of 2008, the city's debt ratios
remain manageable and modest by national and international standards.
The City of Moscow is the capital of the Russian Federation and its economic and
financial centre. The city accounted for 21% of Russia's GDP in 2006, a much higher
proportion than its 7.2% share of the country's population.

21. RBC Information Systems meeting bondholders in bid to restructure debt
Unicredit, Russia
January 15, 2009

Topic: RBC is to hold a meeting today with the holders of its ruble exchange bonds in

Our view: Without precise information from the company, we believe the major aim
of the meeting is to ask bondholders to prolong/restructure the debt. The company
has two series of ruble exchange bonds for R1.5bn ($48mn) each, which together
constitute about 50% of RBC's total debt outstanding. The first issue has a coupon
rate of 12.25% and matures on March 24; the second issue has a 10.99% coupon
rate and matures on July 9.

While negotiations with creditors are in process, RBC is attempting to avoid default
by improving its cash position and looking for a strategic investor. In November 2008
RBC said it reached an agreement with Barclays Bank on a short-term extension of
$45mn in CLNs issued in November 2007, but did not specify the timing of the

We would view an agreement with bondholders on the extension of debt obligations
as positive for RBC's share price, but the negotiation process could take several
weeks. For the time being, RBC is likely to remain under pressure.

Conclusion: We reiterate our Hold recommendation on RBC, with a 12-month target
price of $1.02.

22. RBC reportedly offers bond holders to restructure USD 100mn rouble bond debt
VTB Capital
January 16, 2009

Vedomosti reports that during yesterday's meeting between RBC's management and
the holders of the company's RUB 3.0bn (USD 100mn) rouble bond, management
suggested a scheme to restructure the company's rouble bond debt. According to the
paper, the suggestion was to convert part of the debt into notes maturing in 2010
and 2012 and to write off the other part. The creditors have two weeks to come up
with a final decision.

According to unnamed sources quoted by Vedomosti, RBC's current cash amounts to
USD 5-10mn, while according to a statement made during yesterday's meeting its
debt totals USD 235mn. Most of the debt is short-term and includes: i) a RUB 1.5bn
(USD 50mn) bond payable on 24 March; ii) USD 43.5mn, as the remaining part of
the USD 100mn CLN maturing in June (USD 56.5mn was paid in 1H08); and iii) a
RUB 1.5bn (USD 50mn) rouble bond due on 9 July.

Our View: If RBC manages to reach an agreement to restructure its debt, it would be
positive for the company. We remind investors that last November, the company
managed to prolong its USD 45mn CLN (which matured in November) with Barclays
Bank Plc (no details on the terms or period were provided).

Furthermore, given the substantial losses incurred on financial investments in 3Q08,
the company has been looking to attract loan facilities and restructure another short-
term debt since last autumn. In addition, it has been considering selling part of the

While the company did not elaborate on the amount of the loss incurred in 3Q08, the
deficit incurred since July is apparently material given that back then the company
had a cash balance of about USD 290mn (more than sufficient to cover all its 4Q08
and 2009 debt payments and capex needs).

The company has not yet provided its 2008 financials. In 1H08, RBC generated USD
109mn in revenues and reported a 32-33% EBITDA margin (which implies EBITDA of
USD 35-36mn). Management's FY08 guidance was EBITDA of USD 75-85mn on the
back of USD 265-275mn in revenues which, in our view, looks too optimistic now.
Given the slowdown in the Russian ad market, the advertising outflow seen in 4Q08
and the continuing economic slowdown, we believe that RBC might also have
difficulties in achieving its own targets in 2009.

23. Russia's VTB24 plans RUB14bn in mortgage bonds in Q1
January 15, 2009

VTB24, the retail banking arm of VTB, is planning to offer approximately 14 billion
rubles in mortgage bonds in the first quarter, a source with knowledge of the bank's
plans told Interfax.

"The bank is securitizing existing home loans on the domestic market," the source
said, adding that the total could exceed 14 billion rubles.


24. Samruk-Kazyna to place $992mn in bonds in Oct 2009
Rencap, Russia
Saturday, January 17, 2009

Event: According to Bloomberg and Interfax (8 and 9 Jan), Samruk-Kazyna has
announced plans to place KZT120bn ($992mn) in bonds with pension funds in Oct
2009 to support the housing and mortgage sectors. The bonds will have a maturity
of 15 years and carry an 8.5% annual coupon. Subject to demand, Samruk-Kazyna
may place another KZT360bn ($2.97bn) in bonds with pension funds. In addition,
Samruk-Kazyna plans to borrow a further KZT480bn ($3.96bn) from the National
Fund through issue of bonds. Meanwhile, Samruk-Kazyna will use its own funds to
enable completion of ongoing construction projects.

Action: Neutral for the banking sector, in our view.

Rationale: The news is in line with statements made by Samruk-Kazyna in December
when it announced that the earliest it would be able to issue bonds (it is our
understanding that Samruk-Kazyna was referring to that portion to be placed among
pension funds) would be Aug 2009, due to Kazakh Stock Exchange requirements
regarding provision of 2008 audited financials. The latter will be available only in
June 2009. The issue of borrowing from the National Fund was planned to be
discussed by the Samruk-Kazyna board in January.

25. XXI Century Investments cuts Lisnyky project from Eurobond collateral
Troika, Russia
Wednesday, January 14, 2009

XXI Century Investments announced effective February 12 the release of Evropeyska
Ploscha LLC, a subsidiary that owns title to the Lisnyky residential community
project, from its guarantee obligations under its $175m Eurobond due in 2010 (put
option in May 2009). After this release, the recently appraised value of the projects
that remain as collateral for the bond issue amounts to $547m, which meets the
indenture conditions.

Troika's view: In the current tough market conditions, we believe that the Lisnyky
project is one of XXI Century Investments' most liquid, since it is a completely
rezoned 55.5 ha land plot that can be split into individual plots and sold in parts for
individual developments. Although real estate and land prices have recently been
extremely volatile, we believe that taking into account the recent decline in market
prices for land, as well as the conditions and level of development of the Lisnyky land
plot, the market price for this plot is in the range of $0.6 0.9m/ha. Thus, the sale of
the project in pieces could generate $27 40m, which is comparable to the current
total market value of company's outstanding Eurobonds.

We believe that this news and the company's recent activity - including selling the
Kvadrat Balzaka project and removing the Boryspil project from the bond collateral
pool for possible further sale - indicate its proactive position to prepare for the
possible put option on its $175m Eurobond, which looms in May 2009. Although the
company does not have enough cash to cover that possible put option at the
moment, it appears to be making every effort to restructure its debt and accumulate
as much cash as possible by the put option date. Given these developments, as well

as the company's very depressed relative valuation, we maintain our BUY
recommendation on the stock at this stage.

Yevhen Hrebeniuk

RUSSIA loans
26. Comstar UTS interest rate on Sberbank loan raised; soft launch of WiMax in
Unicredit, Russia
January 16, 2009

Topic: Comstar said the annual interest rate on its five-year R26bn ($0.9bn) credit
facility from Sberbank increased from 9.50% to 13.35%, effective January 1, 2009.

