November 27, 2009 February 6, 2011

This is bne's Eastern Europe equity capital markets weekly newsletter, a list of the top stories in region last week. You can receive the list as a plain text or html email or as a pdf file. Manage your delivery options here: http://businessneweurope.eu/users/subs.php

TOP STORY STOCKS 1. AAR seeks to cancel TNK-BP Ltd dividend for 4Q10 2. Alrosa to hold IPO by late 2011 3. Egyptian tensions hit global markets 4. MICEX moves to buy controlling stake in RTS - Russian Central Bank 5. Mordashov ups stake in German TUI tourism group 6. MSCI Index February 2011 Revisions: A Preview 7. MSCI reassess the free float of Norilsk Nickel 8. Rostvertol: Obligatory offer suggests defensive opportunity 9. Russia to launch road show for VTB share sale Feb 7 10. Synergy: Around $300 mln to be raised via SPO 11. Telenor pursues arbitration over pre-emptive rights 12. Ukraine's Agropolis prepares for Warsaw listing in H2 NEWS STOCKS 13. Weekly fund flows: Russia a haven in midst of chaos and uncertainty 14. Bank of Moscow to buy 15% in Sistemaís technology unit RTI Systems 15. Gazprom Neft makes buyout offer to NIS minor holders 16. Koks: A bet on the full range of steelmaking raw materials 17. Oleg Deripaska invests in Glencore 18. Petropavlovsk directors sell shares 19. RBC: Possible Speculative Opportunity, But No Fundamental Story 20. Russia Forum Buzz - Privatization: Charting the Way Forward OTHER NEWS STOCKS 21. Federal Grid Company: Downgrade on price performance 22. Globaltrans and Transcontainer - Apples and oranges 23. Merger of Uralkali and Silvinit: new combined valuation, risks and synergies 24. MRSK Siberia: Additional share placement on the agenda 25. MTS to file indicative offer for stake in cell co NTC 26. Raiffeisen Capital to invest in the 2018 World Cup 27. RBC: Possible speculative opportunity, but no fundamental story 28. Rostelecom board approves deal to buy stake in NTC 29. RusHydro places 1.0bn additional shares via pre-emptive rights 30. Russian businessman Vekselberg ups stake in Akado to 58% 31. Russian Helicopters makes buyout offer to Rostvertol minor hldrs 32. Sberbank acquires 25% stake in Nitol Solar 33. We have upgraded Magnit to Buy on valuation grounds IPO, SPO, ADRs, GDRs, PLACEMENT 34. Alrosa may raise $1.5-$2bn in selling 20% in IPO 35. Avangard studying SPO for some 10% of shares in 2011 36. Koks Group postpones IPO due to market conditions 37. Koks IPO: A bet on the full range of steelmaking raw materials

38. Lisin studies transport IPO 39. Mamut, Vimpelcom settle with former Euroset owners ahead of IPO 40. RTS, Micex plan 2012 IPO BUY BACKS, SHARE ISSUES 41. RusHydro to participate in Irkutsk share issue 42. Russian Helicopters submits mandatory buyout offer to minorities of Rostvertol at RUB2.69/share 43. Shareholders buy 55.8% of Russiaís RusHydro extra share offering 44. Sistema Indian unit to offer extra shares by July 45. Synergy sets price for extra share offering at $44 per share DIVDENDS 46. $14bn on dividends 47. AAR consortium to block TNK-BP dividend payment 48. AvtoVAZ holders recommend not paying dividends for 2010 49. BP says received $1.8bn in 2010 dividends from TNK-BP BANKS shares 50. Russian government may sell 10% stake in VTB via public equity placement EXCHANGES, REGULATIONS 51. MICEX move on RTS to pave way for single Russian exchange KAZAKH STOCKS 52. Central Asia: Spices of the Silk Road - Will the rally continue in 2011? 53. Kazakhstan Chart Book: Some Positive News 54. Kazakhstan: Samruk Kazyna to start IPO’s in March 55. Listing of state-owned assets on KASE to start in March, targeting pension and retail money UKRAINE STOCKS 56. Astarta Holding major shareholders swap shares 57. Avangard plans SPO, US$ 150-170mn in new debt 58. Canada's Black Iron, owner of Ukrainian iron ore assets, plans IPO 59. Few shareholders participating in buyout of MMKI shares 60. SPF approves 105 stakes for privatization this year 61. Stock market regulator may suspend six blue chips from trading 62. Ukraine 2011 Politics Preview: Biting the reform bullet 63. Ukrainian equities: Dematerialization risks immaterial 64. Ukrnafta February 25 AGM could approve UAH 4.89 per share dividend for 2009 65. Ukrnafta proposes more dividends for 2009 66. Ukrnafta's shareholders on February 25 to review distribution of UAH265.45mn profit for 2009 67. Verkhovna Rada revokes squeeze-out clause that threatened stock market liquidity EURASIAN STOCKS 68. Azerbaijan: Bse turnover decreases by 29% in January 69. Azerbaijan: Garant Sigorta to raise authorized capital 70. Azerbaijan: Transactions on BICEX decrease by 44% in January 71. Azerbaijan: “Corporate securities market of Azerbaijan rises 67%, last year” - Rufat Aslanli 72. Max Petroleum to raise US$75m through equity expansion 73. Mongolia: Manas Petroleum to raise US$20-30m in Toronto 74. Mongolia: Silk Road Management Launches Largest Mongolia/Central Asia Equity Index with $100Bn Market Capitalization CE STOCKS 75. Financial watchdog to investigate Petrolinvest share price movements 76. Hungarian government proposed several changes in the de-listing process from BSE 77. Poland enjoys record wave of foreign listings on the WSE 78. Slovenia lender NKBM's opts for listing in Warsaw 79. Volume of assets in mutual funds in Slovakia up 10 pct in 2010

TOP STORY STOCKS 1. AAR seeks to cancel TNK-BP Ltd dividend for 4Q10 Troika Dialog January 31, 2011

Alfa-Access-Renova Group (AAR) has called an extraordinary management meeting at TNK-BP and is seeking to cancel the already announced dividend for 4Q10, the Financial Times reported over the weekend. The final decision may be made by the BoD on February 18, but AAR by itself does not have enough votes to ensure passage, Kommersant says.

We note that the issue concerns the dividends of the non-traded parent company jointly owned by AAR and BP, and not the traded TNK-BP Holding. The bulk of the expected 2010 dividend was distributed by TNK-BP Holding via a very generous 9m10 interim payment of about $4.2 bln, and we expect a fairly small dividend (if any) for 4Q10.

We believe that AAR is seeking to put pressure on BP in connection with the dispute over the latter's recent partnership with Rosneft. This latest public standoff between the two shareholders could generate uncertainty regarding TNK-BP Holding's share price until a resolution is found.

Oleg Maximov

2. Alrosa to hold IPO by late 2011 RIA Novosti February 2, 2011

Alrosa, Russia's state diamond monopoly will be ready to hold an initial public offering by late 2011 for a 20% stake in the company worth up to $2 billion, Alrosa President Fyodor Andreyev said on Wednesday.

"The company was valued at between $8 billion-$10 billion. Correspondingly, a 20% stake is worth around $1.5 billion-$2 billion," Andreyev said.

The Alrosa supervisory board is to meet on February 22 to set a date for a shareholders' meeting to approve amendments to the company's charter allowing it to hold the IPO.

That shareholders' meeting is likely to take place in mid-April, Andreyev said on the sidelines of the Russia 2011 economic forum. A tender may be announced after the meeting to issue mandates to the IPO organizers, Andreyev said.

Alrosa could place its shares in Russia or in London, Frankfurt or Singapore, Kommersant business daily said on Wednesday.

Alrosa is 51% owned by the Russian government, and 40% by the government of the Russian republic of Yakutia, Siberia. Yakutia's government was allowed to reduce its stake in Alrosa to 25% plus one share, in preparation for the IPO.

The capital raised in the offering will be used for the company's development program, including the exploration of the South Yakutian Timir iron ore deposit. The firm plans to spend $8 billion constructing two ore mining and processing plants and a metallurgical complex.

3. Egyptian tensions hit global markets Danske Bank January 31, 2011

The global markets have been hard hit by the escalation of tensions in Egypt and for now uncertainty rules.

_ In terms of impact on the global markets going forward we stress that there is a negative scenario as well as a positive one. In a negative scenario tensions spread across the Middle East, which leads to disruptions in oil production and a spike in oil prices. In a positive scenario there is a relatively peaceful transition to a democratic government in Egypt, which would be viewed as rather positive by the markets. We think the positive scenario is more likely than the negative one, but for now uncertainty rules.

_ In our view the development in oil prices will be key to the further development in the global financial markets.

As Egyptian tensions escalate markets drop

On Friday afternoon the global markets started to react strongly to the development in Egypt with US stock markets down 1.5-2% and this morning the global stock market selloff has continued in Asian trading. All the signs of increased risk aversions are there: US treasury yields lower, volatility is rising, stock markets drop, Emerging Markets currencies sharply weaker and commodity prices are rising. Not surprisingly we have seen the largest market reaction in the Middle-Eastern stock markets. Hence, concerns or rather the uncertainty about the wider Middle-Eastern situation has now clearly become a financial issue.

Egypt _ uncertainty rules

Over the past couple of days the situation in Egypt has become increasingly uncertain and it is very hard to predict what will happen next, but we note a number of important developments over the weekend.

_ Egyptian President Hosni Mubarak has sacked his entire government and appointed a new Prime Minister and new Vice President. Both the new Prime Minister, Ahmed Shafiq and the new Vice President, former intelligence chief Omar Suleiman are close to President Mubarak and hence their appointment is generally not perceived as a regime change. That said, both have a military background and seem to be relatively well respected among Egyptians.

_ Unrest has continued during the weekend - both in terms of demonstrations and some looting. According to media reports the police has been redrawn from the streets and instead the military is patrolling in all of Egypt's major cities.

_ Opposition leader Mohamed ElBaradei on Sunday joined protesters in central Cairo and has demanded President Mubarak's resignation. Mr. ElBaradei seems to be emerging as the key opposition figurehead and he seems to have rather broad support among opposition groups - both secular and religious.

During the weekend it was also reported that President Mubarak's son, Gamal Mubarak, who until recently was seen as the likely successor to Hosni Mubarak, has left Egypt with his family. The appointment of Omar Suleiman is seen as a sign that Gamal Mubarak will have no chance of becoming the new President.

Markets _ uncertainty rules _ two scenarios

So where do we go from here? Obviously the situation in Egypt (and in a number of other Middle Eastern countries) is extremely uncertain, but from a financial market perspective we note that the outcome could be negative as well as positive.

Judging from the jump in oil prices in recent days it is obvious that the markets fear that the tensions will spread to other Middle-Eastern countries, which could lead to disruptions in oil production. Furthermore, the markets seem to fear a closure of the Suez channel and political instability and continued unrest in Egypt. This could have serious geo-political implications in the Middle East and the market reaction over the past few days should probably be seen in this light.

However, we are inclined to think that the risk of this negative scenario playing out is rather small and we would like to point to a potentially positive scenario. It is notable that demonstrators in Egypt seem to be middleclass secular youth, which is well in line with Mr. ElBaradei emerging as key opposition spokesperson. Hence, one could imagine a scenario in which there is a relatively peaceful transition of power from President Mubarak to a democratically elected president. Such a scenario would undoubtedly be viewed as positive by the markets.

In terms of the further developments in Egypt and the wider impact on global markets we would focus on whether the developments will play out positively or negatively.

Oil prices will be key

We again would like to stress that it is nearly impossible to forecast what will happen in terms of the political situation in Egypt and the wider geo-political situation in the Middle East, but for now uncertainty rules and therefore we are likely to see more market jitters in the coming days. That said, we think that the key "transmission channel" from the unrest in Egypt to the wider global markets is the oil price.

Hence, if market participants start believing that the unrest will not spread in a disorderly fashion to other Middle-Eastern countries and that there will be a relatively peaceful regime change to a new secular, reformist and democratic government in Egypt, oil prices might drop back again and the global stock markets could recover fast. On the other hand, if markets start to fear a 1973-senario in which Middle- Eastern tensions led to a sharp rise in oil prices, we could be in for a further serious rise in risk aversion and market volatility.

4. MICEX moves to buy controlling stake in RTS - Russian Central Bank RIA Novosti February 2, 2011

Russia's MICEX exchange signed an agreement of intent to buy a controlling stake in RTS, the country's other major trading floor, and the deal will become legally binding by mid-April, the first deputy chairman of the Central Bank said on Tuesday. Alexei Ulyukayev said the deal valued MICEX at $3.45 billion and RTS at $1.15 billion.

"We are united in our ambition to merge the two trading floors. The first stage of negotiations is over, and today we are signing an agreement of intent to buy the controlling stock in RTS by MICEX," said Ulyukayev, who is also chairman of the MICEX board of directors.

