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The corporate bonds market The quotations of corporate bonds, as demonstrated by the results of March, remained virtually unchanged, though the dynamic during the month was rather variable. Thus, early in the month, against the backdrop of a dramatic fall in quotations on the share market, the prices of corporate bonds were also under pressure due to increased demand, caused by the desire of some of the investors to withdraw their assets from the developing markets, the problems with liquidity in the banking sector, which could in part be the result of the forthcoming placement of the shares issued by the Sberbank of Russia (whose aim is to attract funds in the amount of approximately 250 billion roubles), and by the changes on the domestic foreigncurrency market, where the USD had become somewhat stronger in respect to the rouble. Difficulties with liquidity were also observed in mid-month, and therefore the quotations of corporate and subfederal securities remained at their achieved levels. The market was supported only by the slight strengthening of the rouble against USD, as well as by the relatively favorable situation on the Russian eurobond market. The approaching deadline for tax payments eliminated any probability of the revival of activity on the corporate debt market and the improvement in the market situation, and this slump continued till the third decade of March. Later on, the reestablished level of demand for government bonds was followed by a similar demand revival in the corporate segment, which made it possible for securities to compensate for the fall in their prices during the most part of the month. The factors of improvement could be the FRSs decision not to change the interest rate, the granting of a credit rating to Russia by the Japanese Credit Rating Bureau, as well as the slight improvement of liquidity in the banking sector. Despite the sufficiently high level of rates on the interbank credit market, their decline at the months end, coupled with the very substantial residuals on the correspondent accounts at the RF CB, could be conducive to the rehabilitation of demand.

Between 1 and 23 March, the price index of the corporate bonds tradable on the MICEX10 went down by 0. 01 points (- 0.01 %), whereas the index of the ten most liquid bonds of the corporate sector increased by 0.

On the classical share market.

According to the RTS data.

This was calculated on the basis of the indices of the corporate bonds tradable on the MICEX, generated by the Zenit Bank.

04 points ( or 0.03 %). During the same period, the aggregate turnover in the corporate bonds section of the MICEX amounted to approximately 36.26 billion roubles, with the average daily turnover being at the level of 2.26 billion roubles (as compared to approximately 32.9 billion roubles, with the average daily turnover of 2.059 billion roubles, during the corresponding period in February).

FIGURE Dynamics of corporate bond indices 122.ZETBI-Corp ZETBI-Corp120. external factors influencing the changes on the Russian stock market During March the oil prices on the international market remained sufficiently stable and below $ 60 per barrel, while in certain periods going above that level. Early in the month, the prices demonstrated a slight decline, explained by the downward trend of the Chinese stock market, which gave rise to concerns about the prospects of stable economic growth in China, and, as a result, of the level of demand for oil, since the PRC is one of the largest consumers of black gold. The decline continued, which can be explained by the beginning of a warmer season in the USA and the consequent fall in the demand for fuel, as well as by the unchanged official quotas of the OPEC, the corresponding decision having been made at the last summit meeting of its member countries. However, toward the months end the prices demonstrated a marked growth, caused by increased demand for oil products, and in particular for motor petrol in the USA in expectation of the summer season, because US refineries have not yet reached their peak production level.

The situation on the international stock markets in March was, as before, rather favorable (see Table 1).

The majority of stock indices in developed and developing countries during that month were growing. The exceptions were represented by the Brazilian index Bovespa (- 0.14 %) and the South Korean index Seoul Composite (- 4.4 %).

The months beginning on the markets of developed and developing countries was marked by a considerable deterioration of the market situation, influenced by a variety of factors. First of all, in early March former director of the US FRS, Alan Greenspan, forecasted a possible slowdown in US economic growth by the end of 2007. Secondly, the Chinese authorities, fearing the emergence of a bubble on the stock market, spoke in favor of toughening the control over the transactions with Chinese assets, which resulted in a withdrawal of investors monies from Chinese shares, followed by their withdrawal from the markets of other developing countries, including Russia. During the months second week, the situation became somewhat stabilized, and the main stock indices were able to compensate for some of the effects of their fall; however, in the months second half, some rather unfavorable data concerning the US mortgage crediting sector were released. A certain slowdown in economic growth resulted in one rather numerous group of borrowers being unable to service their mortgage credits, which was fraught with increased risks of instability in the US financial sector. The quotations of US shares could not remain unresponsive to such negative news, and as a the stock indices once again began to decline. Only at the end of March the US FRSs decision to leave unchanged the basic interest rate, as well as the commentary to that decision, from which it followed that the rates lowering was still probable in the event of the trend of a slower economic growth being preserved, resulted in growing quotations of shares on the stock market in the USA and other countries.


180% Dow Jones Industrial Average NASDAQ Composite The RTS Index 160% 140% 120% 100% 80% Corporate news Open-End Joint-Stock Company GMK Norilskii Nikel In February, the Open-End Joint-Stock Company GMK [Mining and Metallurgic Company] Norilskii Nikel concluded the transaction of the purchasing of the nickel business formerly owned by OM Group, Inc. (Nickel Business). As a result, GMK Norilskii Nikel acquired a nickel refinery at Harjavalta (Finland), an enterprise for the extraction and leaching of nickel ore at Cawse (Western Australia), 20 % of shares in MPI Nickel Pty. Ltd. - a company developing the nickel mines Black Swan and Silver Swan, and implementing the Honeymoon Well project, as well as 11.1 % in the company Talvivaaran Kaivososakeyhti, in the form of ordinary shares and convertible liabilities.