In separate news, Comstar announced the soft launch of its WiMax network in
Moscow. The full commercial launch is planned for 2Q09; Comstar spent about
$20mn the project in 2008.

Our view: Although the interest rate hike is negative, we do not believe the price
impact will be material, as higher interest rates should already be priced into the
stock. The news does not affect our target price for Comstar: our Comstar DCF
model assumes 10% cost of debt in dollars; given our 8.75% risk-free rate for
Russia, we apply a 2.19% 10-year yield on US treasuries, suggesting a cost of debt
in rubles of 16.6%, still above the new interest rate on Sberbank loan.

We welcome Comstar's progress on its Moscow WiMax project but do not believe it
will be price-moving in the near term.

Conclusion: We rate Comstar Buy with a 12-month target price of $4.40.

27. EU, Russia considering loan for Ukraine
January 18, 2009

Czech Prime Minister Mirek Topolanek telephoned his Russian counterpart Vladimir
Putin on Monday, with the two leaders discussing a proposed European Union loan
for Ukraine of which part of the money would be provided by Russia, the Russian
government press service said.

28. Kyrgyz premier heading for Moscow to discuss $2 Bln loan
January 14, 2009

Kyrgyz Prime Minister Igor Chudinov left for a working visit to Moscow on Wednesday
morning, the Kyrgyz government press service told Interfax.

Chudinov is scheduled to meet with Russian Prime Minister Vladimir Putin to discuss
the development of Kyrgyz-Russian cooperation, it said.

Chudinov's visit is aimed at coordinating details of a Kyrgyz-Russian draft agreement
on lending $2 billion to Bishkek on preferential terms, which is virtually ready for

29. Mechel agrees to $255m credit facility from Gazprombank
VTB Capital
January 14, 2009

Mechel has agreed to a USD 255mn credit facility from Gazprombank. The money is
to finance the construction of the universal rolling mill at its Chelyabinsk production
site which will have an estimated annual production capacity of 1mn tonnes. The
company plans to use the mill to produce railway rails.

Our View: The credit line from Gazprombank is aimed at financing the company's
investment programme. Nevertheless, in terms of debt Mechel remains one the most
stretched of the leading Russian steel companies.

We remind investors that, earlier this week, the Bank for Development (VEB)
announced that it was to provide a USD 1.5bn credit facility to a metals and mining
sector company. Mechel is seen as the most probable candidate for this credit

30. MMK agrees to RUB20bn of credit facilities from two Russian banks
VTB Capital
January 14, 2009

According to Interfax, Magnitogorsk steel (MMK) has agreed to credit facilities of RUB
4bn (USD 128mn) from each of Sberbank and VTB.

The credit line from Sberbank is aimed at financing working capital and was
reportedly attracted under a pledge of property. According to speculation on
Interfax, the credit facility might have been secured using Viktor Rashnikov's
company shares, while the credit line from VTB will be received under a pledge of

Our View: Given that, according to earlier reports, MMK had agreed to a RUB 12bn
(USD 380mn) credit line from Sberbank to construct Plate Mill-5000, MMK has now
agreed to credit lines totalling RUB 20bn (USD 640mn) from two banks. MMK will
hold an EGM to approve these credit lines.

MMK has in addition also signed a RUB 3bn (USD 96mn) credit facility with Sberbank
to finance the construction of Plate Mill-5000.

As we have noted previously, in terms of its debt position MMK is currently on the
safe side and is attracting debt for investment purposes. Plate Mill-5000 obviously
remains the company's priority project, despite the tough market conditions.

31. Russias' Uralsvyazinform to raise RUB1bn
Rencap, Russia
Saturday, January 17, 2009

According to Vedomosti, VTB won an auction yesterday (12 Jan) to open RUB400mn
and RUB600mn credit lines to Uralsvyazinform. The interest rate will not exceed 19%
(the maximum at an auction). Action: We believe the debt refinancing will be
available to state-owned RTOs in 2009E though the interest expense will impact net
income. Rationale: The RTOs, which are owned by the state, are likely to have
access to rouble debt financing in 2009E. Given that capex programmes have been
cut by around 50% and RTOs are trying to finance them from internally generated
funds and via vendor financing, the proceeds will be used to refinance existing debt.
Uralsvyazinform bond holders in particular will have a put option for a RUB3bn issue
in Mar 2009. Rouble interest rates will inevitably increase impacting negatively on
net income. RTOs have almost all their debt denominated in roubles and as such
their financials will not reflect forex losses if the anticipated rouble depreciation
occurs in 2009. Ivan Kim

32. Russia's Glavmosstroi still struggling with debt
January 15, 2009

Media reports on Wednesday (Jan. 14) revealed that Alfa Bank had filed three
lawsuits against Moscow real estate developer Glavmosstroi for a total of $5.5 mn
(RUB 170.1 mn). The property company has previously managed to settle numerous
lawsuits - brought by Nomos-Bank as well as several suppliers - out of court.

The amount sought by Alfa-Bank pales in comparison with Glavmosstroi's total debt,
which we estimate at $841.7 mn as of 1H08 end. Given that $585.5 mn of this total
is long-term we do not see dramatic problems in the immediate future, but expect to
see significant difficulties further down the line should the company not successfully
add to the $150 mn it restructured recently with Bank of Moscow. While we believe
the developer should be able settle the current claim out of court, its heavy debt
burden is bound to continue weighing on the share price.

33. Russia's Sistema confirms tough medium-term debt payment schedule -
concerns remain
Unicredit, Russia
January 16, 2009

Topic: Sistema yesterday held a conference call to discuss its debt situation. As of
end-2008 Sistema had a total debt of $9.5bn, with debt/EBITDA of 1.6X. In 1H09
Sistema faces repayment of $2.9bn in debt (just $100mn was paid in 4Q08), of
which $1.4bn is attributable to subsidiaries other than MTS and Comstar, the only
two with safe debt/cash balances.

Key measures Sistema is undertaking:

_ Sistema plans to cut its capex budget for non-telecom businesses by 50% in 4Q08,
including by 35% for Shyam Telelink, 81% for MBRD (banking) and 83% for Sistema
Mass Media, which we estimate should save about $350mn-$450mn.

_ All of Sistema's divisions are now revising their capex plans for 2009, which we
understand may be cut materially, except for those of MTS and Comstar; _ Sistema
has agreed on several new credit lines for its subsidiaries, but did not specify any
details; _ Sitronics has applied for debt refinancing within the $50bn bailout package
released by the state to Vnesheconombank; _ Sistema does not plan to increase
MTS' dividend payout ratio, as it hopes to cope with the debt schedule without
having to take this measure.

In other news Kommersant writes that Sistema is in negotiations with Rostelecom on
the sale of SkyLink to the long-distance operator. Sistema owns 50% in SkyLink, but
has reportedly agreed to buy out the remaining 50% stake.

