Asset sale delays bolster cheapest valuations

Moscow Russian equities will maintain the lowest valuations among emerging-market stocks next quarter as the nation delays state asset sales, according to Alfa Capital Partners Ltd. and JPMorgan Chase & Co. Moscow's Micex Index slumped 11 per cent this quarter, while the Bloomberg Russia-US Equity Index of the most-traded Russian companies in the US tumbled 20 per cent. The decline sent Micex member valuations to 4.9 times estimated earnings, about half the average multiple for companies trading on the MSCI Emerging Markets Index. Russia-dedicated equity funds posted outflows for nine consecutive weeks through June 20, pulling out $535 million for the period, according to EPFR Global. Russia, which received 50 per cent of its budget revenue from oil and gas last year, plans to reduce its reliance on energy sales with President Vladimir Putin pledging last week to fulfill the government's state assets sale plans. Prospects for the government sale of a stake in power distributor OAO MRSK Holding faded after the company said on May 11 that it would merge with Federal Grid Co., the high-voltage transmission monopoly. "The ideas of reforms and state asset privatization are very good but investors have heard many such promises and feel disappointed by the past efforts," Victor Bark, head of asset management at Alfa Capital, said by e-mail on June 25. "In order for these government decisions to support the market, we need to see transparent implementation mechanisms and to know who will get which stakes in state-owned companies." Postponement The Bloomberg Russia-US Equity Index fell for the first time in three days, declining 1.6 per cent to 85.34. The RTS stock-index futures climbed 0.9 per cent to 128,260. Russia approved a plan on June 7 to loosen its grip on the economy this year by reducing state shares in OAO Sberbank, Russia's largest lender, tanker operator OAO Sovcomflot and fertilizer maker OAO Apatit. The plan targets revenue of 300 billion rubles ($9.3 billion) this year, with about half of that total coming from those three companies, Economy Minister Andrei Belousov said at the June 7 meeting. In April the government postponed a roadshow of the Sberbank stock offering as the bank's shares dropped below a level at which officials were willing to sell. Igor Shuvalov, Putin's first deputy, said on April 16 that the Sberbank sale may be delayed until 2013 or 2014. "The government sends ambiguous signals on privatization, showing commitment in principle on the one hand but reluctance to cede control of the most valuable assets on the other," Alex Kantarovich, head of research at JPMorgan in Moscow, said by e- mail on June 25. RusHydro, Mechel The RTS Index in Moscow rose for the third day in four, adding 0.1 per cent to 1,282.22, while the 30-stock Micex lost 1.7 per cent to 1,343.91. OAO RusHydro, Russia's largest renewable energy producer, dropped 5.1 per cent to $2.23. Shares traded in Moscow dropped 3.9 per cent to 76.1 kopeks, the equivalent of 2.3 cents. One ADR is equal to 100 ordinary shares. OAO Mechel, Russia's largest coal producer for steelmakers, pared losses of as much as 5.2 per cent to close unchanged at $5.93 in New York, as Goldman Sachs cut its rating on June 27 to neutral from buy. Mechel shares in Moscow slipped 2.5 per cent to 188.70 rubles, or the equivalent of $5.70. One ADR represents one ordinary share. Brent oil, which underpins Russia's Urals crude blend, dropped 2.3 per cent for an August settlement price of $91.36 a barrel on the London-based ICE Futures Europe exchange. It has retreated 26 per cent since March 30. Oil traded in New York fell to an eight-month low as US applications for jobless benefits hovered last week near the highest level of the year, reflecting concern about weakness in the US labour market. Crude for August delivery declined 3.1 per cent to $77.69 a barrel on the New York Mercantile Exchange as the Standard & Poor's 500 Index slipped 0.2 per cent to 1,329.04. Gazprom Declines OAO Gazprom, the world's biggest natural gas exporter, fell 3.1 per cent to $9.01 as Russia's Finance Ministry said it will revisit its natural-gas extraction tax proposals in August. The proposal to quadruple the extraction tax, announced in May, prompted the head of OAO Novatek, the largest non-state producer, to demand a revision of the "shocking" plans, saying the change would curtail investment. Gazprom shares in Moscow dropped 2.1 per cent to 150.69 rubles, or the equivalent of $4.54. One ADR represents two ordinary shares. The Market Vectors Russia ETF, a US-traded fund that holds Russian shares, lost 1.4 per cent to $24.80. The RTS Volatility Index, which measures expected swings in the index futures, fell 2.9 per cent to 36.86 points. United Co. Rusal, the world's largest aluminium producer, dropped 1.1 per cent to HK$4.44 in Hong Kong trading as of 9:59 am local time. The MSCI Asia Pacific Index gained 0.4 per cent on Friday.