Инг Банк Евразия

FX and money market On the threshold of scheduled tax payments, on Thursday rouble liquidity worsened with interbank overnight interest rates climbing to 5-6%. In addition, Repo auctions resumed and totalled of RBL6.6bn with a weighted average yield of 6.06%. Nostro balances and CBR deposit accounts have reached RBL500.1bn (+15.1bn) this morning. In the first half of the coming week rouble liquidity is likely to remain tight due to tax payments and the end-of-month effect, while the beginning of the new month will promise improvements. In the FX market, the rouble ended the week at RBL26.24/USD (down four kopecks on the Wednesday). Over the long Russian weekend, the dollar dropped against the euro in international markets, reaching USD1.3175/EUR this morning. As a logical response to this move, we see the rouble at RBL26.17/USD and expect it to trade today in the range RBL26.15-26.21/USD.

Rouble bond market On Thursday before the long weekend, the rouble bond market remained in more or less good shape despite deterioration in rouble liquidity and some worsening in external markets. In addition, the good demand seen at primary auctions last week showed that market sentiment in general was rather positive. Government papers felt some pressure on the back of a fall in US10Y due to higher than expected CPI figures published on Wednesday. Corporates moved in various directions, although players refrained from any notable sales. This week we expect prices to remain under the pressure of tax payments and the end-of-month effect, as well as the agenda of primary placements (RBL8.3bn to be offered). However, with the beginning of the new month, rouble liquidity should recover, which will be very helpful for local debt. Olga Golub, Moscow (7 495) 755 5176 S&P upgrades Gazprombank to investment grade S&P has raised Gazprombank''s credit rating from BB+ to BBB-, pointing to the increased probability of support from its, parent Gazprom. The move followed an increase of the bank''s capital by US$1.3bn in December 2006.

We do not expect the assignment of investment grade from S&P to affect the pricing of Gazprombank''s local bonds, which have already been priced quite high. In our view, the bonds of Russian Agricultural Bank look more attractive in terms of yields and also have the possibility of spread tightening. Issue Maturity Put/Call Mod Dur (yr) Coupon (%) Size (RBLmn) Price (%) YTM/YTP (%) Spread to OFZ (bp) Gazprombank-2 20.11.2013 28.11.2007 3.24 6.54 5000 99.50 7.38 117 RSHB-1 04.06.2008 1.13 7.20 3000 101.45 6.66 87 RSHB-2 16.02.2011 3.22 7.85 7000 101.96 7.48 127

Stanislav Ponomarenko, Moscow (7 495) 755 5480 WTO accession This week in Geneva, Russia starts a new stage of multilateral negotiations on WTO entry Tomorrow, Russia begins a new round of multilateral negotiations on WTO entry. As the Russian side has acknowledged, negotiations will be neither easy nor simply technical. Although the main issues have been agreed, the sides now need to return to the complicated issue of intellectual property rights and their protection in Russia. Although Russia may state that progress is being in made right direction, the demonstrated pace of change may not be satisfactory for the USA and EU. In addition, the political aspect is important for entry, and the recent speech of President Putin in Munich is unlikely to enthuse the USA much in its support for Russia''s entry. Although Russian-Georgian negotiations have been scheduled, they may not be continued this time. The position of Georgia, which blocked the process of Russia''s entry in response to the serial aggravation of its political and economic relations with Russia, has become the most crucial obstacle for accession. Although the Russian delegation has managed to compromise on the most complicated problems, Georgia still wants Russia to close its customs offices in Abkhazia and South Ossetia in exchange for entry. Nevertheless, we believe that the last barrier will be finally eliminated already in 1Q07. The gradual stabilisation and warming between Russia and Georgia is becoming clearer, and Russia has not ruled out that economic sanctions against Georgia will be fully removed soon, including the transport blockade and the resumption of Georgian wine and mineral water imports to Russia. We also remain positive on Russia''s entry in 2007. _ Investment implications: We expect the progress on WTO negotiations, which should open avenues for the long awaited entry to the organisation and make it possible this year. We expect political and economic gains from accession, in particular in the mid and long terms, and further acceleration in foreign investment inflow. Julia Tsepliaeva Moscow (7 495) 755 5489 Foreign debt may triple in 2007 The Belarusian government has apply for a US$1.5bn loan from Russia Last week, The Russian Economy Minister German Gref commented on the application of the Belarusian government for a loan of US$1.5bn. The Belarusian side wants to get this money to finance the financial gap which appeared in 2007 with the reduction of Russia''s energy subsidy (an increase in gas prices and the introduction of oil export duty). There are several important consequences which should be considered in the framework of this loan: * Belarus is very likely to get this loan, although conditions are likely to become a subject of additional negotiations. It is much better solution for Russia: the previous indirect and non-transparent mechanism of subsidising the Belarusian economy and budget will be gradually replaced by a direct and clear financial scheme. Russia''s political influence is likely to increase. * Belarus wants to receive a sovereign loan rather than to borrow on the market, which is understandable. The mid-term market rate could be 11-12%, but Russia is very likely to lend cheaper. In addition, it will be much easier to restructure the loan if necessary. * Previously, Belarus has planned to borrow RBL10bn (US$380m) on the Russian market - and we believe that the new loan is unlikely to change this plan. At the same time, Belarus may prefer to postpone the borrowing from 1Q07 to 2Q07. * Although the loan will triple the government''s foreign debt (from US$0.85bn to US$2.4bn), its volume will remain very low at 5.5% of GDP - far from alarming. _ Investment implications: We expect Belarus will get the loan of US$1.5bn from Russia, and that it will be very likely to be approved for political reasons. This will not significantly affect the country''s debt profile. We also believe that Belarus will borrow on the Russian local bond market in 2007. Julia Tsepliaeva Moscow (7 495) 755 5489 <<07.02.26.pdf>>

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