Bloomberg News

Russia Stocks Slide, Led by Sberbank, Lukoil; UES Surges

February 10, 2006

Russian stocks fell, led by OAO Sberbank, Russia's largest savings bank. OAO Lukoil led declines among oil producers as oil prices headed for the lowest close this year.

RAO Unified Energy System, the national power utility, surged to record after President Vladimir Putin said the government must take steps to lure foreign and domestic investment into the electricity industry to avoid blackouts and maintain economic growth.

The dollar-denominated Russian Trading System Index fell 0.1 percent to 1,365.26 in Moscow, declining for the first day this week. The measure added 4.4 percent in the past five days, after losing 4.7 percent the previous week. The ruble- denominated Micex Index today slid 0.7 percent to 1,229.37.

``The potential we had for gains this week has been played out,'' said Alexander Zakharov, a vice president at Uralsib Financial Corp. in Moscow. ``Oil futures are lower and there are not that many drivers'' for further gains.

Lukoil, the country's largest oil producer, fell 1.4 percent to $77.30. The shares had gained 5.1 percent during the previous four sessions. OAO Surgutneftegaz, the fourth-largest oil company, lost 1.1 percent to $1.37. OAO Tatneft, the sixth- biggest, slipped 2.1 percent to $4.75.

Crude Oil

Crude oil headed for the lowest close this year after the International Energy Agency said production capacity is growing faster than demand. Crude oil for March delivery fell 0.6 percent to $62.25 a barrel on the New York Mercantile Exchange. Futures touched $61.75, the lowest since Jan. 3.

Russia's RTS Index gained 83 percent last year, its best performance in six years as fuel prices climbed to record highs, luring investors to the world's second-largest crude oil producer. Energy producers make up half of the RTS Index.

OAO Sberbank, the country's largest savings bank, declined 1.9 percent to $1,560, ending four days of gains that have added 8.9 percent to the company's market value.

RAO Unified Energy System, the national power utility known by its initials UES, surged 6.7 percent to a record 55.8 cents, rising for a third session.

Electricity Deficit

An electricity deficit could become a ``natural inhibitor to economic growth,'' President Putin said today at the meeting with ministers and utility executives in remarks broadcast on NTV television. ``Clear proposals for attracting private investment, both domestic and foreign, into the industry'' are needed, he said.

The shares also gained as Troika Dialog brokerage raised its rating to ``buy'' from ``hold'' and increased the share- price estimate to 70 cents from 57 because UES stock is cheap based on the company's assets.

The government-led breakup of UES's power plants into separate generating, supplying and distribution units will also ``unlock value'' in the country's utilities, analyst Lauri Sillantaka said in a daily research note.

Shares in Kostromskaya Hydro-Power Plant jumped 18 percent to a record 33 cents. RTS halted the shares' trading as of 3 p.m. local time after the stock rose more than 15 percent, Interfax news service reported.

OAO Kuzbassenergo, the power utility in Kemerovo region in South-Western Siberia gained 8.8 percent to $1.25, also an all- time high.

Breakup

Shares in OGK-3, one of the six thermal power companies set up as part of the UES breakup, rose 8.9 percent to 5.99 cents in their second trading session over the counter on the RTS. OGK-3 is one of only two new companies set up amid the breakup that have shares traded on the exchange.

Minority shareholders will own 40 percent in OGK-3, compared with the average 10 percent for minority ownership in the other five thermal power companies spun off from UES, Alfa Bank said in a research note yesterday.

OAO AvtoVAZ, Russia's largest carmaker, advanced 2.2 percent to 1,854.10 rubles on Micex. The shares haven't traded on the RTS. Troika raised the share-price estimate for the shares to $85 from $78.92 and maintained a ``buy'' rating on the stock on expectation that earnings may rise if the company improves its sales system.

``In addition, the automaker could potentially improve margins by cutting costs and restructuring,'' analyst Gairat Salimov wrote in a daily research note.

The shares had jumped 43 percent in seven days of gains to Feb. 8 amid optimism the state will increase control over the company and raise investment to revive the business.

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net.

To contact the editor responsible for this story: Balduin Hesse in London at bhesse2@bloomberg.net.


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