The merger has been part of President Dmitry Medvedev's ambition to turn Moscow into an international financial center. On January 20, he ordered the Central Bank to sell its 29.8% stake in MICEX, which hosts about 70% of the country's share turnover and also holds hard currency trading. RTS shareholders have resisted a merger because of the Central Bank's holding in MICEX.

As of August, the Central Bank's share in MICEX was 37%, and will be reduced to 30% after the merger comes into effect. Ulyukayev said on Tuesday that the Central Bank would withdraw from the capital of the new merged stock exchange within two or three years.

"By June 1 the schedule of the bank's withdrawal will be presented to the government," Ulyukayev said in a reference to the president's instructions.

The procedures on RTS's IPO scheduled for 2011 have been suspended and frozen but they might be resumed if the MICEX-RTS merger fails to come through, said Zhak Der Megredichyan, chairman of the RTS board of directors. Ulyukayev confirmed the information.

The controlling stake in RTS is being sold by five shareholders - Renaissance Capital, Aton, Alfa-Bank, Troika Dialog, and Da Vinci, Megredichyan said.

"At the moment, we are talking about shareholders who control over 50% of RTS shares, and the others we hope will agree with this," Megredichyan said.

5. Mordashov ups stake in German TUI tourism group bne February 1, 2011

Russian steel magnte Alexei Mordashov, owner of Severstal steel mill, has increased his stake in the German tourism group TUI to 20.45% citing the group's growth prospects as his motivation, TUI said Monday in a statement.

"We are convinced of the future growth potential of TUI amid its continuous drive to focus on tourism," Mordashov was quoted as saying in a statement released by the Germany company.

Mordashov previously held 15.03% of TUI via the holding company S-Group.

6. MSCI Index February 2011 Revisions: A Preview VTB Capital February 3, 2011

In advance of MSCI Barra's announcement of the Quarterly Index Review (scheduled for 10 February), we have evaluated the potential changes to the MSCI Russia Standard index. Due to the intermediate nature of this review and, therefore, more stringent criteria for inclusion into the index, we see no guaranteed candidates for inclusion. However, we do see some chances for the inclusion of UC Rusal and MRSK Holding. Generally we expect no exclusions from the index during this review.

There are three key criteria for inclusion into the MSCI Russia Standard index: i) full market cap, ii) free float adjusted market cap and iii) 12-month annual traded value ratio (ATVR). It is important to note that MSCI does not disclose the precise estimates of a company's free float which might result in a marginal discrepancy between our and MSCI's assessment of 12M ATVR, which might tilt the judgement in borderline cases.

We put 25 January as the cut-off date for the February 2011 Index Review and our calculations are as of the close on that day. Therefore, we assume that the Interim Market size-segment cut-off for the MSCI Russia Standard Index is USD 2.0bn. That translates into a minimum full market cap requirement of USD 2.0bn*1.8 =3.6bn and USD 1.8bn minimum capitalization of the stock free float. We expect the minimum 12M ATVR at 0.45.

Two stocks from our watch-list can be assessed as potential candidates for inclusion into the index: UC Rusal and MRSK Holding.

Alexey Zabotkin

7. MSCI reassess the free float of Norilsk Nickel VTB Capital January 31, 2011

News: On Saturday, MSCI announced that the estimate of Norilsk Nickel's free float share had been decreased from 0.40 to 0.35 as a result of the company buying back 7.2% of shares recently. As of the Friday close and on the back of this reassessment, the weight of the stock would be cut from 7.49% to 6.62%. The changes are to come into effect on 1 February.

Our View: On the back of the EPFR data we assess the outflows from the stock at USD 120mn (or 0.36x 3M ADTV) from MSCI indices trackers and USD 390mn (or 1.10x 3M ADTV) from those active funds which have a benchmark from the MSCI index family. We expect most index funds to readjust their portfolios today and this to put pressure on the stock. Outflows from the stock from active funds will be more stretched over the time.

We highlight that it is the local shares of the company that are constituents of the MSCI Russia index and hence we think that most index funds are exposed to locals. This would mean that locals would be sold to a greater extent. Thus, the recently narrowed discount of Norilsk locals to GDRs (which stood at 1.5% as of Friday's close) could become wider again.

Elsewhere, we believe that the weight of the company will eventually be cut in other popular indices used as a benchmark like RDXUSD, DAXGlobal Russia and RTS. The effect from the potential weight decrease in these indices is even harder to assess, but we see it being significantly less. Our rough estimate of the cap of cumulative net outflows from these other indices from Norilsk on the back of these potential weight cuts is USD 100mn; and these outflows will be significantly more stretched in time.

8. Rostvertol: Obligatory offer suggests defensive opportunity UralSib February 1, 2011

Russian Helicopters makes obligatory buyout offer to Rostvertol minorities. Yesterday Interfax reported that Russian Helicopters, the centre for consolidation of helicopter production assets in Russia, made an obligatory buyout offer to Rostvertol (RTVL - Hold) minority shareholders after its ownership increased to 75.51% from 22.76% at the end of December. The price of the obligatory buyout offer is set at $0.09/share (RUB2.69/share), implying a 7% premium to yesterday's closing price. Minorities have 70 days to decide if they will participate. Yesterday Interfax also reported that Russian Helicopters has increased its ownership in Kazan Helicopters from 66.2% to 87.7%, which we expect to soon lead to an obligatory buyout offer for the company's minorities.

Russian Helicopters' IPO is expected soon after conversion to single share. Currently Russian Helicopters controls all of the assets in the helicopter production industry, including Russia's major helicopter producers: Kazan Helicopters (KHEL RX - Buy), Rostvertol and Ulan-Ude Aviation Plant (UUAZ - Buy). We expect Russian Helicopters and its subsidiaries to convert to a single share after (1) Oboronprom completes the transfer of the industry's assets to Russian Helicopters, a 100% subsidiary, and (2) the completion of buyout offers to the minorities of Russian Helicopter's subsidiaries. After this has taken place, we expect Russian Helicopters to conduct its IPO, which has been scheduled for this year and should lead to a higher valuation for the assets.

We recommend a swap into Kazan Helicopters or Ulan-Ude Aviation Plant. The price of the offer for Rostvertol's minorities is 7% higher than yesterday's closing price and 26% higher than its average for the last six months (RUB2.13/share). Despite the fair terms, the actual timing of the buyout offer (until investors receive the cash) will exceed three months and hence taking the offer should be considered as a defensive rather than value generative play. We thus recommend that investors interested in playing on the IPO sell Rostvertol shares to the market, and enter Kazan Helicopters or Ulan-Ude Aviation Plant, as we see these companies as a preferable entry into Russian Helicopters.

Anna Kupriyanova

9. Russia to launch road show for VTB share sale Feb 7 RIA Novosti February 6, 2011

The Russian government will open on Monday its U.S. and European road show to float 10% of the country's second largest lender VTB as part of its plan to partially privatize state-owned companies, the government said on Friday.

The state holds 77.47% of VTB and is looking to sell the 10% stake via a secondary share placement after the pricing is set during the weeklong road show. Merrill Lynch, Deutsche Bank and VTB Capital will run the public offering.

"After the deal is closed, VTB will not float any other state-owned shares for three months," said a statement from the office of First Deputy Prime Minister Igor Shuvalov.

The Economic Development Ministry has approved a list of 11 firms, including oil company Rosneft, oil pipeline monopoly Transneft, the Russian Agricultural Bank, RusHydro electricity generator and the Federal Grid Company of Unified Energy System (FGC UES), for privatization in the next few years.

According to the current state privatization plan, the Russian government intends to sell 35% of VTB this year and next, reducing its stake to a controlling 50% plus one share.

10. Synergy: Around $300 mln to be raised via SPO UralSib February 1, 2011

Plans to issue up to 26.3% of diluted base. Leading Russian distilled spirits producer Synergy (SYNG - Not Rated) yesterday reported that the offer price for its SPO has been set at $44/share, calculated based on the last three months' weighted-average common-share price on MICEX, roughly 9% below yesterday's market closing price. Synergy may issue an additional 6.75 mln shares, 35.7% of the current or 26.3% of the diluted base, with potential proceeds of up to $297 mln, if the all of the shares are placed. The deadline for subscription to the preemptive rights was the end of 26 January, while the rights expire on 16 February. The same price will be offered via open subscription, which will take place from 21 February to 4 March.

6Below market price should stimulate demand for new shares. Sword Enterprises - an offshore company with a majority stake in Synergy - sold its 2.9 mln shares on the market at $36/share in October 2010, and announced that the $104 mln (net of commissions and fees) proceeds were to be invested fully into Synergy via the purchase of newly issued shares. Under the current $44/share price, Sword Enterprises would have bought only 2.36 mln shares if the proceeds were invested fully. The remaining shares are to be offered via open subscription, and demand may be stimulated by the below-market price.

Dilution risk may trigger correction to offer price. Such a large offering at below the market price may be viewed as dilutive for Synergy stock, and could trigger a correction to around $44/share during the offer period. In addition to the proceeds to be raised via the SPO, Synergy has also earlier raised around $100 mln through debt issuance. We believe that Synergy is preparing for quite a large (compared to its size) M&A deal, and it may target a leading Ukrainian vodka producer, for example.

Tigran Hovhannisyan

11. Telenor pursues arbitration over pre-emptive rights Rencap Tuesday, February 1, 2011

Yesterday (31 January) VimpelCom announced that Telenor had initiated arbitration proceedings against VimpelCom Ltd and Altimo in order to prevent the Wind Telecom deal completion. Telenor disputes that the deal is a related M&A transaction and intends to enforce the implementation of its pre-emptive rights if VimpelCom's proposed acquisition of Wind Telecom is completed. The VIP supervisory board decided at its 16 January meeting that the transaction constitutes a related M&A deal, and consequently that the VIP shareholders' agreement does not provide pre- emptive rights to Altimo and Telenor. The company also requested the postponement of the SGM scheduled for 17 March until the arbitration panel has reached a decision on the claim.

The major negative here would be the delay of a shareholder vote on the deal and therefore an extension of uncertainty, in our view. We cannot predict the outcome of a court process, of course, but we think regardless of the outcome that further uncertainty about the timing and viability of the deal would not be positive to investors. Under the agreement between VIP and Wind Telecom, the parties are freed of their obligation to implement the deal after the end of June. If Telenor wins and gets pre-emptive rights, we are not sure whether Naguib Sawiris (the major shareholder of Wind Telecom) would proceed with the deal in its current shape and form, or what modifications could be made (most likely with little impact on minorities). If Telenor does not get the SGM postponed or loses, the likelihood of shareholders voting in favour of the deal is high, in our view.

Vimpelcom tapped the eurobond market last week placing five- and ten-year eurobonds totalling $1.5bn in support of the Wind Telecom takeover. However, if the deal goes through, VimpelCom will attract an additional figure of around $3.5bn (a $2.5bn rouble-denominated loan and a $1bn dollar bridge loan, which is supposed to be refinanced later in the bond market). Yields on the company's bonds rose notably after the final approval of the transaction terms by its supervisory board, as investors became worried by the potential borrowing volume. We find company's bonds attractive at current levels on a risk-reward basis.

Ivan Kim

12. Ukraine's Agropolis prepares for Warsaw listing in H2 bne February 3, 2011

Agropolis, the Ukrainian producer of milk products, is preparing itself for entry to the Warsaw bourse, Polish News Bulletin reported. Company representatives and advisors will for now reveal no details of the potential offer. Those close to the transaction describe it as a medium affair, compared to other Ukrainian companies recently debuting on the WSE. In Q4, out of this group, the biggest offer (ZL236m) was carried out by Milkiland, one of the company's competitors. Agropolis has already registered a holding in Holland, whose shares will be traded on the WSE. For its debut, the company is to be advised by the Kiev-based investment company, Astrum Investment Management. Until now, this company has brought no one into Warsaw. In conducting the offer, Agropolis will work together with a Polish brokerage house, whose name has not been revealed so far.

NEWS STOCKS 13. Weekly fund flows: Russia a haven in midst of chaos and uncertainty UralSib February 4, 2011

This year's holiday redemptions three-times last year's. As EM funds were hit with the biggest outflows in over two years last week, Russia funds again stood out as being the only major market fund cate- gory to attract new money. Net redemptions from EM Global and Asia funds are usual around the Chinese New Year, but redemptions in the week to Wednesday were almost three times the outflow recorded this time last year, as investors fear that the crisis in Egypt may spread and disrupt global recovery. Russia has become a haven of relative stability and safety in the midst of the chaos.

Over $7 bln outflows from EMs last week. EPFR Global data show that just over $7 bln was withdrawn across all EM fund categories in the week to Wednesday, compared with a net redemption of just over $3 bln the previous week. This is the first back-to-back week of net outflows since mid-May last year. Asia funds were the worst hit, losing $2 bln via redemptions as investors moved money to neutral cash funds during the holiday period. China country funds reported outflows of $597 mln and India country funds lost $208 mln, versus respective net outflows of $245 mln and $140 mln the previous week. Brazil funds were relatively better with a net outflow of $52 mln last week. Turkey funds lost $67 mln.