Our view: We do not believe the conference call has erased concerns about Sistema's
debt situation, but believe its key owner's loyalty to the Kremlin positions it well to
rely on support from state-owned banks like Sberbank. However, the internal
measures might not be enough to cope with the company's debt payment schedule
in 1H09 (except for MTS and Comstar).

We thus believe there is still a high probability that Sistema will have to raise funds
through an MTS dividend payout, or, under the worst-case scenario, seek to sell off
of some assets.

Negotiations on the SkyLink sale support such a strategy.

Conclusion: We rate Sistema Buy, with a 12-month target price of $20.0.

34. Russia's Svyazinvest applies to state banks for $1.2bn financing for regional
Unicredit, Russia
January 16, 2009

Topic: Svyazinvest applied to four state banks (VEB, VTB, Sberbank, and
Gazprombank) with a request for R40bn ($1.2bn) in credit financing for its subsidiary
companies at a 15%- 16% annual interest rate over 3-5 years, RBC Daily reports,
citing Svyazinvest CFO Elena Selvitch. The holding proposed collateralizing the loans
with the companies' telecommunications equipment.

In other news, on January 19, Svyazinvest's board of directors is to set a date for
the EGM at which shareholders elect a new board and CEO.

Our view: We welcome Svyazinvest's initiative, as a direct application to the banks
from a large state company increases the chance that the financing will be approved,
in our opinion.

We note that the amount requested equals the total debt of the seven regional
telecoms due in 2009. Of those companies, we see Southern Telecom,
Centertelecom, and Uralsvyazinform as most exposed to credit risks in 2009 and
therefore in need of external financing.

Conclusion: We reiterate our recommendations for fixed-line incumbents. We have a
Buy recommendation on Volga Telecom, Dalsvyaz, and Sibirtelecom, Hold on
Centertelecom and Uralsvyazinform, and Sell on Southern Telecom and North-West

35. Transmeridian misses interest payments
Visor Capital
January 13, 2009

No share impact is expected following the Company's de-listing

On 15 December 2008, Transmeridian failed to make its regular scheduled interest
payment on account of its 12% Senior Secured Notes due 2010. The 30 day grace
period to make payment expired on 15 January 2009. If Transmeridian fails to make
payment prior to expiration of the grace period, holders of the Senior Notes will have
the right to excise certain remedies against Transmeridian and its subsidiaries. In
light of Transmeridian's current circumstances, it is not likely that the holders of any
Transmeridian equity securities would receive any recovery on their investment.

Transmeridian announced that CaspiNeft had entered into a loan agreement with
OJSK Zere, providing for multiple draw downs of up to US$2m in aggregate at an
interest rate of 25%pa. Repayment is due 120 days following the final draw-down
under the facility. The facility is secured by a pledge of CaspiNeft's tangible property
including oil storage at South Alibek. As required by the loan agreement,
Transmeridian and CaspiNeft have entered into a consulting agreement with Erlan
Sagadiev, the purpose of which is to secure Sagadiev's assistance in stabilising field
operations, preserving asset value and working with Transmeridian's management to
effect a sale of CaspiNeft.

Transmeridian also announced management changes, with the CEO, Lorrie Oliver
stepping down his position, and Gary Neus and Fred Ziedman assuming positions as
Co-Chief Restructuring Officers.

No stock impact is expected, and the shares have already been de-listed from AMEX.
The currently do not have Transmeridian under formal research coverage.

Dominic Lewenz

36. Transneft chief: Russian-Chinese loan negotiations need political approval
January 13, 2009

The negotiations between China National Petroleum Corporation (CNPC) and Russia's
Transneft and Rosneft regarding loans to the Russian companies in exchange for oil
deliveries have reached the stage where they require political approval, Nikolai
Tokarev, the chief of pipeline operator Transneft, told reporters.

Mikhail Barkov, a Transneft vice president, said some of the Chinese credit could be
used to finance the construction of an inter-connector to transport oil produced at
Rosneft's Vankor field to the West and East.

37. VTB Bank opens 10 bln rbl credit line to Russian construction company
January 12, 2009

Russia's VTB Bank has opened a 10 billion ruble 2-year credit line to construction
company USK Most, the bank announced Monday.

The funds were provided for the construction of facilities for the 2014 Winter Olympic
Games in the Black Sea resort of Sochi. Specifically, USK Most will use the funds to
purchase equipment for the construction of a highway and rail segment connecting
the town of Adler with the Roza Khutor ski resort.

38. EBRD considers loaning Ukraine's Lviv up to €100m
Concorde Capital, Ukraine
January 17, 2009

The European Bank for Reconstruction and Development is considering a loan of up
to EUR 100 mln (about USD 133 mln) to the city of Lviv for infrastructure projects
ahead of the European Football Championship in 2012, City Head Andriy Sadovyi
said yesterday, according to Interfax. Sadovyi said the loan could be drawn at
LIBOR+2%. In mid-January EBRD officials are due to visit Lviv and Sadovyi says an
agreement could be inked by the end of spring.

39. Georgia approves 2009 budget
Press release from the Government of Georgia
January 12, 2009

Parliament approved on 30 December 2008 the 2009 budget. Total revenue of the
2009 is to increase by 0.9% y-o-y to GEL 5.5 bn, while total expenditure will
decrease to GEL 5.3 bn, down 5.2% y-o-y. Welfare expenditure is to increase by
20% y-o-y to GEL 1.3 bn, with healthcare, Education and Transport and
Communications expenditures also increasing significantly y-o-y. The increase in
these expenditures is funded primarily by the decline in Military expenditure by 39%
y-o-y to GEL 944 mln (4.4% of „09 GDP) from GEL 1.5 bn in 2008 (8.1% of „08
GDP). Revenues and expenditures of the 2009 consolidated budget as percent of
2009 GDP are forecasted to decline to 25.9% and 24.6% respectively, from 28.6%
and 29%, respectively in 2008. "I wish to congratulate my colleagues in the
executive and legislative branch on adopting a sensible, balanced and effective
budget for 2009. The budget contains a meaningful amount of fiscal stimulus in
welfare, education and infrastructure-related areas, while preserving the overall
fiscal balance and further shrinking the government_s fiscal footprint in line with our
long-term vision. I am delighted that we have been able to implement a personal
income tax cut (from flat 25% to flat 20% as they key element of our stimulus
package, and also wish to thank once again our donors for their generosity.)" ,
commented Nika Gilauri, Minister of Finance


40. Preliminary data suggests 3.7% drop in Ukraine's FX reserves in December
January 12, 2009

The December's level seems to be in line with IMF recommendations. Interfax
reported a preliminary estimate of central bank's FX reserves for December, which
suggests a 3.7% MoM drop to US$31.5bn. This figure is in line with our expectations
as the strong hryvnia devaluation trend forced the NBU to actively intervene in
December to knock down the sharp hryvnia weakening in mid-December.
Furthermore, the NBU managed to reverse the trend and to replenish slightly its FX
reserves in the second half of December. The NBU seems to have met the IMF
requirement to maintain the level of its net reserves at US$26.7bn as well as to
restrain the devaluation trend in December. The level of NBU's reserves at the year-
end is slightly above the net FX reserves plus a loan received from IMF in November
(US$31.2bn). According to the memorandum between Ukraine and IMF, the next
tranche of the loan should become available in February 2009. Investment
implications: The NBU met IMF's requirement on the level of its FX reserves thus
raising the possibility to receive another tranche from IMF. The level of NBU FX
reserves is still high enough to support the hryvnia stability within the medium-term

41. S&P takes Odesa's ratings off Creditwatch
Concorde Capital, Ukraine
January 16, 2009

Standard & Poor's Ratings Service said in a statement this week that it has taken the
city of Odesa's 'B' long-term rating and 'uaA' national rating off CreditWatch,
following the successful redemption of Odesa's bonds on Dec. 31, 2008. The ratings
outlook remains negative.

