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Demand for Russian corporate debt remains high.

May 22, 2002. TAG: Other

TNK said on Wednesday it was cancelling its new bonds after accountancy firm PriceWaterhouseCoopers said it had to correct TNK's audit. The firm's first deputy president Yosif Bakaleynik said the bond would be reissued in July if market conditions are favourable. Russian corporate bonds were quoted only marginally lower from their levels prior to the news. The benchmark for the sector, Gazprom's 9.125 bond due 2007, edged down by 0.25 points to 99 percent of face value bid. The comparatively modest dip in prices shows investors are still happy with the sector, said Vincent Megard, emerging bond fund manager at AXA Investment Managers. "Investors have placed a bet on Russian oil corporates and they still want to put their money there," Megard said. "PWC were very cautious in their statement - they said this is a problem that is related to TNK and it does not mean there is a systemic problem." The bond's withdrawal might even boost Russian corporate bond prices, which have been heading down this week, due to a glut of supply, said a trader at a German bank. "In the last three days we have seen a selloff in the Russian corporate sector... the $500 million TNK was a bit much for the market to absorb all in one go," he said. TNK's 2007 bond had been trading down prior to its cancellation, and was quoted at 98.75 percent of face value on Tuesday, lower from par at launch a week ago. Investors know that Russian banks and newly-formed pension funds are short of assets in which to invest. They provide a buffer which halts the worst price falls, said the trader."You have the underlying support bid, and the fact that these companies are highly profitable with stable cashflow. That underpins the sector," said the trader.

TNK WILL RETURN, LATER Market participants said TNK was expected to bring the bond back, but that it would be more expensive for the company, and was unlikely to happen as quickly as the company hopes. Despite the July deadline identified by TNK's Bakaleynik, traders reckoned on something closer to six months. "I would be a little cautious on the deal," said AXA's Megard. "I don't see them coming early... The market will ask for a big premium, firstly because it was cancelled, and also because it was not very successful when it launched." A syndicate official at a U.S. bank in London also said that TNK would probably have to offer a premium to last week's bond. "Investors are clearly going to have a nervous appetite, but TNK will be able to come back - the question is when. I think they will have to offer something extra to investors, but it depends on the market," he said. The primary market in 2002 has shown itself resilient to such shocks, however, the trader said. "Kazakh Oil cancelled a bond, but then Turan Alem turned around and printed a deal. I don't think it will hurt other Russian companies at all," he said. In March state-owned transportation company Kazakhoil cancelled an international bond launched via ABN Amro nearly a month after its launch, because the company had been abruptly merged into state-owned company Transneftegaz. But two private banks, Kazkommertsbank and Bank TuranAlem, have successfully sold bonds. (C) Reuters Limited 2002.

Alfa Group Consortium

Alfa Group Consortium ("Alfa"), founded in 1989, is one of the largest privately owned financial-investment conglomerates in Russia. Alfa Group is a combination of independent businesses, operating mainly in Russia and the CIS. Alfa companies’ businesses include commercial and investment banking, asset management, insurance, retail trade, water utilities, mineral water production as well as special-situation investments. Companies of Alfa typically focus on value-oriented, longer-term opportunities, primarily in Russia and the CIS, but also invest in other markets which form part of their strategic business objectives.

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