ETF flow share declining. Is it Russia funds that are again in demand, having reported net inflows for a 10th straight week, and for a third straight week having done so while all other big country funds lost money. These inflows totaled $196 mln last week, up from $169 mln the previous week. This represents 1.1% of the total pool of Russia money monitored by the EPFR survey. The content of speculative ETF money is also declining, and only $59 mln of the $196 mln invested came via these funds last week. Through December, ETF flows accounted for almost all of the new money invested in Russia.

2Still out of pocket last week. However, while investors are favoring the relative safety of Russia risk, the fact that redemptions from regional funds are so large means that portfolio investors actually had less money for Russia. Emerging Europe regional funds lost $71 mln, of which approximately 50% will have had to come from Russia, and Russia's share of the GEM Balanced funds is just under 7%. Therefore, on an aggregate basis, portfolio managers will have had to find about $120 million to cover redemptions.

Chris Weafer

14. Bank of Moscow to buy 15% in Sistemaís technology unit RTI Systems bne February 03, 2011

Russiaís Bank of Moscow is expected to acquire an about 15% stake in multi- industry holding AFK Sistemaís technology subsidiary RTI Systems, reports Prime- Tass.

Citing AFK Sistemaís press office, the news agency says that the bank is expected to hold the stake in RTI Systems via a newly created company called RTI.

15. Gazprom Neft makes buyout offer to NIS minor holders bne February 02, 2011

Russian oil major Gazprom Neft has made a mandatory offer to buy out minority shareholders of Serbian oil company NIS, reports Prime-Tass.

Citing a statement issued by the Russian company, the news agency says that Gazprom Neft plans to buy 19.12%, or 31.18 million shares, in NIS on the market.

16. Koks: A bet on the full range of steelmaking raw materials UralSib February 1, 2011

Koks announces IPO price range. Last week, medium-sized Russian integrated pig iron producer, Koks, announced a Russian and LSE IPO price range of $6.25- 8.0/share ($12.5-16.0/GDR), implying a post-issuance market cap of around $2.1- $2.6 bln. The company itself is to place 26 mln treasury shares (7.9% of the current share capital), and core shareholders will sell up to 31 mln existing shares (10% of the current share capital). There is also an overallotment option of 15% of the amount of shares placed for the book runners. As a result, the total size of the IPO with the overallotment option could be $410-530 mln (66 mln shares), implying a minimum 26% free float (including a 6% of pre-IPO minorities). The book building commenced last week, and reportedly Koks is to complete the placement in mid- February. The company will use part of the proceeds to pay off its debt and part to invest in new assets. (Please see our desk note published yesterday.)

Low-end price looks fair; ideally we would wait for a 10-15% lower price. We believe the name should be traded with EV/EBITDA multiples at a 20% discount to the average of Russian coal majors and steelmakers (both of which currently stand at 2011E EV/EBITDA of 6.9), due to its lack of public history/transparency and moderate asset quality. This translates into target multiple of 2011E EV/EBITDA of 5.5. With our 2011 Koks' EBITDA projection of $453 mln and a net debt of $400 mln (post- IPO) this equates to $2.1 bln or $6.3/share. Therefore, we view the lower end of the announced price range as fair and recommend participating in the placement only at this level. In the event of a higher placement price, we would choose another integrated steelmaker to play the steel & steelmaking raw materials recovery story, such as undervalued Evraz, for instance.

17. Oleg Deripaska invests in Glencore bne February 02, 2011

Oleg Deripaska is going to participate in IPO of the largest basic materials trader Glencore, reports Bloomberg.

Deripaska was quoted as saying that he wanted to buy securities for himself and he did not specified quantity of investment and sources of financing.

18. Petropavlovsk directors sell shares Alfa Bank January 31, 2011

Petropavlovsk has announced that Chairman Peter Hambro and CEO Pavel Maslovskiy sold 4.1m shares in the company at 1,068p on January 27. At the same time, it looks as though Peter Hambro has taken on an additional margin loan backed by 2m shares.

This share sale is NEGATIVE, as it suggests that senior managers do not expect any imminent positive news.

Barry Ehrlich

19. RBC: Possible Speculative Opportunity, But No Fundamental Story UralSib, Russia February 2, 2011

UralSib, Russia February 2, 2011

Launch of share swap offers speculative opportunity but with risks

Offer for minorities to swap their shares for RBC TV Moscow.

On 24 January, RBC (RBCI - Sell) began a swap for shares in RBC TV Moscow (RBCM). Minority shareholders in RBC have been offered 1.116 shares in RBC TV Moscow for every share in RBC.

The company plans to convert 35 mln shares under this operation, which will be open until RBC receives sufficient applications, or up until 30 April 2011. The company will offer separate deals for larger minority shareholders, owning more than 200,000 shares, although the swap ratio should be the same. Existing shares in RBC will ultimately be delisted, and we thus recommend that existing RBC shareholders participate in the offer.

Price levels might offer speculative opportunity ... RBC TV Moscow shares started trading (RTS index and MICEX) on 19 January. The current prices for both stocks imply that RBC TV Moscow shares are traded with a 45% premium to RBC shares given the swap ratio (on Friday 28 January, RBC shares closed at RUB50.6/share on MICEX versus RUB66.5/share for RBC TV Moscow).This price differential between RBC TV Moscow and RBC is significant, potentially offering a speculative trading opportunity.

However, the current liquidity in RBC TV Moscow is only nominal and unlikely to allow for taking any short positions in the name.

Thus, the only viable strategy is to enter RBC shares, convert them into RBC TV Moscow and exit through shares in RBC TV Moscow.

... but with risks. The conversion, however, will take time (possibly up to one month), and thus the trade implies the risk that any changes in the share price of RBC TV Moscow will be exacerbated by potential profit taking by those who also converted the shares.

RBC has ten calendar days to accept shareholders' applications for share conversion. After that, the applicant has ten days to transfer his shares in RBC to the company. Then, the company has another ten days to transfer the shares in RBC TV Moscow to shareholders.

There also will be a lockout period, as investors will not be able to trade their shares from the start of the transfer of their shares in RBC to the company until they receive shares in RBC TV Moscow.

Also, a share transfer might imply some costs, potentially reducing the attractiveness of the trade.

Current RBC shareholders will receive 49% in RBC TV Moscow.

Under the RBC restructuring scheme, RBC TV Moscow will become the owner of all assets and restructured debt obligations.

Shareholders currently owning 100% in RBC will receive 49% in RBC TV Moscow, while 51% will be owned by Onexim Group, which has invested $80 mln into the company. Following the restructuring of RBC's debt obligations, RBC TV Moscow is estimated to have $214 mln in debt.

20. Russia Forum Buzz - Privatization: Charting the Way Forward Troika Dialog February 4, 2011

The main topics for discussion were the reasons for privatization and ways to make the privatization process more efficient. Said Batkibekov said that privatization quite often pursues political goals that may not coincide with economics. Arkady Dvorkovich emphasized that the government and the president consider privatization as a tool to encourage the modernization process. The government should not force companies to innovate, but it should encourage competition, which will be the main driver of modernization. Besides this motivation, fiscal reasons for privatization are also important.

Boris Jordan noted that the privatizations of the 1990s were mainly undertaken to render economic and political change irreversible and to ensure that there would be no way back to socialism. Fiscal goals were not pursued at that time as there was no money in the country and foreigners considered Russia to be too risky. Today, the goals of privatization are to maximize value and to improve competition.

Michael Calvey shared the experience of BVCP, which invests in small and medium companies. He said that it is very hard for smaller companies to compete with state enterprises. Many state-controlled companies are listed and the management has the incentive to maximize shareholder value and increase the market share. Hence these companies not only enjoy competitive advantages but also have motivated management teams. This is why he thinks that it would be great for the government to sell not just minority stakes in state companies, but its entire stakes. He also suggested that the government may distribute shares pro rata among the Russian population. Dvorkovich agreed that lowering the government's share below a controlling level makes sense. He also suggested that the government could sell its entire stake in VTB and reduce its stake in Sberbank to below a controlling level.

Oleg Vyugin said that the government is now acting like the oligarchs in the 1990s, trying to control the courts and buying more assets. While the government has control over so many enterprises, it has a clear incentive to influence the courts. He also noted that government-owned companies are de-facto controlled by the management. This may also be the case for private companies, but the risk is much lower and Russian law is quite effective in preventing the management from monopolizing control of a private company.

Varel Freeman said that privatization is a powerful tool but insufficient for economic transition. The current wave of privatization is intended to add liquidity to the market and not to pass control to private hands. The trend is positive but incomplete.

Batkibekov said that there are two views on how to ensure that minority shareholders' rights are protected during privatization. The first view is to sell assets and then to develop institutions to protect shareholders' rights. The second is to create the necessary institutions before privatization is carried out. The second method involves the risk that government companies might affect the process. Dvorkovich agreed that creating institutions before privatization would not work, as the state companies would try to stop privatization and the government would also slow the process, as it is much more comfortable for the government to work with state enterprises.

Another major topic was the creation of efficient privatization mechanisms. All the panel participants agreed that the government has to ensure that privatization is transparent. Batkibekov said that the main public concern is that the new wave of privatization will represent "shadow agreements" to pass government assets to specific hands. Dvorkovich said that the government will sell all privatized assets on the market. Strategic sales are only justified when the strategic buyer is able to introduce new technology. Meanwhile, the government will have to ensure that privatization does not damage the market, and it will use external consultants to advise on the best timing, size and market to sell the assets.

Batkibekov mentioned that many privatized companies already have minority shareholders and the government needs to make sure that there will be no conflict of interest between the state and other shareholders during the privatization process.

Vyugin said that, in a way, privatization conflicts with the idea of creating a global financial center in Moscow. If the government wants to get more money, it should try to sell the assets on different markets, not just on local exchanges, which may damage the development of the local markets. His suggestion would be to place shares locally but to create ADR programs to provide additional secondary liquidity to increase the attractiveness for foreign investors.

OTHER NEWS STOCKS 21. Federal Grid Company: Downgrade on price performance UralSib January 31, 2011

Strong performance this year. There are rumors circulating that Fed- eral Grid Company (FGC; FEES RX - Hold) will make a GDR listing in London in March 2011. This has pushed FGC shares up 11.5% in the last two sessions, bringing its year-to- date performance to 25%. According to the unnamed source, cited by Vedomosti, the listing will be a suppor- tive measure for privatization of the government's 4.1% stake in the name, at a price not less than RUB0.50/share, which offers 9.9 % upside to the current market price.

Justified discount to DM peers. Taking account of the strong growth in the company's profitability in 2011-13, supported by the switch to progressive RAB tariff system, Federal Grid Company trades at a 2012E EV/EBITDA of 4.6, which implies an almost 45% discount to developed market peers (8.4). Furthermore, the company's 2012E P/E of 10.8 also implies a quite impressive discount of 17.5% to DM peers. We view this discount in the company's valuation as justified given the fact that FGC is to partake in what will be a very ambitious investment program that will leave it free cash flow negative until 2016. In addition, despite the approved dividend policy which is to pay out not less than 10% of RAS net profit, the company's minorities are unlikely to get any substantial benefits with an average dividend yield of only 1% in 2010-2013.

22. Globaltrans and Transcontainer - Apples and oranges Renaissance Capital February 2, 2011

Driven by different parts of the economy. Globaltrans is mostly driven by growth in domestic industrial production and consumption, and global demand for raw materials, through its exposure to basic materials, semi-finished industrial goods and construction. Transcontainer, on the other hand, is mostly driven by domestic private consumption and imports, and global demand for raw materials, through its exposure to high-value export goods, and consumer durables and non-durables. Transcontainer's operations are more cyclical and its stock has a higher beta, it is also currently in a quicker growth cycle than Globaltrans.

At different stages of life. Globaltrans operates a young fleet in the fragmented open-top gondola market, with about a 10% market share. As major players, such as Russian Railways' (RZhD) subsidiaries, are struggling and as there is strong demand for railcars, we believe there are ample growth opportunities for Globaltrans. Transcontainer operates a mature fleet that is in need of replacement and has more than a 50% market share in flatcars. Its growth is mostly driven by strong imports and market containerisation. Transcontainer's business model is a more complete door-to-door model, involving freight forwarding, terminal services, warehousing and trucks.

We prefer Globaltrans. We expect Transcontainer to post 58% EBITDA growth in 2011 vs 24% for Globaltrans, largely due to the former's high operating leverage. Also, due to its more complete business model, which allows for greater pricing flexibility, and given the current high point of the cycle, we believe Transcontainer warrants a premium to Globaltrans. However, we feel its higher risk profile compared with Globaltrans, limits that premium to just 10%. Using DCF and multiple valuations, we arrive at the following TPs: $21/GDR for Globaltrans and $11.7/GDR for Transcontainer. Therefore, we maintain our BUY rating for Globaltrans and initiate Transcontainer with a HOLD rating.

