RUXX is the index which tracks Russian companies and ADRs traded on Western exchanges. RUXX is calculated by Dow Jones. RUXX also publishes periodic advisory notes pertaining to Russian financial market. Over 15,000 analysts are subscribed to RUXX invitation-only information service.


RUXX Advisory: Ukraine Credit Rating Might Be Cut Further After Anti-Banking Ruling

NEW YORK, NY  – Ukraine’s sovereign credit rating may be cut further following the November 2013 downgrade after a series of anti-banking court rulings, according to the RUXX index report.

As recently as November 1, S&P downgraded Ukraine’s long-term debt to B-, stating that the “government is unlikely to secure sufficient foreign currency to meet the country’s elevated external financing needs.”

Amid the financial instability in the country, Ukrainian courts have made unorthodox rulings that may further harm the domestic financial system and lead to capital flight. “Ukraine’s top arbitrage court made a ruling against Prominvestbank, one of the leading Ukrainian banks owned by Russia’s Vnesheconombank. The court basically denied the bank a right to collect an unpaid $75 mln secured debt from a major food retailer, TS Obzhora.

The ruling raised concern because several other major debtors are now using the court’s decision as precedent in an attempt to avoid repayment of loans,” says Michael Thompson, senior analyst for RUXX Index that tracks Russian equities and recently initiated coverage of all former USSR countries. “If the court’s ruling stands, we expect major credit crunch in Ukraine as banks will avoid giving out loans,” adds Thompson.

The court’s decision against Prominvestbank might be political as it took place during a bitter conflict between Russia and Ukraine, which considers opening up its borders to the EU and breaking an alliance with Russia.

“The owner of TS Obzhora, Vyacheslav Sobolev, is considered a businessman with strong ties with the Ukrainian government. Sobolev’s father-in-law, Boris Spiegel, a former member of the Russian Senate, is currently one of the top Yanukovich’s advisors, and family ties in both Russiaand Ukraine are hugely important,” comments Thompson. “Mr. Spiegel represents a group of top Russian businessmen who are now moving to Ukraine amid the political conflict with their home country.”

“We believe that the ‘Institutional and governance effectiveness’ component of the S&P country rating and ‘Institutional strength’ of Moody’s are likely to be affected by this court ruling if other debtors will use it as precedent and we expect further capital flight from Ukraine,” states RUXX research note that was sent to analysts today.


RUXX Board Will Not Add Tinkoff – Credit Systems to the Index Pending Review 

New York, NY – The board of RUXX, the financial index that tracks Russian stocks traded on international exchanges, made a decision today not to add Tinkoff – Credit Systems to the list of components pending careful evaluation of the GDR’s performance and financial soundness.

Russian online bank Tinkoff – Credit Systems (TCS) went public in London this week at high valuations. TCS GDR was priced at 17.5, which is 4.8x the bank equity at the moment. The price-to-book multiple of TCS was substantially higher than that of the major Russian blue chips because of lack of Russia-based financial stocks and smart marketing by the bank’s owner, eccentric businessman Oleg Tinkoff.

According to the RUXX statement, “TCS has many unresolved issues that can affect the company’s valuation and performance. According to the Index criteria, we will not add Tinkoff until it’s clear that the company is able to hit its targets”. Michael Thompson, senior analyst for RUXX, says: Russian regulators introduced more rigid requirements for consumer debt, citing dangers of a debt crisis. Almost entire loan portfolio of TCS is comprised of micro and small loans that are most sensitive to economic fluctuations.”

Another issue that could affect the valuation and profitability of the company, according to the RUXX research note, is increased competition in the small loans marketplace. TCS imposes high effective interest rates – which can be as high as 40% including commissions and fees, rising to 70% if a customer misses one or more monthly payments. Once Russian state-owned banks with their unlimited resources and access to the whole county will enter the small loans market, TCS profitability is likely to decrease.

RUXX (^RUXX), a cap-weighted index (^RUXX), launched in 2007, is comprised of over 30 Russian stocks traded on international exchanges and includes Gazprom, Norilsk Nickel, CTC Media and other Russian equities. Its list of components is reviewed monthly.


