The premium investors demand to hold OAO Mobile TeleSystems’ New York-traded shares rather than the stock in Moscow is narrowing to the smallest in almost a year on Russian plans to improve local settlement rules.
The mobile company has climbed 0.3 percent on Moscow’s Micex Index this month to 229.70 rubles, or $7.30, while its American depositary receipts (MBT:US) fell 2.9 percent, shrinking the gap to $1.89 this week, the least since Nov. 20. The premium was as high as $4.17 on Sept. 13. The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian stocks in the U.S. added 0.2 percent yesterday, and RTS Index futures climbed, as crude rose for the first time in six days.
Russia is combining its two securities depositaries into one central body in order to bring settlement procedures in line with international norms and help lure foreign investments. The average value of shares traded in Russia’s biggest companies is 30 percent higher in London than in Moscow, data compiled by Bloomberg show.
“When a single central depositary starts operating, the attractiveness of the Russian market will increase,” Alexander Vengranovich, a telecommunications analyst at Otkritie Financial Corp. in Moscow, said by phone yesterday. “Some investors are buying shares ahead of the implementation.”
Futures expiring in December on the dollar-denominated RTS gauge increased 0.2 percent to 145,350 in New York yesterday. The Market Vectors Russia ETF (RSX:US), the biggest U.S.-traded exchange- traded fund that holds Russian shares, gained 0.5 percent to $28.41, rising for the first time in two days.
The RTS Volatility Index, which measures expected swings in the gauge futures, advanced 1.2 percent to 25.38 points.
ADRs of Moscow-based MTS added 0.4 percent in New York yesterday to $17.01 after Russia’s largest mobile services operator said it offered to buy 25 percent of MTS-Bank from parent company AFK Sistema for 5.09 billion rubles ($162 million). MTS’ Moscow-traded shares slipped 0.8 percent today as the Micex dropped to a seven-week low.
The ADRs, which account for two underlying shares, traded at a premium of $2.21 yesterday, the widest among the 11 biggest dually traded companies.
The central depositary is on track to be established by next month, Dmitry Pankin, the head of the market regulator, told reporters in Moscow on Oct. 24.
Russia currently has two competing depositaries which leads to the share ownership structures of companies traded in Moscow being “not fully transparent,” Otkritie’s Vengranovich said. Depositaries, or clearing agencies, ensure money is paid or debited and securities ownership is transferred after a trade occurs.
As part of its reforms, the Micex-RTS is also transitioning by next year to a system where traders are allowed a number of days to complete deals, instead of the current procedure of immediate settlement. All U.S. exchanges offer settlement the third day after the trade occurs.
“People don’t like pre-funding for the Micex (INDEXCF) or having to keep their stock there, it’s a major deterrent to most funds,” Julian Rimmer, a trader at CF Global in London who focuses on Russian and Turkish equities, said by e-mail yesterday. The introduction of a central depositary is “a marginal benefit, but the aggregation of marginal benefits is what it takes to eliminate Russia’s discount versus other emerging markets.”
The Micex has gained 2.1 percent in 2012 and trades for 5.6 times analysts’ earnings estimates for member companies. That compares with a 1.2 percent advance for Brazil’s Bovespa Index (IBOV), which is valued at 15 times estimated earnings, according to data compiled by Bloomberg. The Bovespa, which also allows settlement on the third day, had four times more volume than the Micex yesterday, data compiled by Bloomberg show.
The move to so-called T+3 settlement will boost volumes on Russia’s stock market by as much as 25 percent, Oleg Achkasov, head of equity trading at VTB Capital, the investment banking arm of Russia’s second-largest lender, said in an interview in Moscow on Oct. 3.
The Federal Financial Markets Service may also lift restrictions on converting local shares into depositary receipts, the Interfax newswire reported on Oct. 19, citing Pankin. Under current regulations, depositary receipts can only account for 25 percent of a company’s total shares and 50 percent of its listed shares, according to the Interfax report.
Russia’s reforms “should help eliminate all depositary receipt premia over time,” CF Global’s Rimmer said.
MegaFon Spurs Yandex
Yandex NV (YNDX:US), Russia’s most-used Internet search engine, jumped 3.5 percent in New York yesterday to $22.74, the biggest one-day advance since Sept. 12.
The delay in an initial public offering set for Oct. 22 of OAO MegaFon, a Russian wireless carrier, has bolstered The Hague, Netherlands-based Yandex as investors are looking to put money allocated for the IPO into “solid companies,” Simon Mandel, director of emerging Europe equity sales at Auerbach Grayson & Co. in New York, said by phone yesterday.
Crude for December delivery added 0.4 percent to $86.05 a barrel on the New York Mercantile Exchange yesterday, while Brent oil gained 0.6 percent to $108.49 a barrel. Speculation the Bank of Japan will add to its asset-purchase program and that U.S. data will signal a recovery in the world’s biggest economy bolstered energy prices.
Urals crude, Russia’s chief export blend, climbed for the first time in eight days, rising 0.8 percent to $107.39.
Futures due in December on the ruble were little changed at 31.586 per dollar in New York yesterday. The currency slipped 0.3 percent to 31.4649 per dollar in Moscow, the weakest level since Sept. 12.
Moscow-based United Co. Rusal, the world’s largest aluminum producer, dropped 2.4 percent to HK$4.40, or 57 U.S. cents, in Hong Kong today. The MSCI Asia Pacific Index tumbled 1.1 percent, the steepest one-day drop since Sept. 26.
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