23. Merger of Uralkali and Silvinit: new combined valuation, risks and synergies Metropol February 2, 2011

Merged company valuation at announced swap coefficients - upgrading from Hold to Buy with 13% upside potential We have changed our 2011 Fair Value estimate for the combined Uralkali to USD 44.4 per GDR and upgraded our recommendation from HOLD to BUY. Our valuation is based on a new DCF model for the combined company incorporating the significant assumption that the merger will be completed at the announced swap coefficients (133.4 Uralkali shares per one Silvinit common share and 51.8 Uralkali shares per one Silvinit preferred share). In the report we provide a detailed analysis of the proposed merger. Once the transaction is completed, Silvinit will cease to exist.

Proposed merger is still subject to regulatory and shareholder approval According to the law, 75% majority approval from both companies (EGM's are scheduled for Feb 4) is necessary for the merger to go through. At the proposed share swap coefficients, the deal seems favorable for Uralkali shareholders. However, we believe there is a risk that transaction may be blocked by Silvinit minority shareholders. In addition to shareholder approval, the transaction also requires approval from the Russian FAS and antitrust regulatory bodies in 16 other countries. Despite the risks cited, we believe it is more likely that the proposed deal will be approved.

Impact of synergies is relatively low, adding around 1ppt to 2013 EBITDA margin and 2.4% to our estimated FV According to Uralkali, the synergistic effect from the proposed merger could be USD 100mn p.a. by 2013, including operational synergies of USD 55mn, reductions of USD 25mn in SG&A and around USD 20mn in transportation costs. We find the announced synergies achievable, however, the effect is not as significant as it might seem from first glance. According to our model, potential synergies in 2013 should add approximately 1ppt to estimated EBITDA margin (increasing to 55%). Our estimated FV for the combined company without synergies is USD 43.4 per GDR - synergies add approximately 2.4% to the estimated FV.

A new Russian blue chip and leading global potash producer with capitalization of more than USD 24bn The merger of Uralkali and Silvinit - Russia's two biggest potash producers - would create a Russian potash monopolist with an estimated 20-25% share of global production. The combined company would have an annual production capacity of 10.6mn tons, ranking it third globally in capacity following Potash Corp (12.8mn tons) and Mosaic (11.2mn tons). Estimated capitalization of more than USD 24bn means the company would join the ranks of blue chip Russian stocks.

Merger supported by favorable potash market environment We believe that both fundamentals and the current state of the potash industry favor the proposed merger. Low potash inventories worldwide caused by massive destocking in 2009, coupled with rising demand, should support prices in the medium term. In 2011, the global potash market is expected to grow by 6-15% y-o- y and reach 55-60mn tons. We believe rising global population and decreasing amount of arable land per capita should drive potash prices upward over the long term.

24. MRSK Siberia: Additional share placement on the agenda UralSib February 1, 2011

EGM to approve additional share placement ... On 9 March, MRSK Siberia (MRKS RX - Hold), a distribution company operating low- voltage grid assets in Siberia, will hold an EGM to approve an additional shares placement, Interfax reported yesterday, citing an official announcement. The cut-off date is 1 February. The potential volume of the placement has not been disclosed.

... to finance the reconstruction of grid infrastructure at the Ras- padskaya mine. According to Interfax, funds raised through the additional share placement could be used for the reconstruction of grid infrastructure at the Raspadskaya mine, damaged during the accident there in May 2010. The preliminary cost of the reconstruction as mentioned by media sources was RUB1.7 bln ($56 mln). Taking into account the current market price and the necessary capex, the total volume of the placement could reach 5.9% of current or 5.5% of extended shareholder capital.

Negative impact limited. Given the rather limited potential volume of negative for the stock price performance. Currently the company is switching to the progressive RAB- tariff system, which should secure the profitability of all new infrastructure projects. Almost all of the company's branches were switched to RAB on 1 January 2011. However, the branch located in the Kuzbass region, which will likely be involved in this project, has not yet been switched to RAB and currently operates under the long-term inflation tariff system. Thus, the additional capex for this project will not likely result in any additional cash flows for minorities. We reiterate our Hold recommendation on the name with target price of $0.011/share.

Matvey Taits

25. MTS to file indicative offer for stake in cell co NTC bne February 03, 2011

Russiaís largest mobile operator MTS plans to submit an indicative offer to buy a stake in mobile company New Telephone Company (NTC) operating in the countryís Primorsky Region, says MTSí President Mikhail Shamolin, reports Prime-Tass.

The news agency says that Shamolin did not provide the exact timeline for submitting the offer and the price MTS plans to offer.

26. Raiffeisen Capital to invest in the 2018 World Cup bne February 03, 2011

Raiffeisen Capital Management Company starts raising an open-end mutual fund focused on investing in Russian infrastructural projects, reports local media.

Reports suggest that the company mentions a few projects among the priority ones in this sector in the nearest years.

27. RBC: Possible speculative opportunity, but no fundamental story UralSib February 1, 2011

Offer for minorities to swap their shares for RBC TV Moscow. On 24 January, RBC (RBCI - Sell) began a swap for shares in RBC TV Mos- cow (RBCM). Minority shareholders in RBC have been offered 1.116 shares in RBC TV Moscow for every share in RBC. The company plans to convert 35 mln shares under this operation, which will be open until RBC receives sufficient applications, or up until 30 April 2011. The company will offer separate deals for larger minority shareholders, owning more than 200,000 shares, although the swap ratio should be the same. Exist- ing shares in RBC will ultimately be delisted, and we thus recommend that existing RBC shareholders participate in the offer. (Please see our desk note published yesterday.)

Stock is fundamentally overvalued. Fundamentally, we continue to see no upside in RBC even after the restructuring, as its debt level remains fairly high and minority stakes were diluted by the transaction with Onexim. The stock trades at 185% above our 12-month target price of $0.6/share, which is based on fairly optimistic operating assumptions. We reiterate our Sell recommendation for the stock.

28. Rostelecom board approves deal to buy stake in NTC bne February 02, 2011

Russian telecommunications company Rostelecomís board of directors has approved a deal to buy a stake in broadband group National Telecommunications (NTC), says Rostelecomís spokesman Oleg Rumyantsev, reports Prime-Tass.

The news agency quoted Rumyantsev as saying that the deal does not require the shareholdersí approval.

29. RusHydro places 1.0bn additional shares via pre-emptive rights Alfa Bank February 1, 2011

RusHydro put out a press release yesterday announcing it had placed 1.0bn additional shares via pre-emptive rights. The figure comprises 55.77% of the total volume of the planned additional share issue. The government acquired additional shares worth RUB1.5bn. The company plans to place a total of 1.9bn new shares and use the funds from the additional share issue to repair the Baksanskaya GES in Kabardino-Balkaria, which was damaged by a terrorist attack last summer. The price for the additional shares was RUB1.61/share, or 8.1 % above the market price.

The company managed to attract the required RUB1.5bn to cover the damaged Baksanskaya GES. Taking into account that the total volume of the placement is quite small (1.9bn shares, or 0.66% of equity), we treat the results of this pre- emptive rights placement as NEUTRAL for the stock.

Alexander Kornilov

30. Russian businessman Vekselberg ups stake in Akado to 58% bne February 02, 2011

Russian businessman Viktor Vekselberg has increased his stake in telecommunications group Akado to 58% by acquiring a 7% stake from Akadoís Chairman Yury Pripachkin, whose stake has decreased to 42%, reports Prime-Tass.

Citing an unnamed source on the telecommunications, the news agency says that Vekselberg holds his stake in Akado via multi-industry holding Renova Group.

31. Russian Helicopters makes buyout offer to Rostvertol minor hldrs bne February 02, 2011

Russian Helicopters, a holding of Russian helicopter producers, has made a mandatory offer to buy out minority shareholders of Russian helicopter maker Rostvertol, reports Prime-Tass.

Citing a statement issued by Rostvertol, the news agency says that Russian Helicopters, which currently holds 75.508% in Rostvertol, offered to buy the remaining shares in the company at a price of RUB2.69 per share. As of 12:41 p.m. Moscow time, Rostvertolís shares were traded at about $0.087 (RUB2.59) each on the Russian Trading System Stock Exchange (RTS).

32. Sberbank acquires 25% stake in Nitol Solar bne February 02, 2011

State-controlled Sberbank, Russiaís largest bank, has purchased a 25% stake in Nitol Solar Limited, reports Prime-Tass.

Citing a report issued by the bank, the news agency says that Nitol Solar is an international vertically integrated company whose main business activities are the scientific development and manufacturing of products used to generate solar energy.

33. We have upgraded Magnit to Buy on valuation grounds VTB Capital February 1, 2011

News: We are upgrading our rating for Magnit from Hold to Buy on valuation grounds while leaving our forecasts and 12-month Target Price of USD 34.1 unchanged.

Our View: The stock has dropped 10% since 19 January, underperforming the RTS index by 9% during the period. Our 12-month Target Price of USD 34.1 now implies 30% upside potential from current levels and so we are assigning a Buy rating for the shares.

We expect the company's financials to be strong in the coming quarters (the first set of numbers is due in early April): we forecast revenue growth in excess of 45% YoY and margins higher than 8%. The first trading updates, which are due in mid- February, will in our view shed light on the company's revenue growth.

We believe that management is strongly committed to continuing with the aggressive store openings plan, rather than providing for more healthy dividends. The recent investments in the supply-chain support this view. Our model envisages the company opening 856 discounter and 50 hypermarkets in 2011, outpacing the previous record high results of 2010.

The company's intention is that by the end of 2020 it will have 8,000 discounters and 450-500 hypermarkets, meaning the period of aggressive growth, particularly in the discounter format, is to be extended for at least three years and we see selling space increasing at a CAGR of 23% in 2010-13F.

Magnit trades at 2011F EV/EBITDA of 13.6x and P/E of 25.3x, implying premiums of 12% and 13%, respectively, to EM.

On the back of the recent stock corrections, we now see 27-30% upsides in our Buy universe of retail peers and rank them in the following order of priority: O'Key (30%), Magnit (30%) and X5 (27%).

IPO, SPO, ADRs, GDRs, PLACEMENT 34. Alrosa may raise $1.5-$2bn in selling 20% in IPO bne February 02, 2011

Russiaís uncut diamond monopoly Alrosa may raise an estimated $1.5bn-$2.bn from a possible initial public offering (IPO) of up to 20% of its shares, says Alrosa President Fyodor Andreyev, reports Prime-Tass.

The news agency quoted Andreyev as saying that the companyís value is between $8bn and $10bn based on Alrosaís financial results calculated under International Financial Reporting Standards (IFRS).

35. Avangard studying SPO for some 10% of shares in 2011 bne February 03, 2011

Avangard agribusiness, the largest egg producer in Ukraine, could hold a secondary public offering (SPO) for some 10% of its shares, says Oleh Bakhmatiuk, the holding's board chairman, report Interfax.

The news agency quoted Bakhmatiuk as saying that compared to the great interest of investors in the company, its liquidity is still low, despite the growth seen recently, and we're considering its expansion via holding an SPO.

36. Koks Group postpones IPO due to market conditions bne February 03, 2011

Russiaís coke and cast iron producer Koks Group has postponed its initial public offering (IPO) citing unfavorable market conditions as the reason behind the postponement, reports Prime-Tass.

The news agency says that the group did not say how long the IPO is to be postponed for.

37. Koks IPO: A bet on the full range of steelmaking raw materials UralSib, Russia February 1, 2011

The company itself is to place 26 mln treasury shares (7.9% of the current share capital), and core shareholders will sell up to 31 mln existing shares (10% of the current share capital). There is also an overallotment option of 15% of the amount of shares placed for the book runners. As a result, the total size of the IPO with the overallotment option could be $410-530 mln (66 mln shares), implying a minimum 26% free float (including a 6% of pre-IPO minorities). The book building commenced last week, and reportedly Koks is to complete the placement in mid-February. The company will use part of the proceeds to pay off its debt and part to invest in new assets. (Please see our desk note published yesterday.) Low-end price looks fair; ideally we would wait for a 10-15% lower price. We believe the name should be traded with EV/EBITDA multiples at a 20% discount to the average of Russian coal majors and steelmakers (both of which currently stand at 2011E EV/EBITDA of 6.9), due to its lack of public history/transparency and moderate asset quality. This translates into target multiple of 2011E EV/EBITDA of 5.5. With our 2011 Koks' EBITDA projection of $453 mln and a net debt of $400 mln (post- IPO) this equates to $2.1 bln or $6.3/share. Therefore, we view the lower end of the announced price range as fair and recommend participating in the placement only at this level. In the event of a higher placement price, we would choose another integrated steelmaker to play the steel & steelmaking raw materials recovery story, such as undervalued Evraz, for instance.

38. Lisin studies transport IPO bne February 02, 2011

Vladimir Lisin is considering selling shares in $2bn of transport assets in an initial public offering, reports The Moscow Times.