42. Ukraine's foreign reserves down slightly, to $31.5bn, in December
Rencap, Russia
Saturday, January 17, 2009

According to data released yesterday (12 Jan) by the National Bank of Ukraine
(NBU), Ukraine's foreign reserves decreased by $1.2bn in December, to $31.5bn, vs
$32.7bn at the end of November. At the same time, net foreign currency
interventions by the regulator in December amounted to $2.8bn. We believe the
decrease in reserves was partially offset by appreciation of the euro (according to the
NBU, a significant proportion of its reserves are euro-denominated). Ukraine's
current level of gross foreign reserves is likely to meet the IMF's requirements,
according to which the NBU's minimal net international reserves (reserve assets that
are readily available for intervention) should not drop below $26.7bn at end-Dec
2008. For the next quarter, the IMF stipulates that the regulator's foreign reserves
should be no less than $21.8bn at end-Mar 2009. At the same time, the new $2bn
tranche of the IMF's standby loan to Ukraine is expected in mid-Feb 2009.
Accordingly, we believe NBU still has some reserves to smooth out possible sharp
fluctuations of the hryvnia in the short term (as we saw in the second half of
December). Anastasiya Golovach

43. Ukraine's Dnipropetrovsk plans debut bond issue
Concorde Capital, Ukraine
January 17, 2009

The Eastern Ukrainian city of Dnipropetrovsk reported yesterday that it plans to issue
UAH 100-150 mln (USD 13-20 mln) in local bonds in 2Q09. A city official said that
proceeds will be used on energy efficiency projects, building roads, renovating the
communications network and improving housing and utilities. Dnipropetrovsk has a B
rating from S&P with a negative outlook.

44. Ukraine's trade gap declines to $1.6bn in November
Rencap, Russia
Saturday, January 17, 2009

According to the State Statistics Committee (14 Jan), exports in Nov 2008 continued
to fall, amounting to $3.7bn vs $5.7bn in October. At the same time, the drop in
imports was higher, amounting to $5.3bn in November vs $7.6bn in October.
Therefore, the trade gap for goods in November declined slightly to $1.6 bn (vs
$1.9bn in October) resulting in a foreign trade deficit for Jan-Nov 2008 of $17.8bn.
In November, volumes of ferrous-metals exports (which now contribute about 30%
of total exports for 11M08 vs 43% for 10M08) halved to $1bn (vs $2bn a month
before). At the same time, there was a decline in all main imports' categories: Oil
and gas imports dropped 30% in November to $1.6bn vs $2.1bn in October; and
imports of ground transport vehicles declined 49% to $0.56bn vs $1.1bn in October.

We expect these trends to develop in Dec 2008 and the beginning of 2009 due to
continuous weakness in metal and mining output and the depreciating hryvnia which
will mitigate against imports growth.

In November, FDI inflow continued to decelerate, reaching $0.3bn, the low of 2008.
Overall, the capital and financial account was $1.7bn in deficit (vs $2.1bn in October)
resulting in an overall balance of payments deficit of $3.3bn vs $4bn in October. We
expect FDI to decline next year and, as previously, to consist mainly of investments
in the banking sector. The NBU and government have already, at the end of 2008,
pushed Ukrainian bank shareholders to inject new capital. IMF funding next year is
expected at $9.6bn.

45. Ukraine's Ukrzaliznytsya pays off 50% of debt to Kryukiv Wagon
Concorde Capital, Ukraine
January 16, 2009

Ukraine's Minister of Transportation and Communications Josyp Vinsky said this week
that state-owned railway operator Ukrzaliznytsya has paid off 50% of its debt to
Kryukiv Wagon (KVBZ). Vinsky said that the remainder of the outstanding amount
would be paid in 1Q09. According to Vinsky, Ukrzaliznytsya plans to purchase 170
new passenger railcars from Kryukiv Wagon in 2009; it ordered 180 in 2008. On
Nov. 21, 2008, Kryukiv Wagon said it was owed UAH 200 mln (about USD 26 mln)
from Ukrzaliznytsya.

46. Ukrainian Hryvnia continues to lose value
January 12, 2009

The hryvnia continued to lose gradually its positions yesterday. UAH/USD exchange
rate closed the day with another 1.85% decline to its three-week minimum of
8.15/USD. The rate was even lower during the day (8.45/USD) on the back of
excessive demand for foreign currency and absence of any information about
possible NBU interventions. Thus the majority of market deals were closed at 8.30-
8.40/USD. Late entrance of the NBU with its intention to sell US dollars at 8.21/USD
allowed to reduce the closing rate to 8.15/USD but had not influenced the bulk of
market deals as NBU informed the market quite lately about its intention. Unless
Ukraine and Russia will not reach any agreement on new gas price for Ukraine in the
near-term period, we expect that domestic FX market will be still suffering from
some panic mood regarding unsolved gas issues. This panic should further lead
exchange rate equilibrium level towards weaker hryvnia. Thus firm interventions of
the NBU within nearest 2-3 days will allow to stabilize market level and even to
strengthen hryvnia slightly. Today is a public holiday in Ukraine. Thus in case the
NBU will not announce about its intention to intervene (and the level of
interventions) before market will open on Thursday, we can expect another hryvnia
devaluation trend tomorrow morning

47. Czech target for euro adoption to be set in 2009

January 9, 2009

After several weeks of depreciation the Czech koruna finally recovered some of the
lost ground this week, from levels around EUR/CZK 26.80 back to 25.90. Compared
to the quite December month the activity on the Czech government bond market
was slightly more lively at the beginning of the year. According to the official data
the state budget deficit reached CZK 19.4 bn in 2008. The originally approved deficit
was significantly higher with CZK 70.8 bn. Despite the fact that the deficit is roughly
twice as high according to ESA methodology, it still seems like a good result,
although the details have not been published yet. The Ministry of Finance announced
its plan to continue issuing floating rate notes in January to February. With regard to
the euro adoption one can see significant change in the government's attitude.
Premier Topolanek said the adoption date will be fixed in November 2009. Market
outlook The latest data on inflation (a drop to 3.6% yoy in Dec) and economic
activities in the Czech Republic clearly show that the Czech National Bank (CNB) still
has room to cut its key rate further. We expect the CNB to reduce its key two-week
repo rate by 25 to 50bp in Q1. However, the Czech koruna is, as usual, an important
variable also for monetary policy considerations. We expect the CZK to remain on
the weaker side against the euro during the first quarter of 2009. Next week we
should see another confirmation of the deceleration of the economy with industrial
production in November expected to have fallen by 11% yoy


