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Russian Stocks Fall, Led by Transneft, Lukoil; Irkut Advances

March 24, 2006

Russian stocks fell from a three- week high, led by OAO Transneft and OAO Lukoil. Transneft slid after Deutsche UFG said it expects shares of the pipeline operator to plunge more than 75 percent within a year.

OAO Irkut Corp. (IRKT), the maker of Russia's Sukhoi fighter jets, surged to a record amid expectations of more government support.

The dollar-denominated Russian Trading System Index lost 0.7 percent to 1420.25 at 7:15 p.m. in Moscow, retreating from its highest close since March 6.

The measure added 0.4 percent in the past five days, rising for the second week. The ruble-denominated Micex Index added 0.2 percent to 1291.82.

Preferred shares of state-run Transneft, which owns and operates Russia's oil pipelines, sank 10 percent to $2,185. The decline was biggest one-day drop since June 4, 2003.

The Russian unit of Deutsche Bank AG cut the company to ``sell'' from ``hold'' and said it expects the stock to fall to $580 within a year. Transneft's common shares are not traded.

``We no longer see it as a commercial entity operating for the benefit of its shareholders,'' Deutsche UFG analysts Stephen O'Sullivan, Pavel Kushnir and Olga Danilenko wrote in a research note yesterday. ``Rather, we see it as a technical tool used by the state to facilitate the transportation of crude oil.''

Lukoil, Russia's largest oil producer, fell 0.9 percent to $81.35. OAO Surgutneftegaz, the fourth biggest, lost 3.4 percent to $1.44. The price of crude oil will fall below $60 a barrel during the second half of the year as OPEC pumps near its production limit, allowing global inventories to increase, the Centre for Global Energy Studies said.

Slowing Demand

The high crude price is slowing global demand, as seen in the drop in demand growth to 1 million barrels a day from 3 million barrels a day in 2004, said Leo Drollas, deputy executive director of the London-based group, founded by former Saudi Oil Minister Sheikh Zaki Yamani.

OAO Tatneft, Russia's No. 6 oil producer, slid 2.7 percent to $5.30. The company revised its proven oil reserves as of Jan. 1, 2005, to 5.80 billion barrels from the 5.96 billion barrels reported earlier. Tatneft revised expected future net revenue based on reserves to $11.8 billion down from $17.3 billion.

Irkut jumped 7.7 percent to a record $1.055 as the stock traded on the RTS for the first time since March 14. The increase lifts the Moscow-based company's market value above $1 billion.

The company has been improving its financial performance and will get more support from the government as the state merges its aircraft producers into one holding, Trust Investment Bank said in a research note yesterday.

More Solid

``On the back of a successful initial public offering last year, a growing order book, rising sales, profitability and smart management, Irkut has turned itself from a highly leveraged company into a far more solid one,'' Trust said in a note.

Oil refiners based in Ufa in the Russian republic of Bashkortostan advanced after Interfax reported that AFK Sistema Holding and the region's government plan to set up a company to merge their stakes in the refineries by the end of September.

OAO Ufaneftekhim added 5.1 percent to $4.15. Ufa Oil Refinery gained 4.2 percent to a record $2.90. OAO Novoil advanced 2.1 percent to $1.46.

Merging the refineries' assets will improve transparency and increase their value, Aton Capital brokerage said in a daily note. Sistema's shares advanced 1.2 percent to $25.70 in London.

OAO AvtoVAZ jumped 11 percent to 1,802.51 rubles on the Micex exchange, the highest in three weeks. The advance is the biggest gain since Jan. 11. The shares didn't trade on the RTS.

The maker of Lada cars may buy an engine plant in Brazil from Bayerische Motoren Werke AG and DaimlerChrysler AG, the Moscow Times said March 20, citing a Russian government official.

Russia, which took control of AvtoVAZ, the country's largest automaker, last year, plans to invest $5 billion in the company to develop new engines and new models as foreign rivals gain market share, the newspaper said.

To contact the reporter on this story: Bradley Cook in Moscow at

To contact the editor responsible for this story: Chris Collins in London at

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