The newspaper report says that the assets, consolidated in Amsterdam-based UCL Holding, include seaports in St. Petersburg and Tuapse, North-Western Shipping and Volga Shipping.

39. Mamut, Vimpelcom settle with former Euroset owners ahead of IPO bne February 03, 2011

The former owners of cell phone retail chain Euroset, Yevgeny Chichvarkin and Timur Artemyev, have reached agreement with the current owners, Alexander Mamut and Vimpelcom to drop all claims relating to the sale of the company in 2008, reports Interfax.

The news agency quoted Artemyev as saying that they did a lot of work on concluding this deal and I am happy that the process has been completed to the complete satisfaction of all the parties concerned.

40. RTS, Micex plan 2012 IPO bne February 02, 2011

Russia's two biggest exchanges Micex Group and RTS plan to hold an initial public offering in Moscow of their merged companies in the second half of 2012, says the Vice Chairman of RTS Oleg Jelezko, reports Prime-Tass.

The news agency says that Micex, which handles the biggest part of Russian equities and exchange-based currency trade, agreed on Tuesday to buy a controlling stake in rival RTS.

BUY BACKS, SHARE ISSUES 41. RusHydro to participate in Irkutsk share issue Renaissance Capital, Russia Tuesday, February 1, 2011

Event: Yesterday (31 January) Reuters reported, quoting a source at RusHydro, that the company is planning a primary share issue: shares will be issued to the state in exchange for control of the dams associated with the Irkutsk hydro generation plants, and to InterRAO in exchange for a 40% stake in Irkutskenergo. The share issue will be financed with RusHydro equity. According to the source, RusHydro shareholders will vote on the Irkutskenergo share swap at a 21 February EGM. Neither the record date nor the timeline of the issue was announced; however, the RusHydro press office commented that the placement would be an open subscription and the placement price would be defined in 1H11.

Action: Negative for RusHydro, in our view.

Rationale: As we noted earlier, we doubt that the assets to be acquired by RusHydro will bring any financial value to the company - notwithstanding their undoubted economic value. Moreover, we judge that the open nature of the placement of RusHydro shares - which of itself would constitute a 20% capital increase - creates the potential for a share overhang of up to RUB1.5bn.

Vladimir Sklyar

42. Russian Helicopters submits mandatory buyout offer to minorities of Rostvertol at RUB2.69/share Renaissance Capital, Russia Tuesday, February 1, 2011

Event: Yesterday (31 January), Rostvertol (RTVL) announced that it had received a mandatory buyback offer aimed at minority shareholders. The offer came from its major shareholder, Russian Helicopters Holding (which owns 75.508% of RTVL). The price of the offer is set at RUB2.69/share ($0.090/share) and shareholders have 70 days to accept the offer.

Action: The news is positive for Rostvertol's minority shareholders, in our view.

Rationale: The price of the buyout offer is at an 8.5% premium to the market. The implied EV/EBITDA 2011E multiple for the company is 6.1x (according to Bloomberg consensus 2011 EBITDA estimates), while Kazan Helicopters (KHEL) and Ulan-Ude Aviation (UUAZ) trade at 2011E EV/EBITDA multiples of 4.7x and 4.0x, respectively. We expect Russian Helicopters also to submit a mandatory buyout offer for KHEL. Yesterday, KHEL announced that Russian Helicopters had increased its stake in the company to 87.7% from 66.15%.

Mikhail Safin

43. Shareholders buy 55.8% of Russiaís RusHydro extra share offering bne February 02, 2011

The shareholders of Russian hydropower monopoly RusHydro have purchased 1,037,303,801 additional shares, or 55.77% of the companyís total additional share offering, having exercised their preemptive rights, reports Prime-Tass.

Citing a statement issued by RusHydro, the news agency says that RusHydro earlier planned to publicly offer 1.86 billion additional shares with a face value of RUB1 each.

44. Sistema Indian unit to offer extra shares by July bne February 02, 2011

Russian multi-industry holding AFK Sistemaís Indian mobile subsidiary Sistema Shyam TeleServices (SSTL) plans to complete an additional issue of shares for the Russian government and Indian investors by the end of June, says SSTLís President Vsevolod Rozanov, reports Prime-Tass.

The news agency quoted Rozanov as saying that at present, SSTL is undergoing technical procedures for the additional issue of shares.

45. Synergy sets price for extra share offering at $44 per share bne February 02, 2011

Russian alcoholic beverage producer Synergy, also known as Sinergiya, has set the price for its additional share offering at $44 per share, reports Prime-Tass.

Citing a report issued by the company, the news agency says that Synergy earlier approved publicly offering 6.75 million additional shares.

DIVDENDS 46. $14bn on dividends bne February 02, 2011

VTB Capital analysts estimates that Russian oil and gas majors will pay dividends to the total amount of $14.6bn for 2010 which is 27% more than dividends paid for 2009, reports local media.

Reports suggest that state-owned Gazprom and Rosbank are likely to transfer a higher percent of profits to dividends than they did for 2009.

47. AAR consortium to block TNK-BP dividend payment bne February 02, 2011

The board of directors of Russiaís Alfa-Access-Renova (AAR) consortium has decided to vote against the dividend payment by Russian oil major TNK-BP for October- December 2010, says the consortiumís CEO Stan Polovets, reports Prime-Tass.

The news agency says that the decision was the result of disagreements between TNK-BP shareholders over U.K.-based oil company BPís deal with Russian oil major Rosneft.

48. AvtoVAZ holders recommend not paying dividends for 2010 bne February 02, 2011

The shareholders of Russiaís largest carmaker AvtoVAZ have recommended that the company not pay dividends for 2010, says Sergei Skvortsov, managing director at Russian investment company Troika Dialog, one of the companyís shareholders, reports Prime-Tass.

The news agency says that the company did not pay dividends for 2009 and 2008.

49. BP says received $1.8bn in 2010 dividends from TNK-BP bne February 02, 2011

U.K. oil company BP said in a report Tuesday it had received $1.780bn in 2010 dividends from Russian oil major TNK-BP, where it holds a 50% stake, reports Prime- Tass.

The news agency says that of the total, BP received $790mn in dividends from TNK- BP for October-December 2010.

BANKS shares 50. Russian government may sell 10% stake in VTB via public equity placement Renaissance Capital, Russia Tuesday, February 1, 2011

Event: Yesterday (31 January) Reuters reported, citing unidentified sources, that the Russian government is considering an option to sell a 10% stake in VTB via a public equity placement, rather than through a direct sale to a consortium led by TPG Capital, as was previously reported. Reuters also quotes VTB CFO Herbert Moos as saying that VTB is planning a roadshow to gauge investor appetite for the placement (according to another Reuters source, the roadshow will take place over the next two-to-three weeks), following which the bank and the government will decide whether the stake will be placed in the market via a bookbuilding process, or sold directly to a pre-identified pool of investors.

Action: Potentially negative news for VTB, in our view.

Rationale: The government is known to have been in talks regarding the sale of a 10% stake in VTB to a consortium of investors led by TPG. These negotiations started back in mid-2010, when VTB was trading at around $5/GDR, i.e. 30% cheaper than its current market price of $7.2, so the deal is clearly less attractive for the potential buyers now. Therefore, the possibility of a public equity placement, and the overhang risk associated with it, should not be discounted, in our view.

EXCHANGES, REGULATIONS 51. MICEX move on RTS to pave way for single Russian exchange RIA Novosti February 2, 2011

Shareholders in Russia's MICEX stock exchange have signed a non-binding agreement signaling their intent to acquire a controlling stake in the rival RTS, Central Bank's First Deputy Chairman Alexei Ulyukayev said late on Tuesday.

The announcement of a deal for the Russian MICEX stock exchange to buy out the rival RTS, after months of talks about a possible merger, paves the way for a unified Russian exchange and is set to boost Russian government plans to increase Moscow's prominence as a global financial center.

The rouble denominated MICEX currently accounts for about 80 percent of equities trading in Russia, with the internationally better known, and dollar denominated RTS accounting for the rest. A merger of the two, long called for by many market players, underpins the possibility of a single Russian trading platform for equities, derivatives, and financial instruments, as well as providing for considerable commodity trading.

Ulyukayev stated that the merger was intended to boost Russian stock market liquidity and enhance market infrastructure, including clearing and depositary operations. He added that the deal would value the MICEX at $3.45 billion and the RTS at $1.15 billion, with the MICEX to pay for 35% of the controlling stake in the RTS through cash, and the rest through a share swap. The two sides are expected to sign a binding merger agreement by the end of April, with only a force-majeure event to delay this.

The Central Bank of Russia, which has a 29.8% stake in the MICEX will sell its stake in the merged entity through an IPO, slated to take place in the next three years. The major RTS shareholders are Troika Dialog, with a 10% stake, Alfa bank (9.6%), and Deutsche Securities (9%).

MICEX CEO Ruben Aganbegyan says the link up between the two exchanges is good news for the market.

"Obviously working together with our partners from RTS - having joint exchange and achieving, getting liquidity together and moving that forward is a great and very important goal in my view - infrastructure goal, and great for the market." RTS Chairman, Jacques Der Megreditchian, believes the protracted negotiations have led to a fair deal, with time ahead to smooth out merger issues.

"The deal I think is quite fair for both sides. It's 35 percent cash and 65 percent the exchange of shares. And I think, as I said, it's a good first step. After that we have three months to go through all the legal documents and work a little bit on the organization of the combined entity. But I think it's a positive for the Russian market." Maxim Rozenblit Development director at IFC Metropol, believes the news has been anticipated by the markets for some time, and won't initially generate significant new listings in Russia, but does help lay the basis for an increased longer term interest in Russian markets.

"This merger is a general deal that has been very protracted. It is not likely to be more competitive with other major world exchanges as they have already built their base and grown their volumes. I don't think the move, of itself, will attract new Russian companies or foreign companies to list in Russia as there isn't enough access to a pool of attractive investors - they are historically attached to other exchanges.

All new establishments and reform should be well examined by investors.

However the bulk of trading funds have restrictions concerning the rank of security trading, risks and admission to trading on other exchanges. In the long term perspective, the Russian Stock exchange can become attractive and maybe more focused on foreign companies and investors. A Russian exchange is absolutely equal to the international technological standards. It may be also interesting if Russian exchange will start trading in Russian depositary receipts."

KAZAKH STOCKS 52. Central Asia: Spices of the Silk Road - Will the rally continue in 2011? Renaissance Capital January 31, 2011

After limping along for most of 2010, the RENCASIA and RENKAZ indices had a spectacular catch up in the last two months of 2010. As a result, RENCASIA closed the year up 17.2%, finding itself among the top-performing indices, both in emerging markets (EM) and developed markets (DM). RENKAZ returned a more modest 12.6%, putting it midrange. In December, RENCASIA delivered 8.6% growth MoM, with RENKAZ up 5.6% MoM.

These markets are indeed at the frontier, so will the rally carry over into 2011? Such a catch-up in performance is consistent with the region’s status as a frontier market, more so than the indices’ heavy exposure to the resources and commodities sectors, in our view. Current sentiment and market conditions support a continuation of the rally into 1H11 and we would expect a further catch-up in performance, especially relative to price movements in the underlying commodities with financials no longer a drag.

Liquidity picked up in a big way in 2010, +53% YoY, and may increase further in 2011, if 4Q10 is anything to go by. After investor interest dried up massively in 2009, with liquidity in RENCASIA declining 32.4% YoY, 2010 marked a comeback with an even stronger 53% swing back up. Liquidity in the index returned to 2008 levels. Average monthly volumes were $2.5bn in the first nine months of 2010, increasing by a whopping 74.8% in 4Q10. Liquidity may increase a further 33%, according to our estimates, in 2011.

It still boils down to one’s view on commodities: RENCASIA and RENKAZ are both heavily exposed to the resources sector and remain highly correlated with the performance of underlying commodities. With the outlook for commodities looking firm in early 2011, and financials no longer likely to be a drag, the scene is set for further asset appreciation, especially in the context of what we believe are still cheap valuations on a relative and absolute basis. The wild card in Kazakhstan, as always, remains political risk.

With an estimated forward P/E of 6.7x and 2011 EPS growth estimated at 75%, Central Asian valuations remain cheap (on Bloomberg and ThomsonOneAnalytics data). This leads us to expect continued outperformance during 2011. Our top picks for the next 12 months include Tethys Petroleum (TPL CN; BUY, CAD2.53), ENRC (ENRC LN; BUY, GBP12.56) and KMG EP (KMG LI; BUY, $30.6).

53. Kazakhstan Chart Book: Some Positive News VTB Capital February 2, 2011

Early presidential elections? On 31 January the Constitutional Council of Kazakhstan declared void the earlier decision of Kazakh parliament to hold a nationwide referendum to extend President Nazarbaev’s term to 2020 without elections. In the follow-up address to the nation Nazarbaev welcomed the Council’s decision and proposed holding early presidential elections (mid/late spring 2011 was later mentioned in the local media as a possible timeframe). We think this will ease political uncertainty in the midterm as Nazarbaev (who is 70-years old) will easily win the election (his participation is our base-case scenario). However, this clearly does not address the longer-term succession problem.