48. Demand for Polish bonds still upbeat
January 9, 2009

The final week of 2008 as well as the beginning of the new year were positive for the
Polish bond market. We saw a further fall in yields along the whole yield curve, but
the most aggressive moves were concentrated on the short end. This week, market
participants were impatiently waiting for the tender for 2-year bonds (OK0711),
which was held on Wednesday. The first tender in 2009 went surprisingly well.
Demand for Polish papers exceeded 10 bn zlotys, with supply at 3.596 bn. The Polish
Ministry of Finance additionally sold bonds with a nominal value of PLN 700 mn at a
top-up tender. After the successful tender, two-year bond yields on the secondary
market fell noticeably. Market outlook We reckon that the Polish MPC will deliver
more aggressive rate cuts in the coming months, than we previously expected. In
our opinion, already as early as in March the NBP key rate will be at 4% (100bp
below current levels). A 50-bp rate cut should be announced at the meeting
scheduled for 27 January. If this scenario materialises bond yields should also
significantly fall in Q1 2009. For now, the Ministry of Finance is taking advantage of
the current market conditions and healthy demand for Polish papers. As long as
investors are counting on further rate cuts, demand for bonds should remain robust,
especially now at the beginning of the new year as foreign investors also seem to be
eyeing Polish bonds as an investment opportunity.


49. Has the recent currency weakening caused unease with central bankers so far?

January 16, 2009

Acknowledging the risks connected with the high volatility of the currency, the
central bankers are mostly backing the PM's euro strategy. Hawkish MPC member
Noga said that there is still space for more rate cuts and he believes that Poland
should have no problems meeting the inflation criterion. However, if the talks with
the EU are not successful, he said, "the sky won't break if Poland will have to delay
euro adoption." Jana Krajcová, Ceska sporitelna The weakening has had this result to
some extent in the Czech Republic. Even though no central bankers have
commented yet on the latest evolution of the EURCZK exchange rate, minutes from
the last Czech National Bank meeting mentioned this as a single pro-inflationary risk.
Since the CZK is a very important factor in monetary decision making here, we
expect the bankers to comment on the recent weakening in the run-up to the
upcoming meeting (February 5). We think that they will still cut the rates (industry's
horrible performance will force them to), but the situation behind that is where the
weakness of the CZK will come into play (limiting further cuts). Martin Lobotka,
Ceska sporitelna The Romanian central bank closely monitors the developments on
the local FX market, sticking to the managed floating regime, as a sharp RON
depreciation puts substantial pressures on the inflation rate. Dumitru Dulgheru,
Banka Comerciala Romana

Given the fact that the Croatian National Bank targets a stable exchange rate as a
key monetary policy variable, the weakening in recent weeks (in the 1-2% region)
triggered a CNB reaction, with an adjustment of the mandatory reserve calculation.
The proportion of the reserves that have to be kept in Croatian kuna (from 50% to
75% of the foreign currency base) was increased, stimulating demand for the
domestic currency and stabilizing the FX market. The CNB is expected to maintain a
similar behavior pattern in pursuing its stable exchange rate goal. Alen Kovac, Erste
Bank Croatia The Ukrainian National Bank has been trying to prevent a large
devaluation of the hryvnia. At present, the NBU is conducting FX interventions on a
daily basis. Since the new year, the local currency exchange rate relative to the USD
has remained unchanged. Maryan Zablotskyy, Erste Bank Ukraine In Hungary, the
3% inflation goal will be undershot (even with the weaker forint), due to food, fuel
and recession factors. However, a durably weaker forint (than 285-290) could still
cause unease for central bankers, due to financial stability reasons, as the proportion
of FX-based loans in the portfolio of the domestic banking system is high. In
addition, if the forint exchange rate breaks historic lows, it could lead to even higher
volatility and intolerable movements. So, the overall caution in the rate reduction
process will not change. Orsolya Nyeste, Erste Bank Hungary

50. Hungarian national bank could continue rate cutting cycle
January 16, 2009

HUF depreciated near to all-time low levels against the euro which were seen last
October. Pressure on the HUF was enormous, as all factors - global, regional and
local - pointed to weakening. Global sentiment deteriorated rapidly on the heels of
the weak US labour market report and negative corporate news, and this resulted in
weakening for Emerging Market assets. Regional news was also disappointing: the
massive downturn in Czech industry and the record lows for the RON hurt HUF along
with the regional assets. Local rumours about this week's IMF visit had a negative

impact as well. In line with the massive decline in industrial production, the trade
volume also contracted 10% (yoy) in November. CPI inflation dropped rapidly in
December, confirming the central bank's rate cuts. Market outlook Despite the weak
HUF levels, the National Bank could go on with the rate-cutting cycle if they feel
comfortable with the EUR/HUF rate. A 50bp cut next Monday could cause some
temporary HUF depreciation. We do not expect any improvement in the
aforementioned factors over the next months, which mean that the pressure on HUF
will remain high. However, we do not expect EUR/HUF to remain long over the 280
levels. If the forint levels support the continuation of the rate cuts it would help the
bond market. We still recommend BUYing HGBs on the 3-month to 2-year horizon.
As the economic outlook has worsened significantly since the IMF agreement, it
seems that the government's inflation and GDP target will be undershot. This means
that this year's budget has to be adjusted to achieve the budget deficit goal

51. Industrial output shrinks in Hungary
January 9, 2009

Hungarian industrial production shrank by 12.2% in November, the biggest decline
since 1992 and the sixth consecutive monthly drop. This data underscores that the
Hungarian economy was already in recession in H2 2008, and the outlook for the
upcoming quarters is even gloomier, as we could see further massive cut-backs and
production curtailments in the recent months. On Monday, the Monetary Council left
the base rate unchanged at its non-rate setting meeting. Previously, the central bank
lowered the base rate twice (at the rate and non-rate setting meetings) in December
by 50 basis points. Central bank governor Andras Simor confirmed that the MNB is
devoted to lowering the key rate - which would be justified by the recessionary
conditions and the falling inflation rate - but stressed that they should consider
financial stability aspects (HUF stability) as well. Market outlook EUR/HUF broke out
from the 263-268 trading range after more than two quiet weeks, and the HUF
headed for its lowest levels in the last 2.5 months (reaching 275). This depreciation
was mainly due to deterioration in global market sentiment after the dismal
employment report in the USA, but domestic factors (weak industrial output) also
took a toll. Nonetheless, we do not anticipate further significant weakening in the
near future. Despite HUF depreciation, we expect the MNB to go on with rate cuts -
with 50-100bp easing on 19 January. We still recommend BUYing HGBs on a 3-
month to 2-year horizon, although selling is dominating the bond market in the New
Year with the yields climbing again


52. Lithuania FDI inflow falls 20.7% in Jan-Nov
January 19, 2009

The inflow of foreign direct investment (FDI) in Lithuania reached 3.54 billion litas
(EUR 1.03 b) in January through November last year, a decline of 20.7 % year-on-
year, the central bank reported, BNS said. The net FDI inflow in the 11 months came
to 2.44 billion litas. The FDI inflow financed 17.9 % of the current account deficit in
the reporting period.