This transaction will make it possible for GMK Norilskii Nikel to continue the international expansion of its production activities at the international level by adding new sites in Australia and Finland, and to strengthen its position within the global mining industry. The group Norilskii Nikel will increase its nickel-refining capacities by 60,000 tons of nickel per annum, while its own annual production of refined nickel (with the exception of materials being processed by tolling) will grow by approximately 35,000 40,000 tons. The company highly values its new prospects for gaining access to the industrys best operational skills and the technology of high-pressure acid leaching (HPAL) of laterite raw material, as well as for the addition of nickel salts and briquettes to their product scale.

On 26 March the Group Norilskii Nikel announced that it had completed the acquisition of a part of an additional issue of shares of the Open-End Joint-Stock Company OGK 3 (Society) in the amount of 17,836,343,101, at a placement price of 4.54 roubles ( or $ 0.175) per share. The total transaction volume was 80, 976, 997, 679 roubles (or $ 3, 121, 360, 043). The total volume of the additional issue of OGK 3s shares was 18 billion of ordinary shares, of which 163, 656, 899 shares were acquired by persons with preferential rights for purchasing the shares at their placement price. Thus, after the transactions completion, Norilskii Nikel now owns 46.2 % of the total amount of ordinary placed shares of the Open-End Joint-Stock Company OGK 3, while the RAO UES of Russias stake has decreased to 37.1 %, and minority shareholders control 16.7 % of the Societys shares. In accordance with RF legislation, within days from the purchase of OGK 3s shares Norilskii Nikel is going to put forth to OGK 3s share the proposal concerning its acquisition of the Societys securities at a price no lower than the purchasing price of the last additional issue of shares.

RAO UES of Russia On 19 March, the RAO UES of Russia published its financial reports for the first 9 months of 2006, prepared in accordance with the International Accounting Standards. The aggregate assets of the RAO UES of Russia in the first 9 months of 2006 increased by 73,557 billion roubles and as of 30 September amounted to 1,291.456 billion roubles. The profit of the RAO UES of Russia from its main activity in the reporting period increased by 24.524 billion roubles against the same period of 2005 and amounted to 68.629 billion roubles. The amount of profit before deduction of the profits tax and the minority share was 57.459 billion roubles, having increased by 25.816 billion roubles. The Groups net profit in the first months of 2006, by comparison with the same index of last year, decreased by 1.233 billion roubles and amounted to 11.994 billion roubles. This is explained by the additional deduction of the carried forward profits tax in the amount of 22 billion roubles, as well as by the share in the losses of dependent companies having increased by 0.2 billion roubles.

Open-End Joint-Stock Company Sberbank of Russia On 7 March, the banks representatives announced the results of the placement, among shareholders, of an additional issue of its ordinary nominal book-entry ordinary shares. Between 22 February and 5 March 2007, the banks shareholders had an opportunity for realizing their preferential right of the acquisition of shares.

Earlier, Sberbank of Russias Supervisory Council had established a single placement price for all investors 89,000 roubles per share. At this rate, the banks shareholders paid for 1,643,489 shares the sum of 146.3 billion roubles (99 % of submitted applications). The Bank of Russia, as the main shareholder, purchased 892,601 shares for the sum of 79.4 billion roubles. A total of 1,332 applications were accepted, of which 1,096 applications ( or 82. 3 %) had been submitted by physical persons. The placement of these shares among persons without the preferential right for the acquisition of shares took place from 8 March 2007 through 21 March 2007.

Table 1.

Behavior of world stock exchange indices Change in month Change from Data as of 23 March Index value (%)11 years beginning (%) RTS (Russia) 1914.47 -1.02% 6.44% Dow Jones Industrial Average (USA) 12481.01 -1.32% 0.14% NASDAQ Composite (USA) 2456.18 -2.34% 1.69% S&P 500 (USA) 1436.11 -1.04% 1.26% FTSE 100 (UK) 6339.4 -0.97% 1.91% DAX-30 (Germany) 6899.06 -1.34% 4.58% CAC-40 (France) 5634.75 -1.43% 1.68% Swiss Market (Switzerland) 9089.8 -1.82% 3.46% Nikkei-225 (Japan) 17480.61 -3.89% 1.48% Bovespa (Brazil) 45533 -1.05% 2.38% IPC (Mexico) 28272.03 -0.82% 6.90% IPSA (Chile) 2954.35 1.18% 9.70% Straits Times (Singapore) 3205.82 -3.16% 7.37% Seoul Composite (South Korea) 1447.38 -1.53% 0.90% ISE National-100 (Turkey) 43408.71 -0.42% 10.97% Morgan Stanley Emerging Markets Free Index 923.444 -1.79% 1.17% In respect to the indices as of 26 January 2007.

The currency market.

As seen by the months results, between 1 and 23 March the USD/rouble exchange rate went down noticeably - by 0.137 roubles (or 0.53 %) by comparison with the level registered at the months beginning, and amounted to 26.01 roubles per USD. The total volume of trade in the USD in the SELT electronic trading system during the same period amounted to approximately $ 67.52 billion, the average daily turnover being $ 4.22 billion (as compared to approximately $ 44.87 billion, with the average daily turnover of $ 2.billion, in February). Thus, in March the trading activity of the participants in currency trade became markedly higher, as compared to the previous month. The peak volume of trade in USD during that period was registered on 20 March and amounted to approximately $ 7.98 billion, the lowest $ 2.03 billion on March.

The roubles liquidity in the banking sector in March became noticeably higher than in February: the average amount of residuals on the correspondent accounts of credit institutions with the Bank of Russia in March was approximately 574.77 billion roubles, as compared to approximately 404.88 billion roubles in February. Nevertheless, a part of the funds was reserved for the participation in the additional placement of Sberbank of Russias shares and in the auction for the sale of the assets of Yukos, and therefore the actual volume of resources in the banking system in March was noticeably lower, which determined growing supply of USD on the currency market, as well as had a negative effect on the other segments of Russias financial market.


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