S&P’s rating upgrade. On 23 December S&P followed the positive action by Fitch (outlook revised to “positive” on 20 December) and upgraded Kazakhstan’s LT FC rating by one notch to BBB.

FY10 budget deficit cut. Higher revenues and capped expenditures in December kept the full-year state budget deficit at just KZT 555bn, or about 2.7% of GDP, well below the official guidance of 4.1% of GDP.

Detailed 9mo10 GDP data. Kazstat released a breakdown of 9mo10 GDP data (growth at 7.5% YoY) while preliminary 11mo10 data suggests that GDP growth has slightly eased to 7.1% YoY.

Mixed eco data for December. While retail sales growth accelerated to 11.3% YoY the industrial output growth eased to 5.0% YoY and investments growth remained dull at just 2.7% YoY.

December inflation at 7.8% YoY. The pace of monthly inflation marginally eased in November and December, helping to contain 2010 inflation to under 8%. Global price trends remain a concern in 2011.

9mo10 external debt. Kazakhstan’s total external debt marginally declined to USD 112.8bn in 3Q10, primarily reflecting a sizeable reduction in bank debt while corporate and state debt increased.

The oil export duties saga. In line with our expectations, the authorities doubled the duties to USD40/ton from 1 January. The hike is expected to add KZT 420bn (app. USD 2.8bn) to budget revenues.

54. Kazakhstan: Samruk Kazyna to start IPO’s in March Visor Capital February 3, 2011

KEGOC and Kazatomprom may be amongst the first to list

Kazakhstan’s Finance Minister, Bolat Zhamishev, yesterday announced to a press briefing that National Welfare Fund Samruk Kazyna would begin a process of IPO’s for several state companies in March 2011. The IPO’s were intended to be on the KASE stock market.

Mr Zhamishev stressed that the Government’s Council for Economic Policy has listed a lot of companies that would be on the list of companies that would ultimately be floated, although some of these would require changes to legislation. The Minister further commented that the Council believed it quite justified that KEGOC (the supplier to the electricity grid) could be floated relatively easily, with it similarly relatively easy to remove any restrictions ahead of a share issue from Kazatomprom. From the comments of the minister, the larger state companies would be restricted to offering minority shareholdings, “not larger than 10% of share capital”.

We believe that the news is positive for the KASE market, and we believe likely to help the development of Kazakhstan’s financial system. In the longer term, we believe a stronger public interest will promote efficiency within the state organisations and the investment climate within Kazakhstan.

55. Listing of state-owned assets on KASE to start in March, targeting pension and retail money Renaissance Capital February 4, 2011

Event: Yesterday (2 February), Kazakhstan’s Ministry of Finance announced that the listing of state-owned enterprises on the KASE will commence as early as March. The prime minister earlier announced that the possible listings will be wide reaching and will be aimed at pension funds and retail investors. The government is refocusing attention on developing the local stock market, and it appears eager to find a new home for the excess liquidity accumulated by pension funds and banks.

We remain sceptical about the local market’s ability to develop to an extent that makes it internationally attractive – the current legislative framework and limited liquidity are major obstacles.

UKRAINE STOCKS 56. Astarta Holding major shareholders swap shares Dragon Capital February 1, 2011

News: Astarta Holding's major shareholder, Viktor Ivanchyk, transferred 800,000 of his shares, or a 3.2% stake, to the company's second-largest shareholder, Valeriy Korotkov, in a transaction executed outside the regulated market based on free-of- payment delivery terms. As a result of the transaction, Mr. Ivanchyk's Albacon Ventures Ltd. now holds 36.99% of Astarta shares and Mr. Korotkov's Aluxes Holding Ltd. 31.99%. Astarta said in a statement Mr. Korotkov was eager to increase his stake in the company due to seeing high potential in this investment. As the two businessmen are also shareholders in other projects, Mr. Ivanchyk essentially exchanged part of his stake in Astarta for an increased shareholding in a different project. No other swaps are planned. (Company)

Dragon view: We consider the news neutral for the stock and reiterate our Buy recommendation based on a 33% upside to yesterday's closing price.

Tamara Levchenko

57. Avangard plans SPO, US$ 150-170mn in new debt BG Capital February 3, 2011

Avangard (AVGR LI) Non-Executive Chairman Oleg Bakhmatyuk revealed the company is considering an SPO on the London Stock Exchange in 1H11 to support share liquidity and is looking at raising US$ 150-170mn via new loans or a debt sale to finance capex.

Dmytro Ushenko: With ample end-2010 net cash of US$ 230-240mn, Avangard looks well-positioned to cover all remaining capex for its two planned poultry complexes. We therefore believe the new funds will be used to expand annual output capacity of dry egg products from the current 1bn shell eggs to 3bn in 2012. The key question, in our view, will be of additional demand - Avangard now accounts for half of Ukraine's dry egg products output and we believe domestic demand is likely to lag the company's ambitious expansion plans.

58. Canada's Black Iron, owner of Ukrainian iron ore assets, plans IPO Concorde Capital February 3, 2011

Canada's Black Iron, which controls iron ore assets in Kryviy Rih in Eastern Ukraine, is planning an IPO on a Canadian stock exchange in 2011, according to an announcement made earlier this week. Black Iron filed a preliminary prospectus with securities regulatory authorities in Canada in connection with the offering. Black Iron was established in 2007 and owns a 100% interest in a mining permit for the Shymanivske Project, which covers a 2.56 km2 area in Kryviy Rih and contains approximately 345 mln mt of measured and indicated resources grading 31.83% iron and approximately 469 mln mt of inferred resources grading 31.05% iron. Black Iron acquired the iron ore assets from Geo-Alliance Group, part of Ukrainian businessman Viktor Pinchuk's East One holding, in 2010 and renamed itself from Geo-Alliance Ore East to Black Iron.

Andriy Gerus: We believe there is now strong momentum for the sector and the company will make a successful placement. Iron ore prices are at a 3.5-year high (more than +150% over the last 12 months) and we do not expect a significant decrease in the next 1-2 years.

59. Few shareholders participating in buyout of MMKI shares Foyil Securities February 1, 2011

The CEO of Metinvest has told Interfax that "only a very few minority shareholders have applied for participation in the buy-out on Mariupol Ilyich (MMKI) shares".

Our view: This news is POSITIVE for MMKI shares as its liquidity is not going to be totally evaporated by the announced buyout, which should take place February 7-18. Prior to the buyout, our estimate of MMKI's free float was 0.6%-0.9%, which implies no less than 74m shares owned by minorities. As it is unlikely for more than a few millions of shares to be bought out, some liquidity for MMKI shares will remain. The reason why we expected that few minority shareholders would apply was the low offered price, which was only UAH 0.8756, well below our target price of UAH 1.05 and the consensus stock price target.

Yevheniy Barannikov

60. SPF approves 105 stakes for privatization this year bne February 2, 2010 The State Property Fund (SPF) has approved plans to sell stakes in just over 100 companies this year, reports Ukrainian News, suggesting that the original schedule for 2011 could have been slashed by over one-third. The agency quotes an SPF directive dated January 31 which sets out plans and a timetable for the privatization of 105 enterprises. The list includes several power companies and factories, as well as a major port, but there's no mention of the likes of national telecom operator Ukrtelecom - which was due to be sold on December 28 before the state pulled at the last minute. Interfax reported on January 13 that the state planned to sell of stakes of at least 25% in 162 companies in 2011, including a 50% + 1 stake in Ukrnaftaprodukt, which the SPF directive has now revealed it plans to privatize in May. The Feodosia Shipyard will come up for grabs two months later. The major question that remains over many of the stakes however is whether the SPF will actually be able to get rid of them. Several have been on the block for some time now, and the state has regularly fallen short of its annual targets for cash raised from privatization. Just as last year, the SPF aims to raise as much as UAH10bn from privatization in 2011. However, it managed no more than just 10% of that figure. 61. Stock market regulator may suspend six blue chips from trading Dragon Capital January 31, 2011

News: Ukraine's stock market regulator ordered to suspend trading in shares of companies whose securities are being dematerialized and transferred from documentary into non-documentary form. Starting today, Sumy Frunze [Buy; PT $2.39] will be suspended from trading as a result. (Kommersant)

Dragon view: The news is negative for domestic market activity as only 30% of domestically listed companies have finished the dematerialization process. Moreover, the state regulator's order may add to selling pressure on six blue chips from our coverage universe facing the suspension risk. Those include aircraft engine producer Motor Sich [Buy; PT $660], railcar manufacturer Stakhaniv Rail Car [Str. Buy; PT $2.34], oil company Ukrnafta [Sell; PT $73.12], fixed-line monopoly Ukrtelecom [Buy; PT $2.34], Ukrsotsbank [Buy; PT $0.141] and coke producer Yasynivsky Coke Buy; PT $1.025].

62. Ukraine 2011 Politics Preview: Biting the reform bullet Concorde Capital February 1, 2011

Government promises to wield consolidated power to tackle difficult reforms Ukraine's parliament, the Verkhovna Rada, opened its eighth session today, which is due to last until summer. Pursuant to commitments made to the International Monetary Fund, the government has an ambitious agenda that includes making over the pension system (including raising the retirement age for women gradually to 55 by 2020) and stabilizing Naftogaz of Ukraine. We also expect the government to continue de-nationalizing key assets, particularly in the power generation sector and finalizing the sale of incumbent fixed-line telecom operator Ukrtelecom. For the first time in recent memory, Ukraine enters the year without a major nationwide election scheduled and with all the major government bodies (President, Cabinet of Ministers and the parliamentary coalition) on the same page.

Equity market outlook We expect modest growth from the Ukrainian Exchange (UX) of 30-40% in 2011, after it posted 68% in 2009 and 90% in 2010. We believe banks and consumer goods as well as 2nd and 3rd tier stocks will outperform the market. We expect to see a number of local bond and Eurobonds placements, as well as some IPOs in the agriculture and consumer goods sectors.

Ukrainian politics in 2010 in review Following his inauguration last February, Yanukovych moved quickly to install allies in key government posts, repair Ukraine's strained relationship with Russia and launch difficult but badly needed economic reforms. His support remains strongest in Eastern Ukraine where his party made a strong showing in October local elections, but nationwide popularity was eroding by yearend. Ukraine's image in the international community did not change much in terms of business climate as indicated by global development ratings, but suffered due to a perceived crackdown on the opposition and media.

Key political issues for 2011

Pension reform Ukraine, in its November 2010 memorandum and in ongoing talks with the IMF, committed to overhauling the pension system. Key tenants of what could be one of the most contentious pieces of legislation of the year include ensuring a balanced budget for the fund by increasing revenues through tax reform and improving payment of contributions, and raising the retirement age for women gradually over 10 years to 55 by 2020 (on par with males). The main law currently regulating the pension system dates back to 2001. Top government officials have said they expect to approve new legislation in March 2011.

Oil & gas sector reform The government also pledged the IMF to balance the position of Naftogaz of Ukraine in 2011. It plans to achieve this via increasing gas prices for households and utilities by another 50% as of April 15, 2011 (following a 50% hike in August 2010), fully pass through higher gas prices to utility prices, and establish tighter control over operational costs. Ukrnafta is shaping up to be another big story - Prime Minister Mykola Azarov said in January he wants to change the management team (currently controlled by 42% shareholder Privat Group; the state owns 51%) and shareholders are due to vote on the creation of a vertically integrated structure by merging with refiner Ukrtatnafta at a March 22 EGM. Government officials have said the restructured entity could place up to a 20% stake on the London Stock Exchange.

Continuation of tax reform Government officials claim that the new tax code passed last year will streamline legislation and help tackle tax evasion - the phase-in period began as of January 1, and the State Tax Administration and Finance Ministry have begun issuing supplemental guidance on new provisions. In addition, the government aims to clear VAT arrears in early-2011 and setup a new systematic and timely VAT refund process.

Privatization The State Property Fund expects to finalize the privatization of Ukrtelecom in 1Q11 to the only suitor to bid on it at a December 2010 auction, ending 12-years of talk of selling it off. The SPF is in the process of completing an independent valuation of the fixed-line telecom operator. The government has removed remaining obstacles to auctioning off power generation companies and the Odesa Portside plant in 2011. An auction is expected to be announced for either Zakhidenergo or Dniproenergo in 1Q11, with the other hitting the block later this year. State-owned stakes in several Oblenergos could also be privatized this year.

Electricity sector liberalization In our view, long-awaited sector reform (liquidation of the one-pool model and move to bilateral contracts with a balancing market) is a possibility in 2H11 following the privatization of both Zakhidenergo and Dniproenergo, in order to spur further interest from strategic investors in other state-owned assets. With electricity prices high, the government should be motivated to effect the reforms necessary to create a more efficient generating and pricing structure.