53. Lithuania real estate market falls by 30% in 2008
January 19, 2009

Lithuania's real estate market, one of the main victims of ongoing financial crisis,
plunged by more than one-third on average last year, BNS reported official data as

The downturn affected all segments with the demand in cottages showing the
steepest decline. Some smaller towns reported zero real estate sale transactions for
some months of 2008.

According to the data made available by the Center of Registers, house sales
dropped by 32.7 % in Lithuania last year compared with 2007. Apartment sales
shrank by 35.8 %, non-residential buildings and premises - by 38.7 % and 20.1 %,
respectively, cottages - 50.4 % and land parcels - 33.9 %.

Apartment sales in Vilnius declined by 31.7 % in 2008 year-on-year, in Kaunas - by
33 %, Klaipeda - 38.2 %, Siauliai - 40.4 % and Panevezys - 35.7 %.

54. Rate cut expectations boost demand for Polish bonds
January 16, 2009

 Last week we saw a further decline in yields as growing expectations for steeper
rate cuts in Poland and recent successful bond tenders gave meaningful boost to
demand for Polish papers. Still, the shorter end of the yield curve was eagerly
bought as it is seen as safe bet due to current expectations regarding the most
probable rate path and economic development. Bonds with longer maturities are a
bit more stable and declines in yields are limited because of higher risk premium and
higher supply of bonds expected in near future to cover budget needs. Market
outlook In coming week investors will probably focus on industrial production from
Poland (released next Tuesday). It seems that in current environment some of
members of the Monetary Policy Council consider this indicator to be very important.
Assessments of future economic conditions are currently much more influential on
MPC rate decisions than price stability which is thought to be achieved without any
efforts by the Council. For the time being, demand for bonds is significantly higher
than offers made by Ministry of Finance. Demand is coming from the domestic as
well as foreign investors. This may, however, only be temporary. The weakening
zloty has already some negative impact on willingness to buy bonds. Despite the fact
that we are expecting further rise in bond prices, we are also seeing increasing risk
of sudden and severe correction in that trend in case of any signs of weakening
demand for Polish bonds or troubles in placing bond offers in neighbouring countrie

55. Zloty falls below €4
January 12, 2009

On Tuesday the zloty continued its rally, having broken 4.0000/€ and closed at
3.9500/€. In 4Q08 the Polish currency substantially underperformed its CE peers due

to the massive closing of the long PLN positions by enterprises (generated by
hedging positions with exotic options) and large, short zloty positions by foreign
players. The strengthening we see now is accelerated by profit taking and it will help
the zloty catch up with other CE-4 currencies. We see the move to 3.85/€ as the
target for the next days, but in order to catch up with HUF, €/PLN needs to
strengthen to about 3.70/€. The bond market continued its rally (yields dropped by
6-7bp in 2-5y segment), driven by demand from foreign players. On Wednesday, the
MinFin will offer a rather high supply of 2y papers (PLN3.2-3.5bn), but we think it
should find enough demand and should be seen as a signal of rather robust market
conditions. Investment implications: We see the move to 3.85/EUR as the target for
the next days (but still in order to catch up with EUR/HUF and remove EUR/PLN
underperformance from the last 1.5 months, the zloty needs to reach 3.70). The
bond market rally is still driven by foreign demand. The 2y papers auction should be
well bid

56. Croatia sees strong decrease in inflation
January 16, 2009

In Q3 2008, there was a surplus on the current account, which amounted EUR 1.8
bn, representing a 10.7% decrease in annual terms. Latest data show that the
current account deficit as a percentage of GDP amounted to 10.8%. The most
important negative influence came from further deterioration in the trade balance, as
the trade deficit was EUR 2.7 bn in Q3 2008. At the same time, a positive
contribution came from the service account, mostly as a result of revenue increases
in the tourism sector (higher inflation and appreciation of kuna) on an annual basis.
For the rest of the year we expect further pressure on the current account deficit,
mostly due to further deterioration in the trade balance. In December, inflation
pressures continued to weaken. At a monthly level, inflation was lower by 0.6%,
while at the annual level prices rose 2.9% in December, representing the lowest
inflation level since September 2007. Average inflation in 2008 amounted 6.1%. At
the beginning of this year it is possible there will be a slight intensification in
inflationary pressures, due to increase of prices of natural gas, medical services and
tobacco. Exchange rate comment Despite the low turnover at the end of the last
week, the increased demand for foreign currency from banks resulted in an increase
in EUR/HRK and a similar trend continued at the beginning of this week. The FX rate
increased from 7.31 to 7.345. However, selling of foreign currency due to the
beginning of the new reserve requirement period under the new regulations for the
first time and this year's first reverse repo auction resulted in a brief decline in EUR/
HRK to 7.325. Interest rates on the domestic market increased significantly, showing
the need for additional liquidity. At mid-week trading was held around EUR/HRK
7.34. At the weekly level we do not expect to see significant changes in EUR/HRK.
However, on monthly basis we expect an increase in the FX rate

57. Economic activity slows in Romania
January 16, 2009

Latest data reveal a rapid deceleration in economic activity in the final months of
2008. Industrial output decreased by 11.5% yoy in November. The growth rate of
retail sales fell to only 2.8% yoy in November (from 17% yoy in Q3 2008), while
construction sector growth slipped to 13.5% yoy from 16.7% yoy in October. The
data point to a very weak figure for GDP growth in Q4 2008 (close to 3% yoy).
Slower growth in domestic aggregate demand was also reflected in the current
account deficit which started to shrink (as % of GDP). Although exports decreased in
annual terms in November (-9% yoy), imports felt faster (-17% yoy). We expect the
current account deficit close to 13% of GDP at the end of 2008, down from 13.9% of
GDP at the end of 2007. Market outlook Recent data show that the risks of a sharp
correction in excess demand in 2009 have increased. In this context, the
expectations of monetary policy easing have increased as well. However, the high
risk premium for Romania and the pressures for leu depreciation put pressure on the
central bank to keep interest rates at a high level, at least over the short term.
Management of liquidity in the banking system and defending the leu against large-
scale, excessive depreciation seem to be the main objectives of the central bank at
the moment. So, we expect interest rates still to remain at a high level over the
short term (despite the rapid deterioration in economic activity). The financing needs
of the government are also high due to the large budget deficit and this puts upward
pressures on bond yields. In January, the government took a lot of money from the
market by issuing T-bills and by taking short-term deposits from banks

