Bloomberg News

Gazprom Neft Sinks on Oil as France Downgraded: Russia Overnight

January 16, 2012

Jan. 16 (Bloomberg) -- Russian equity futures slid and OAO Gazprom Neft dropped for the first week in a month as France losing its top credit rating diminished prospects for growth in Europe and as oil slumped.

Futures expiring in March on Moscow’s dollar-denominated RTS index lost 0.6 percent to 142,680 in U.S. trading on Jan. 13. American depositary receipts of Gazprom Neft, the oil arm of natural gas monopoly OAO Gazprom, slipped to a two-week low, bringing the decline in the week to 1.5 percent. The Bloomberg Russia-US 14 Index of Russian companies traded in New York fell, trimming its weekly advance, led by coal producer OAO Mechel, which got 19 percent of its 2010 revenue from Europe.

“The main drivers for Russian equities are Europe and oil,” Peter Szopo, head of research as Alfa Bank, Russia’s largest non-state lender, said by phone from Moscow on Jan. 13. “If Brent falls further next week, that would hurt the market.”

Efforts to stem Europe’s debt crisis were dealt another blow as Standard & Poor’s Rating Services stripped France of its AAA credit ranking and banks suspended talks with Greece over credit restructuring. Declining prospects for Europe, Russia’s biggest trading partner and the world’s third-largest oil consuming region sent crude in New York tumbling to the lowest level for three weeks.

France was cut to AA+ with a negative outlook, S&P said in a statement. The ratings company also lowered the rankings of Cyprus, Italy, Portugal, and Spain by two levels. The long-term ratings of Austria, Malta, Slovakia, and Slovenia were cut one step. Germany, Belgium, Estonia, Finland, Ireland, Luxembourg and the Netherlands were all affirmed by S&P.

Tripling Investment

Gazprom Neft ADRs fell 1.7 percent to $23.10 on Jan. 13, sliding 1.5 percent from the previous week. The company’s ruble- denominated shares fell 2.1 percent to 145.85 rubles, or the equivalent of $4.58 in Moscow on Jan. 13. One Gazprom Neft depositary receipt is equal to five ordinary shares.

Moscow-based Gazprom Neft plans to almost triple investment to 20 billion rubles ($630 million) this year to upgrade its refinery in the capital. The company spent about 7 billion rubles in 2011, according to Gazprom Neft’s corporate magazine published on its website on Jan. 13. The producer plans to spend at least 66 billion rubles through 2020 to increase the refinery’s efficiency, the magazine said.

Gazprom, the world’s largest natural gas producer, fell 0.2 percent to $11.17 in New York, trimming its weekly advance to 1.5 percent. The state-controlled company’s shares gained 0.6 percent to 178.83 rubles, or the equivalent of $5.61, on Moscow’s Micex index on Jan. 13, gaining 1.3 percent in the week. One depositary receipt is equal to two ordinary shares.

Lukoil Output

ADRs of OAO Lukoil, Russia’s largest non-state oil producer, fell 1.4 percent to $54.75, reducing the weekly rise to 0.8 percent. Lukoil shares on the Micex also declined, sliding 0.7 percent to 1,751.20 rubles, or $54.98.

Lukoil decreased crude output about 5.5 percent last year as its western Siberian fields declined. Crude output has dropped to 90.7 million tons, or 1.82 million barrels a day, the Moscow-based company said in a statement on Jan. 13. That led to a 3.9 percent decrease in combined oil and gas output to 112.7 million tons.

Crude oil for February delivery fell 0.4 percent to a three-week low of $98.70 a barrel on the New York Mercantile Exchange on Jan. 13 and was down 2.8 percent last week. Brent oil for February settlement declined 0.7 percent to $110.14 on the London-based ICE Futures Europe exchange, while Urals crude, Russia’s chief export blend, lost 1.4 percent in the week to $109.68 a barrel.

Embargo Delay

Oil may continue its decline this week on concern the U.S. economy is slowing, curbing fuel demand in the largest crude- consuming country, a Bloomberg News survey showed. Sales at U.S. retailers rose less than projected in December, signaling lower consumer spending at the start of 2012, the government reported on Jan. 12.

Two European Union officials said last week that an embargo on Iranian crude imports may be postponed for six months to allow some nations to find new supply. The 27 European Union member states accounted for 16 percent of global oil consumption last year, based on BP Plc’s Statistical Review of World Energy. The U.S. used 21 percent.

OAO Mechel, Russia’s largest producer of coal for steelmaking, led decliners on the Bloomberg Russia-US 14 Index, dropping 5.4 percent to $9.51, the most since Dec. 19. The producer’s shares on the Micex also fell on Jan. 13, sliding 1.1 percent to 304.70 rubles, or $9.57.

Yandex, CTC Media

HSBC Holdings Plc. initiated coverage of Russian media companies on Jan. 13, rating CTC Media “neutral,” with a 12- month target price at $10.20 per share, while Yandex was rated new “underweight” with the 12-months target price at $18.90 per share.

Yandex, the operator of Russia’s most popular Internet search engine, fell 2.4 percent to $18.60 in New York on Jan. 13 and was little changed from the previous week. CTC Media, a Russian television network traded in the U.S., fell 0.5 percent to $9.14, and was down 0.8 percent in the week.

The RTS Volatility Index, which measures expected swings in the index futures, fell 2.9 percent to 37.98 points on Jan. 13, trimming its weekly advance to 0.2 percent.

The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, slipped 0.5 percent to $27.82, paring its gain to 2.7 percent for the week. The RTS index dropped 0.8 percent to 1,446.46 in Moscow and the 30-stock Micex index fell 0.1 percent to 1,463.43 on Jan. 13.

--Editors: Marie-France Han, Emma O’Brien

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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