Labor code reform Vice Prime Minister Sergiy Tigipko said Ukraine's labor code would likely receive a makeover in 1H11. Major changes are as yet unclear. Ukraine's current code was enacted when the country was still part of the Soviet Union and is slanted heavily in favor of worker rights and protections. Labor laws in Ukraine are notoriously unenforced with recourse in the event of violations typically relegated to courts rather than a government-controlled oversight body.

Land reform Last January Ukraine's parliament overrode a presidential veto to extend the moratorium on the sale of agricultural land until 2012. However, according to provisions of that law, the sale of agricultural land is possible after parliament adopts bills on establishing a land cadastre and land market. The moratorium on land sales has been in effect since 2002. There are indications that some officials in the Yanukovych government favor land reform in the near term.

Key political events of 2010 Election & inauguration (January-February) Viktor Yanukovych won the second round of the presidential election by a narrow margin of less than 3.5% against challenger Yulia Tymoshenko. He was inaugurated as Ukraine's fourth president on February 25.

Political consolidation (March-October) After Yanukovych's inauguration, forces friendly to him quickly took control of the Verkhovna Rada (parliament) and Cabinet of Ministers (highest executive body), erasing memories of the chaotic infighting of the last five years. Constitutional Court decisions (notably an October ruling to throw out 2004 Constitutional amendments that limited presidential authority) have also favored Yanukovych. Allies have also been appointed to head up the National Bank, State Property Fund, Security Service and Prosecutor General. Local elections in October cemented Regions' footprint in Eastern and Central Ukraine in both regional councils and mayoral offices.

Rapprochement with Russia (April-present) Yanukovych's administration has taken a more business-minded approach to its relations with Russia. The president signed landmark fleet-for-gas discount deal in April. Russian state-owned VTB Bank loaned Ukraine USD 2 bln in June. Last year Russian strategic investors acquired controlling interests in the Industrial Union of Donbas and Zaporizhstal.

Economic reform moves forward (July-December) The government showed its readiness to implement difficult IMF commitments - it strengthened central bank independence, raised consumer gas tariffs by 50% as of August and passed a 2011 state budget with a planned deficit of UAH 38.8 bln (USD 4.9 bln) or 3% of GDP as projected by the government. The government responded to popular protests over an initial tax code passed by parliament in mid-November with a presidential veto and revision that was approved and signed into law on December 6. The new code will cut the corporate profit tax from 25% to 16% by 2014, shave the value-added tax from 20% to 17% by 2014 and increase the personal income tax maximum bracket to 17% (from flat 15% rate before). It also included a 10-year income tax vacation for the aerospace industry, including Motor Sich.

63. Ukrainian equities: Dematerialization risks immaterial Phoenix Capital February 1, 2011

Trading of several Ukrainian blue-chip stocks may be suspended for a period while the stocks are being dematerialized. The suspension is required by Ukraine's Securities and Stock Market State Commission (SSMSC) in accordance with resolution No. 1757, issued in November 2010. Hopes that the resolution would be amended and the suspension requirement excluded were dashed when the Ukrainian Stock Exchange suspended trading of Sumy Frunze NPO (SMASH) yesterday (Jan. 31).

A few blue chips under threat of temporary suspension. We have drawn up a list of stocks that are or may be subject to temporary suspension (Figure 1). Most notably, trading of Ukrnafta (UNAF) could be suspended starting from February 25, the date of the company's AGM at which shareholders will decide on the issue of dematerializing shares.

Preventing abuse is the ticket. The requirement to suspend trading due to the dematerialization process is supposedly designed to prevent potential manipulations and abuse. No matter how pale the justification of the requirement may sound, its ultimate purpose is to protect shareholders of companies dematerializing their shares.

In a procedure to dematerialize shares, shareholders must approve dematerialization at a general meeting, and then the old registry should be terminated no later than 90 days after the decision. Trading has to be suspended no later than 10 days prior to terminating the old registry.

Dematerialization deadline extended. The positive news is that the regulator has shown some good will and extended the deadline for dematerializing shares for six months (until April 2011) with the possibility of an additional six-month extension, a move aimed at helping diligent companies in need of more time to comply with the law. At the same time, the SSMSC is conducting a policy of penalizing negligent companies that fail to comply with dematerialization requirements.

Dematerialization risks immaterial. There is a risk that stocks subject to the requirement may face selling pressure from investors who are unwilling to hold even temporarily non-tradable stocks. However, we believe that dematerialization risks associated with potential suspensions are either immaterial or short-lived, as the companies will most likely expedite the dematerialization process to prevent themselves from regulatory sanctions.

64. Ukrnafta February 25 AGM could approve UAH 4.89 per share dividend for 2009 Concorde Capital February 2, 2011

Ukrnafta's (UX: UNAF UK) shareholders will vote on the distribution of 70% of its 2009 profit amounting to UAH 265 mln (USD 33 mln) at an AGM scheduled for February 25, 2010, Interfax reported yesterday, citing an AGM agenda distributed by the company. The other 30% in 2009 profits were already transferred to the state in June 2010 in line with the state budget law.

Concorde Capital: If shareholders decide to pay out all of the company's 2009 profits, as was the case in 2006-2008, the dividend will amount to UAH 4.89 UAH, providing a 0.3% dividend yield to the current share price. In 9M10, Ukrnafta generated UAH 2.45 bln in net income, suggesting total 2010 earnings of approximately UAH 3.20 bln (USD 402 mln), a dividend for 2010 of 50 UAH per share and a 9.11% dividend yield to the current share price

65. Ukrnafta proposes more dividends for 2009 BG Capital February 2, 2011

According to the amended agenda for Ukrnafta's (UNAF) AGM scheduled for February 25, shareholders will consider the distribution of 2009 retained earnings, in addition to the distribution of 2010 profits that was put on the agenda earlier. Out of 2009 net income of UAH 265mn (US$ 33mn), shareholders can approve dividends of up to UAH 185mn (US$ 23mn), which is the remaining amount after a 30% payout was approved in early 2010. The distribution of all 2009 earnings, if approved, would imply DPS of UAH 4.88 and a 0.73% dividend yield.

Vladimir Nesterenko: The additional dividend payout comes as a surprise, given the company's vertical integration and IPO plans announced earlier. The payment though shouldn't affect Ukrnafta's market price, inflated of late on massive buying, supposedly by Privat.

66. Ukrnafta's shareholders on February 25 to review distribution of UAH265.45mn profit for 2009 bne February 03, 2011

The shareholders in Ukrnafta (Kyiv), the largest oil extracting company in Ukraine, at a general meeting scheduled for February 25, 2011 will consider the distribution of the company's UAH265.45mn net profit for 2009, reports Interfax.

Citing the company, the news agency says that the issue has been included in the agenda at the initiative of a shareholder who owns a stake exceeding 10% in Ukrnafta.

67. Verkhovna Rada revokes squeeze-out clause that threatened stock market liquidity Dragon Capital February 4, 2011

News: Parliament yesterday approved revised amendments to the Law on Joint Stock Companies after their original version was vetoed by President Viktor Yanukovych. Most importantly, lawmakers revoked the squeeze-out clause that would have empowered a majority owner (or joint owners) of at least 95% of a company's stock to enforce a mandatory buyout of minority shareholders. At the same time, the bill removed the requirement for all public joint stock companies to be listed on a stock exchange but still made it mandatory to register with the exchange. (Verkhovna Rada)

Dragon view: The newly approved amendments are much more favorable for the domestic stock market, as the 95% squeeze-out clause could have had negative implications for a number of stocks in the short term and aggravated buyout risk for many other traded names since the domestic market's weighted average free float ranges from 5-7%. Also, registering a company with an exchange, though it differs from a full listing procedure, still allows its stock to be traded. Given the largely positive impact of the amendments, we expect President Yanukovych to sign them into law.

Andrey Bespyatov

EURASIAN STOCKS 68. Azerbaijan: Bse turnover decreases by 29% in January APA-Economics February 3, 2011

The total volume of transactions for the period of January, 2011 for all securities traded in Baku Stock Exchange was AZN 181.1 mln, down by 28.6% from year earlier.

According to BSE, corporative securities market rose by 2.3 times during the same period. Corporate bond market rose by 2.6 times, including primary market of corporate bonds by 2.2 times, secondary market by 2.8 times. Share market decreased by 30.2% to AZN 2.050 mln. Primary market of shares soared by 9%, secondary market slid by 3.5 times.

69. Azerbaijan: Garant Sigorta to raise authorized capital APA-Economics January 31, 2011

Azerbaijan-based Garant Sigorta’s investment portfolio reached AZN 5 mln, Chairman of Company’s Board of Directors Vagif Hasanov told APA.

According to him, 20% of investment portfolio is securities. Others are as deposit.

He also noted that company’s profit in amount of AZN 320 000 will be directed to capitalization. Thus, the company plans to increase the authorized capital by 25% to AZN 5 mln.

Remind that, Garan Sigorta has been in operation since November, 2007. THe company operates 18 voluntary and 4 compulsory insurance types.

70. Azerbaijan: Transactions on BICEX decrease by 44% in January APA-Economics February 2, 2011

20 deals were registered at 36 trading sessions held at currency department of Baku Interbank Currency Exchange (BICEX) during January, 2011. The auctions were attended by 9 banks.

The total volume of e-trades of currency section in a year has made 62.796 million manats, down 1.7% compared to e year ago.

The average daily turnover in “Bourse E-System of Trades” on USD/AZN reached approximately $ 4.382 millions, then that the average volume of each transaction has made $ 3.944 millions.

At the same time, Joint-stock Commercial “International Bank of Azerbaijan” has headed five bank-leaders of exchange currency market in accordance with shares of transactions concluded by him (40.69%). “Azerbaijan Industry Bank” (13.98%), “AGBank” (3.36%), “YapiKredi Bank Azerbaijan” (3.17%) and “Bank Respublika” (1.27%) also included in the number of the leading dealers of organized currency market.

71. Azerbaijan: “Corporate securities market of Azerbaijan rises 67%, last year” - Rufat Aslanli APA-Economics January 31, 2011

A meeting on results of 2010 was held in State Committee of Securities.

According to SCC, SCC Chairman Rufat Aslanli noted that, securities market had operated in the case of changing the several structural factors and soft monetary policy. Besides, securities market has increased by 66.7%, during the same period. He stressed the share market rose 37%, corporate debt market instruments market rose by 2.5 times.

He told meeting participants, the main priority issues of 2011 are the completion of preparation works of State Program on development of securities market and starting its fulfillment, implementation of joint projects with WB on modernization and automatization of securities market and completion of works of draft law on securities.

72. Max Petroleum to raise US$75m through equity expansion Visor Capital February 3, 2011

The Company announced a US$75m capital fundraising, to be used for its pre-salt exploration. While the news was largely expected, new shares are likely to be issued at a discount together with Macquarie exercising warrants at a significant discount in 1Q2011. We expect a negative share impact.

Max Petroleum PLC (MXP LN) yesterday announced a proposal for a US$75m (gross) capital fundraising campaign through the placement of new ordinary shares. The placement is conditional upon shareholders’ approval and a bondholders’ resolution, both expected in early March. On 26 January, Max received an Article 36 (formerly 71) waiver from the Kazakh Government’s pre-emptive acquisition right and consent for the placing from the Ministry of Oil and Gas. The placement is expected to be complete in March. The Company plans to use the funds primarily for its pre-salt exploration.

On condition that the placing is completed prior to 31 March 2011, Macquarie Bank is to exercise warrants on about 268.8m ordinary shares at the exercise price ranging from GBp4.5-5.7. Of these, 50% are to be paid in cash, with up to US$10m of the proceeds to be used to repay the outstanding borrowing facility from the bank.

While the capital fundraising was largely expected by the market, we believe the share price could be at a discount to current market price. In addition, with Macquarie exercising warrants at a significant discount in 1Q2011 we expect a negative share impact in the short-term. We issued a flash note yesterday entitled Raising US$75m for exploration. The note is available for our clients upon request. We currently have Max Petroleum under formal research coverage, available to our clients.

73. Mongolia: Manas Petroleum to raise US$20-30m in Toronto Visor Capital February 4, 2011

The Company announces that it will raise US$20-30m in capital to be primarily used for its Mongolian exploration programme. While the news was largely expected, new shares are likely to be issued at a discount and therefore we expect a short-term negative share impact.

Manas Petroleum (MNAP US) yesterday announced a public offering of its shares, expected to raise US$20-30m. The price per share will be determined at the closing of the offering, and is not yet scheduled. The listing of the shares is planned from the TSX Venture Exchange (TSX-V), and is still subject to regulatory approval. The Company expects to close the offering by late March-early April 2011. Manas had previously announced its intention to raise capital in 1Q2011.

The Company plans to use the funds for its exploration and development programmes in Mongolia, where it holds a 74% interest and operatorship over the exploration blocks 13 & 14, as well as for working capital and general purposes.

