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Capitalization in Russia
May 19, 2006 17:14

April proved a successful month for bulls this year, with RTS index jumping 15.5% up to 1657.28 points, new highs for oil and metals, and continuing geopolitical tensions across the world.

It is a small wonder that stocks of most of the Russian companies have hit an upward trend. The aggregate capitalization margin of Top 100 amounted to 17%. Some of the blue chips, like Gazprom, Sberbank, and Norilsk Nickel, have outstripped RTS and now lead at the stock exchange

Yukos, a once major oil company in Russia, was abreast of the market as well soaring 46% at RTS. Experts note, though, the rise is due to speculations rather than reflecting real growth.

Gazprom, Russia’s gas giant, is now vying for the third place among the world’s most capitalized corporations. On April 16, 2006, Alexey Miller announced that the company reached the record $300bn.

Apart from the corporate statement, Morgan Stanley intends to boost Gazprom’s stake in MSCI Russia Index from 5.85% to 29.15%, and in the MSCI Emerging Markets Index from 0.38% to 2.45%. In August, the moves will bring the company’s share to 45.14% in the former, and to 4.79% in the latter indices.

The upgrade immediately drew Western investors, which prompted an 8.5% hike on MICEX within one trading session.

The second big news was the launch of Level 1 ADRs, enabling non-residents to invest in Gazprom. The threshold for shares bought is limited to 35% of the company’s authorized capital, though.

Mining and Metallurgical Company (MMC) Norilsk Nickel is at Gazprom’s heels, up 33.96%. This year, NorNickel rose more than 42% on RTS while Gazprom now stands 61.5% higher than at the beginning of the year. In the first quarter of 2006, the company produced 60 thousand metric tons of nickel and 109 thousand metric tons of copper, 775 thousand ounces (24.1 metric tons) of palladium and 184 thousand ounces (5.7 metric tons) of platinum.

Net profits of Wimm-Bill-Dann (WBD), Russian foods producer, increased by 31.7% in US GAAP terms in 2005 and totaled $30.3m. Revenues were up 17.7% to reach an amazing $1.4bn. Likewise, its capitalization climbed 27.33%.

Wimm-Bill-Dann Foods OJSC Level III ADRs are listed on the New York Stock Exchange under the symbol “WBD”. On May 18, 2006, Standard&Poor’s Governance Services announced the upgrade of WBD’s Corporate Governance Score (CGS) from 7 to 7+ (from 7.3 and 7.7 accordingly on the Russian national scale), which makes the company’s score the highest rating in Russia.

On the other side of the scale lies Avtovaz, Russia’s largest carmaker, who turned 40 this year but whose capitalization slid 22.46%. Analysts point to the ungrounded growth in terms of products’ face value and a gross margin decrease to 3% in the fourth quarter. The company may be in danger if its profits do not bounce back up to 10%, point out the experts. Avtovaz may be in serious trouble very soon, cornered by toughened competition now that Ford and Toyota have come to Russia to build their own assembly facilities. Nissan has the same intentions, along with some German carmakers.

The new management taking up the plant at the end of last year came from the state-run corporation Rosoboronexport working for defense projects.

At the moment it mulls over options of buying out production lines abroad (Tritec Motors as one of choices), purchasing licenses for foreign developments, introducing new low-cost makes or joining into a holding to keep the feeble industry afloat.


Tags: Russian economy     

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