RUXX Initiates Coverage of Tinkoff – Credit Systems Prior to IPO

New York – RUXX, an index that tracks Russian companies traded on international exchanges, announced that it initiated coverage of Russian online bank Tinkoff – Credit Systems (TCS) that is set to go public in London today. The indicative pricing range for a global depositary receipt (GDR) to be offered to the public is $14-17.5, which is 3.9x – 4.8x times the bank’s equity at the moment.

The Board of RUXX will make a decision of inclusion of TCS into the index next week. The high valuation might point to a financial bubble in the Russian banking sector, according to the research note published by RUXX: “The price-to-book multiple of TCS is substantially higher than that of the major Russian blue chips. Demand for financial stocks is clearly high among investors, despite obvious risks, such as rise of bad debts, changing regulations, growing competition among banks, and more. We expect tectonic shifts within the sector,” says Michael Thompson, director of research for RUXX.

“Tinkoff – Credid Systems has more chances to become a victim of the banking crisis in Russia as it’s in the small and micro loans business – majority of its loans is $1000 or less. These borrowers are more likely to default on their loans. According to the research, up to 30% of these streamlined consumer loans are expected never to be paid back,” the research note says.

“Press updates, relating to the IPO proceedings, suggest that so far investors show significant interest in the offering, not overly concerning about loan quality issue. Obviously, we see that the bank experiences some loan quality problems...,” Marina Karapetyan, analyst for Alfa-Bank, said in an email to RUXX.

Overall, more than 50% of analysts polled by RUXX index, believe that the company is being offered at very high valuations: “Given the already reach valuations for the bank, we do not see any significant upside to the stock in the near term,” said Karapetyan.

Another issue that could put pressure on profitability of the bank is increased competition. TCS and its competitors impose high effective interest rates – which can be as high as 40% including commissions and fees, rising to 70% if a customer misses one or more monthly payments. Once Russian state-owned banks with their unlimited resources and access to the whole county will enter the small loans market, TCS profitability is likely to decrease. 


RUXX Analysis: New Conflict with Minority Shareholders Can Affect Russian Miner Mechel’s Position 

New York – Saven Enterprises Ltd, minority shareholder of Tomusinsky Coal Mine, controlled by Mechel OAO, major Russian mining and metallurgical company, complained to the Russian authorities that Tomusinsky Mine and several production and trading companies affiliated with Mechel OAO transferred profits out of the company by giving out unsecured loans. Saven is seeking to reverse the loans and receive compensation for unpaid dividends. The conflict will likely affect the valuation of Mechel, which is traded on NYSE, according to the research note issued by RUXX, index that tracks Russian equities traded on international exchanges.

Mechel OAO has a history of minority shareholders disputes and transfer pricing accusations. In 2008, Russian then-PM Vladimir Putin complained on national television that Mechel uses unfair pricing schemes that can be considered tax evasion; the infamous press conference caused Mechel stop to drop 40% (TK). In 2008 and 2009, Mechel had another dispute with minority shareholders that spilled over to the media and the courts.

Michael Thompson, RUXX senior analyst, says: “Mechel ADR is one of the few Russian industrial equities traded in New York and we have been following the stock for years. In the last three months, it dropped 38% and is unlikely to go up amid this new conflict. Mechel, despite its industrial nature, is a highly political stock and we believe it’s more volatile than the general Russian market, which itself is very volatile”.

“According to the arbitrage records, Saven claims that Tomusinsky Mine, controlled by Mechel and its subsidiaries, gave over 3.4bln rubles ($100mln) in loans to companies affiliated with the miner and left the parent company profit-free. This is the typical model for avoiding paying dividends to minority shareholders, and if the court sides with Saven, Mechel will certainly be affected,” adds Thompson.

According to Saven statement, the decisions by Tomusinsky to give unsecured loans were not authorized by the shareholders, which is against standard procedures in Russia. The minority shareholder hopes the court will be able to reverse these decisions.

RUXX analysts believe that Mechel, even thought its fundamentally strong, might be affected by the shareholders desputes and large debt burden (from 2008 to 2012 it went up 60% to $9.6bln).

Russian Industrial Leaders (RUXX) Index tracks Russian stocks traded on international exchanges.


Togliattiazot Lawyers Appeal to Russian Authorities

Togliattiazot lawyers appealed to Russian authorities in the open letter (copy received by RUXX Index). More details about the company in RUXX research note

Repeat Letter (Original available here) to Russian Authorities

First letter to Russian Authorities from TOAZ lawyers