Although we believe that the placing was largely expected, as the placing price could be at a discount to the current market price the announcement could have a short-term negative share impact. We issued a longer flash note yesterday entitled Cashing-in for Mongolia, which discusses the longer-term positive impact on the Company, in particular the full development of the Mongolian assets and boosting the shares’ liquidity. The note is available for our clients upon request. We currently have Manas Petroleum under formal research coverage, available to our clients.

74. Mongolia: Silk Road Management Launches Largest Mongolia/Central Asia Equity Index with $100Bn Market Capitalization Monet/Silk Road Management February 1, 2011

Silk Road Management, a Mongolia and Central Asia-focused investment management firm, is pleased to announce today the launch of the Silk Road Composite Index and the Silk Road Central Asia Index, the debut benchmarks that include local and international listed companies with assets and operations in Mongolia and Central Asia. The Silk Road Composite Index is represented by 60 companies with over US$100bn in market capitalization, qualifying the region as one of the largest frontier markets globally and leaving behind other large frontier markets such as Vietnam and Ukraine that have US$32 billion and US$18 billion in market capitalization, respectively. The Silk Road Composite Index includes members of both the Silk Road Central Asia Index and the Silk Road Mongolia Index (recently acquired MonBiz Mongolia Index), and has effectively become the largest equity index focused on Eurasian frontier markets.

The Silk Road Composite Index (SRCI) tracks the share price performance of 60 largest local and international listed companies with assets and operations in Mongolia and Central Asia.

The Silk Road Central Asia (SRCA) Index covers 33 companies worth US$66bn in market capitalization with operations in Central Asia, encompassing Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan.

The Silk Road Mongolia Index (SRMI) tracks the share price performance of 30 local and international listed companies with assets and operations in Mongolia with the total market capitalization of US$ 34 billion. Mongolia-focused companies represent 33% of SRCI's market capitalization. The Index, the US$- and market capitalization based, is a leading benchmark for assessing the performance of Mongolia-focused companies. SRMI has gained 31% in 2010.

CE STOCKS 75. Financial watchdog to investigate Petrolinvest share price movements bne February 2, 2011

The Polish financial market watchdog KNF may launch an investigation into oil extracting concern Petrolinvest, following an announcement made by the company on Monday, according to which Petrolinvest was about to discover large deposits of crude oil, Polish News Bulletin reported. Rather than making only an announcement to the press, the company should have provided a current report to the Warsaw Stock Exchange (WSE), where it is listed, the KNF noted. The sensational information led to a price hike of 90 percent on Monday, even though brokers were sceptical about the truth behind the news. The KNF remarked that this could be a case of share price manipulation, which required an investigation. Petrolinvest told daily Puls Biznesu that it was about to reach a deposit of approximately 100 million barrels in Kazakhstan. The deposit could be worth up to $10bn. Petrolinvest did not issue further comments. After three quarters of 2010, the company posted a net loss of ZL89m and in 2009 the net loss amounted to ZL323m.

76. Hungarian government proposed several changes in the de-listing process from BSE Equilor January 31, 2011

Hungarian government proposed several changes in the de-listing process from BSE. Hence, a public company may de-list its shares and shift trading to another stock exchange by a single decision of the company's Board of Directors. This is a substantial easing in the process, as earlier the companies would have to initiate a buy-out and de-listing process, too.

In case of a final de-listing, the current proposal keeps the rights of minority shareholders regarding the price. Hence, the 180/360-day VWAP figure, book value and the company treasury share buybacks will remain in force as minimum prices for a squeeze-out. The story is not a hot topic nowadays, but tensions could rise later, in our view.

77. Poland enjoys record wave of foreign listings on the WSE bne February 4, 2011

The popularity of the WSE in the region is growing as 2011 expects at least 17 foreign businesses will wish to see their shares traded on the Warsaw bourse, Polish News Bulletin relates in a summary of articles in the Parkiet and Gazeta Wyborcza dailies.

The capitalization of the WSE can this year increase by almost ZL50bn thanks to the debuts of foreign companies, calculated daily Parkiet. This amount is almost 20 percent of the total value of foreign companies currently listed on the WSE.

Along with the 17 new possible debuts, 2 more companies will bring over shares from NewConnect. As a comparison, in 2010, the regulated market saw the introduction of 5 foreign companies, whereas in the 2007, a record was set with 11 debuts.

Large Supply and OFE

Even though many of the potential debutantes have not revealed how much capital they wish to gain by becoming traded on the WSE, the Parkiet daily estimates that the value of shares sold by foreign companies could exceed ZL12bn. A sizeable chunk of that sum should be attributed to the Czech bank CSOB from the KBC group. The group is to sell 40 percent of shares in the bank through exchanges in Warsaw and Prague. Some experts calculate that the offer of the bank could reach a level of ZL10bn.

Polish investors are also to be tempted to purchase shares of the Slovenian bank NOVA KBM, controlled by the government in Ljubljana. The sale of papers could begin in February, with an offer estimated at ZL530m.

The question has appeared if the Polish market can accommodate for such large offers in light of the proposed changes for the OFE. "Foreign companies and brokers fear that changes in the Polish pension system will negatively impact the demand for shares on the primary market," explains Marek Buczak from Quercus TFI. "I believe that their anxiety is not fully justified," he adds. "With many foreign companies that have plans to debut on the WSE, the key issue may be the interest of Polish TFI, foreign funds, and individual investors," explains Buczak.

Ukraine: The Popular One

The entry of Ukrainian companies Agroton, Milkiland and Sadovaya has whetted the appetite of investors for additional foreign offers. "One can say that he WSE has seen the emergence of Ukraine as a hot topic," says Buczak. This trend is justified by the return rate for investors that purchased the companies' shares in public offerings. Additionally, shares' prices for two other Ukrainian companies on the WSE (Kernel and Astarta) are also performing favourably.

This year it can be expected that the WSE will see the debut of eight companies from the Ukraine, says one analyst. The first should appear on the WSE in March or April, while the majority can end up on the Warsaw exchange in Q4, estimates Nick Piazza, from BG Capital in Kiev. His company is advising several Ukrainian businesses in preparations for WSE entry.

Ukrainian companies are currently obtaining far higher amounts in Warsaw than in the past. When Astarta blazed the trail, the company's appetite was ZL95m. The farm holdings Kernel and Agroton have until now gained over ZL0.5bn, and Milkiland secured almost a quarter of a billion. The Ukrainian farm and food industry, whose output is directed for export, has fared relatively well during the crisis, and rising food prices serve to its advantage. According to some analysts, once the EU signs a free trade contract with the Ukraine in 2011, the sector can enjoy a true boom.

Until the end of 2011, a special index for Ukrainian companies is to be created on the WSE. The announcement of this fact was recently made in Davos. "Ukraine is one of the most important countries in our regional strategy. We're a presence there thanks to our office in Kiev. Our brokers have finally seen the business in this. This brings effects," explains the Chairman of the WSE, Ludwik Sobolewski.

Will the WSE see the driving engines of the Ukrainian economy, from the smelting and mining industries, asks Gazeta Wyborcza. Probably not, since some of them are still reeling from the effects of the crisis and are trying to stay afloat. Those that have emerged from the crisis in good condition are choosing to pursue issues in the West. Out of the 20 Ukrainian companies whose shares are traded abroad, most chose Frankfurt.

"Ukrainian companies are looking for financial integration with the West, and not Russia. Our market can become a natural source of capital for them. We have to become used to the fact that one-directional traffic of capital to our country has ended. Now, others wish to gain from Poles. Our companies also have to learn that one has to compete for capital, also with Ukrainian businesses," reflects Alfred Adamiec, the Chairman of the "Alfa" Brokerage House.

Georgians and Russians Together in Poland

No only companies from the Ukraine are eager to appear on Warsaw's bourse. Nick Piazza reveals that the first companies from Georgia may be expected on the WSE, with his brokerage house preparing offers of such type. The interest of the Kiev broker in such a step is no surprise, since the company is part of the group of the Bank of Georgia, the only company from the Caucasus listen on a foreign exchange (London). One Georgian candidate to make a debut is Telliani Valley, a wine producer.

Russia is a new direction from which the WSE is to draw its strength. Come spring, the daughter company of Russian crop potentate Valars Group, Valinor, wants to sell shares in Poland. According to unofficial figures, the business hopes to rake in ZL900m from the debut. The Russians presence on the stock exchange would be a watershed event, since until now, Russians have avoided the WSE, choosing London and Moscow instead. For mid-size businesses, conducting an offer in Warsaw is more attractive than in London, believes Alexey Raschupkin from the Kiev branch of Russian investment bank Troika Dialog. Selling shares in Poland is cheaper than in the Isles, and moreover, papers listed on the WSE have a good liquidity, he explains.

Offensive from the Balkans

Apart from debuts from former USSR countries, companies from the south of Europe are set to make waves on Warsaw's exchange. This year, four companies from Bulgaria plan to become a presence in Poland, while one of the four (ICPD), will move from the main floor from NewConnect. Simultaneous presence in Warsaw and Bucharest stock exchanges is one of the goals of Romanian fund Fondul Proprietatea (FP), whose shares have recently become traded in Bucharest. The presence of FP on the WSE, which may occur in H2 of 2011, may draw other companies from Romania to Warsaw, since the fund's portfolio contains companies partly-owned by the Romanian Treasury, that are to be privatized through the stock exchange.

The WSE has also become a topic of interest for Croatian businesses. The company closest to entry to Warsaw's stock exchange is construction firm Dalekovod. According to information gained by the Parkiet daily, a final decision on such a move will be made in February.

One has to remember, points out the journalist in Parkiet, that tempting Polish investors is no easy feat. "The biggest opportunities for the sale of shares will be enjoyed by companies with high growth potential, whose current owners will accept a substantial discount during an issue," explains Buczak. Last year, four companies found out that sale of papers without a price concession is a difficult undertaking and suspended their offers (Eetek, Geo Alliance, Avia Solutions Group and AFI Europe). Two of the businesses (Avia Solutions Group and AFI Europe) are hoping to try their luck once again and plan to enter the WSE in H1 2011.

78. Slovenia lender NKBM's opts for listing in Warsaw bne February 1, 2011

The Slovenian daily Finance says the announcement of Slovenia's second largest bank NKBM's listing on the Warsaw Stock Exchange in 2011 is the last warning to the government that Slovenia is lagging behind the developed world because of the lack of capital.

The Warsaw Stock Exchange has much more classical portfolio investors which would want to make profits in short term than the Ljubljana stock market has. This means that the NKBM will have to make sure it is popular and recognised, it will have to develop an enlargement strategy for the region, boost its profits and give out generous dividends, the paper says.

Although the Ljubljana Stock Exchange has formally become a part of the Wiener Boerse, the financial system in Slovenia is isolated and separated from international markets. Measures and activities of the government and the central bank are mostly to blame for this.

One of the reasons is that Slovenia does not have its own financial foundations as domestic long-term saving is completely underdeveloped. Anyone with some money to spare takes it abroad because of high taxation and the unfavourable attitude of the state towards new investments.

Another reason is the investment-unfriendly environment. Because of its small size and administrative barriers, the Ljubljana Stock Exchange is not attractive to foreign investors - the price of acquisition exceeds the expected yield, concludes the commentary.

79. Volume of assets in mutual funds in Slovakia up 10 pct in 2010 bne February 4, 2011

The volume of assets in open-end mutual funds in Slovakia rose by a tenth to EUR4.53bn (Kc108.7bn) last year, according to data the Slovak Association of Asset Management Companies (SASS), CTK reported.

Alongside the appreciation of the managed assets, the funds' significantly higher net sales last year compared with 2009 contributed to the growth.¨However, the volume of the managed assets has not yet reached the pre-crisis level.

The value of new investments into open-end mutual funds when deducting the paid yields more than trebled to EUR377.31m.

The association ascribes it, among other things, to a lower comparative base for 2009 when investments were affected by the global economic crisis.

The crisis lowered the volume of assets in all funds in the country already in 2008 - by 29 percent.

SASS expects the funds' managers to return in the future to the thus far best levels from the year 2007 when Slovaks had EUR5.27bn deposited in funds.

"We may expect to get near this level [this year]," SASS executive director Ivan Znasik told journalists.

Slovaks are investing in a conservative way in the long term. The least risky money market funds are managing roughly two fifths of assets deposited in all the funds.

Riskier equity funds hold only a tenth of the market, while in western Europe the share stands at roughly a third, Znasik noted.

Equity funds in Slovakia registered significantly better appreciation than their more conservative rivals. They improved by 14.2 percent, while money market funds added only one percent.

SASS groups together 18 companies active in collective investment. They offer 498 open-end mutual funds to clients.

Most mutual funds in the Czech Republic reported an appreciation for last year. Equity funds had the highest yields, of over 10 percent on average. Yields of bond funds were worth over 3 percent on average and yields of money market funds were slightly below one percent.