58. Lowest GDP growth since 2000 for Croatia
January 9, 2009

In Q3 2008, GDP was 1.6% higher yoy, the lowest annual growth rate since the end
of 2000. The most important component of GDP, household consumption, slowed
considerably, showing only 0.4% annual growth, as a result of decreased consumer
optimism. As usual, faster growth in imports than exports of goods and services had
negative impact on GDP growth: during the period under review the trade deficit
grew by 18%. Growth of gross value added amounted 2.1%, with the most
significant growth recorded in the construction industry (8.5%). We expect to see
further deterioration in economic activity in Q4 2008. Furthermore, the adverse
external environment and economic slowdown in the EU countries may result in
economic contraction in Croatia in 2009. Exchange rate comment In order to limit
recent depreciation pressures on the kuna the CNB decided that banks holding
foreign currencies will have to increase the matching amount they hold in kuna.
Starting from the next mandatory reserves maintenance cycle the banks will have to
set aside 75% of their foreign currency mandatory reserves in kuna instead of 50%
as up to now. Estimates suggest that banks will have to increase their mandatory
reserves deposits in local currency by HRK 5.8 bn. We expect that latest decision of
the CNB may have a significant influence on the FX rate movements in upcoming
weeks, and hence in the upcoming period the EUR/HRK rate may remain in the range
7.25 - 7.35


59. No changes at the Romanian central bank rate setting meeting

January 12, 2009

In line with our forecast and market consensus, the NBR kept the monetary policy
unchanged at 10.25% for the third time. MRR ratios were unchanged as well. The
NBR decision to maintain the key rate and MRR ratios on both leu-denominated and
foreign currency-denominated liabilities of credit institutions indicates concern about
future exchange rate developments. We do not believe that these concerns come
from the impact of a weaker currency on inflation as the NBR suggests in the press
release - although this is correct - but rather from the impact on financial stability as
both households and corporates have significant FX exposure. A key rate and/or MRR
reduction, accompanied by a lower Lombard rate (currently at 14.25%), would have
increased the depreciating pressure on the RON and the NBR tries to buy time until
the February rate-setting meeting. At that meeting the central bank should have at
its disposal more information about 4Q08 economic activity. Given that we expect a
significant fall in GDP annual growth rate from 9.1% to 3.6% in the fourth quarter,
we believe the NBR might be forced to take some measures to restore economic
growth. Therefore, we look for both a key rate cut of 25-50bp and a MRR cut for
RON. However, an exchange rate of more than 4.2RON/EUR could mean only one of
these measures is adopted. As an indication of NBR's concern is the fact that for the
first time it talks about a "slowdown of economic growth amid lower investment
expansion, especially in the construction sector, diminished industrial output and
reduced export orders" in the latest press release, while the previous 30 October
statement was referring to "maintenance of high economic growth throughout 2008".
In order to pursue "an adequate management of liquidity in the banking system,
through the active use of open-market operations" the central bank has to make
additional changes in monetary policy implementation framework given the gap
between money market rates and key policy rate. Moreover, " gradual provision of
adequate liquidity in the banking system in a manner that would not encourage
exchange rate volatility" implies two things: (i) fear of RON weakening as a result of
liquidity injection in the interbank market and (ii) liquidity is likely to be injected at
some point in future. Investment implication: We keep our view that a key rate
and/or MRR cut are likely on 4 February. Otherwise, economic activity deterioration
might be pronounced in 2009 and it could stay in 2010 as well.

60. Romania looks for the 2009 budget plan
January 9, 2009

In 2008, the consolidated budget deficit climbed to 4.5% of GDP (or 5.2% of GDP
according to ESA 95 methodology), outpacing even the most pessimistic
expectations. One should recall that the former government over-estimated budget
revenue. Moreover, when economic activity slowed rapidly in Q4 2008 and banks
curtailed lending, companies held off from paying taxes to the budget. As a result,
collection of public revenues deteriorated sharply and the deficit jumped. The large
deficit pushed the new government to delay the adoption of the budget plan. The
new government said the budget target in 2009 would be 1.7-2% of GDP. In order to
reduce the deficit, the government intends to limit substantially current public
expenses (by cutting bonuses and the acquisition of consumption goods in public
sector). We think this is good news and a positive signal for the market, even though
the deficit target is optimistic from our point of view. With economic activity slowing
down substantially in the next quarters, collection of public revenues will deteriorate
and this will limit the decrease in the budget deficit. The large budget deficit also

hampers the capacity of the government to adopt a stimulus package for the
economy. Market outlook The NBR left the monetary policy rate unchanged at
10.25% on Tuesday. Money market interest rates are much higher (12-14% for
short-term maturities) and we expect them to remain close to the current level in
the next period. Strong government demand for money will also keep bond yields at
high levels. Regarding the exchange rate, pressures for leu depreciation remain


61. Romanian producer prices downturns accelerates
January 12, 2009

Industrial producer prices growth fell to 11.7% in November from 16.7% YoY in the
previous month. After slipping 0.1% MoM in the past two months, industrial producer
prices dropped 2.5% in October. Energy goods led the downturn by falling 6.6% on
the month as the annual growth pace slowed down from 23.8% to 3.7% in the space
of three months. As international energy prices bottomed in December, the
downward pressure coming from these is likely to dissipate in the data for the
following months. Nevertheless, a more persistent influence comes from the fall in
demand for manufactured goods. This is already visible in industrial output, which
has shrunk for the first time in three years, falling on an annual seasonally-adjusted
basis by 2.6% in October. As producers will struggle to meet the contracting
demand, producer price growth is likely to ease further. Investment implications:
With the growth of Romania's main trading partners expected to decelerate,
producer prices are likely to soften further.

62. Turkey's Koc holding raise $770m loan
ATA Invest
January 17, 2009

The debt is secured in two portions, US$ 320 mn at Libor+2.5 with 1-year maturity
and €339 mn at Euribor +4.5% with 3-year maturity.

Among the listed companies, Aygaz will utilize US$ 80 mn and € 53 mn, Ford Otosan
will utilize US$ 20 mn and € 25 mn while Otokar will use US$ 10 mn and Turk
Traktor will utilize € 55 mn. The remaining part of the debt will be utilized by other
group companies.

Overall this is good news for Koc Group and an indication of Koc Group's strong
creditability. On standalone basis, Koc Holding no debt redemption due in 2009.
Among the group companies, Aygaz has TL 319 mn debt maturing in 2009, this
borrowing will cover approximately 70% of Aygaz's debt and the remaining part can
easily financed by internally generated funds. On the other hand, Turk Traktor has
debt obligation of TL 317 mn due 2009. This borrowing will contribute to Turk
Traktor's debt payment positively.

63. Consumer inflation in Kazakhstan declines to 9.5% on yr in Dec

Rencap, Russia
Saturday, January 17, 2009

According to the Statistical Agency of Kazakhstan, consumer prices in Kazakhstan
increased just 0.2% MoM in Dec 2008 (representing the lowest growth level since
Sep 2006), resulting in a lower headline figure of 9.5% YoY for the month (vs 11.3%
YoY in November and 18.8% YoY in Dec 2007). The substantial decline in inflation
reflects lower oil prices in 2H08, as well as a slowdown in economic activity. Non-
food inflation declined to 5.7% YoY in Dec 2008 vs 10.5% YoY in Dec 2007. The
tendency of food inflation to be the major contributor to consumer prices growth
reversed in December, as food prices grew 10.8% YoY in the month, vs 26.6% YoY
in Dec 2007. Services prices increased 11.4% YoY in Dec 2008, vs 15.4% YoY in Dec
2007. At the same time, producer prices declined for the second consecutive month,
by 15.5% MoM (-18.6% MoM in Nov 2008), resulting in deflation of -18.6% YoY.
With oil prices down more than 50% in 2008, the PPI decline was driven by
extraction prices - down 33% YoY in Dec 2008, compared with growth of 49.5% YoY
in Dec 2007. Manufacturing prices were up 6.5% YoY in Dec 2008 (vs 10.9% in Dec
2007), and utilities prices were up 16.7% YoY, vs 13.5% in Dec 2007.

64. Kazakh banks could have been "premature" on debt restructuring
Rencap, Russia
Saturday, January 17, 2009

Event: On 5 Jan, KazTAG reported (as quoted in an IR statement by KKB) that
Samruk-Kazyna has acknowledged earlier comments on possible restructuring of the
foreign debt of Kazakh banks may have been premature. Samruk-Kazyna's
managing director, Kairat Aitekemov, was quoted by the Business and Vlast
newspaper as saying that, in response to statements made by the government, the
top four banks issued statements saying they do not need nor plan debt
restructuring. "This means they have the resources to repay their debts. And they
have made the announcement in order to protect their credit ratings. This means our
offer to them is premature," said the director. He also added that the government
intended to support the banks if these resources were insufficient.

Action: Positive for the reputational standing of the Kazakh banking sector, in our

Rationale: The news follows statements made by the four largest Kazakh banks,
Halyk, BTA, KKB and Alliance, in late 2008. These banks attempted to assure
investors that they have sufficient funds to meet their foreign debt obligations and
do not intend any debt restructuring. The statements were made in response to
announcements made by government officials regarding possible foreign debt
restructuring. Moody's concerns over the high degree of uncertainty and
inconsistency in the statements translated into all four banks being put under review
for a possible downgrade in mid-December.

65. Kazakh central bank indicates an increase in foreign reserves
Rencap, Russia
Saturday, January 17, 2009

National Bank of Kazakhstan (NBK) reports that the country's foreign reserves
increased by $291mn, to $19.4bn, in December, and were up $2.0bn over 2008, due
to higher revenue from oil exports. Foreign currency sales on the domestic market
and government debt servicing, as well as a reduction in commercial bank foreign
currency correspondent accounts at the NBK, were counterbalanced by the
reconversion of National Fund assets into foreign currency assets and foreign
currency receipts in government accounts at NBK. As a result, foreign currency
reserves added $180.4mn, to reach $17.4bn. Kazakhstan's gold reserves increased
by $119mn, to $2.0bn, in December, due to a 7.8% increase in the gold price over
the month. The value of the National Oil Fund increased by $534mn, to $27.3bn, in
December, and $6.3bn for the full year. Total international reserves increased by
$825mn, to $46.7bn, in December, and $8.3bn over 2008.

66. Kazakh Real GDP growth exceeds 3%
Visor Capital
January 8, 2009

The figure is in line with our expectations, but lower than the Government's previous
estimate of 4%. We expect no share impact.

According to preliminary data released by the Government, real GDP growth for
FY2008 "exceeded 3%". This figure is in line with our forecast of 3.1% YoY for
FY2008. In early 2008 the Government's target range for economic growth was
between 5 and 7%, although this was later updated to 5.3%, then to 5.0%, and
finally to 4.0%. We expect no share impact from the news.

67. Kazakh Stressed Asset Fund to issue bonds within two months
Visor Capital
January 14, 2009

According to a Samruk-Kazyna official, management of Stressed Asset Fund are
working on a mechanism for acquiring assets from commercial banks. Over the next
two months, the Stressed Asset Fund is to negotiate with commercial banks that are
interested in participating. The Fund then plans to value commercial bank assets that
it may potentially acquire, and then Stressed Asset Fund intends to issue bonds.
According to the same official, a US$430m capitalisation of the Stressed Asset Fund
is under way, and the Fund has already attracted foreign advisors.

Previously, Kazakhstan's Minister of Finance, Bolat Zhamishev, stated that Stressed
Asset Fund would be capitalised using US$1bn provided by the State and ca US$5bn
of private investments.

68. Kazakhstan's BCC raises $10mn from EBRD, $40mn from Citibank
Rencap, Russia
Saturday, January 17, 2009

Event: BCC has raised a five-year $10mn loan from the European Bank for
Reconstruction and Development (EBRD), and signed a $40mn loan agreement with
Citibank, the latter partially guaranteed by the US state agency, Overseas Private
Investment Corporation (OPIC).

The EBRD loan is part of the Kazakhstan Sustainable Energy Financing Facility, and
will be used to fund energy efficiency and renewable energy projects. BCC is the first
Kazakh bank to use the facility. The loan will also include technical assistance to
support sub-borrowers with the design, launch and implementation of sustainable
energy efficiency projects. The maximum sub-loan amount is $7mn, with loans
ranging from $250,000-2mn.

BCC will use the Citibank facility to expand its low-to-middle-income mortgage
lending portfolio, and will be made available in two tranches ($30mn, guaranteed by
OPIC for 10 years; and $10mn, provided by Citibank for three years). Both tranches
will have a one-year grace period on principal repayments.

Action: Neutral for the bank, in our view.

Rationale: Although the loans are not large, their availability is a clear positive for
the bank. In 2008, BCC increased its deposit base and significantly reduced its
leverage, with the loan-to-deposit ratio down to 116.9% at end-September. BCC
repaid $550mn outstanding for 2008. Its future redemption schedule is favourable,
with only $90mn falling due in 2009 and almost no repayments due in 2010. The
next largest eurobond repayment falls due in 2011.

69. Kazakhstan's Halyk Bank sells $40m worth of bonds
Rencap, Russia
Saturday, January 17, 2009

Event: On 9 Dec, KASE reported that Halyk Bank has placed 500,000 local bonds,
implying a 14% yield-to-maturity. The total proceeds from the placement amounted
to KZT4,848mn ($40mn). The bonds carry a 13% annual coupon paid semi-annually
and have a maturity of 10 years. In addition, Interfax reported (8 Jan) that Halyk
has increased its stake in JSC Pension Fund of Halyk Bank, from 82.012% to 98.64%
through the purchase of 10mn ordinary shares by exercising pre-emptive rights.

Action: Neutral for the bank, in our view.

Rationale: Although comparatively small in size, the placement is positive for the
bank, as it shows that some local demand is still present. Pension Fund of Halyk
Bank is the largest fund in Kazakhstan in terms of pension assets under
management and holds 28.6% of the market (as of 1 Dec 2008), according to data
published by AFN, the regulator.



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