Court Performance Lukoil 50% Stock Rally convertible debt increases

Russia's largest quarterly stock rally this year is coming to the bondholders the equity market, increasing cost savings for companies selling debt convertible into shares.

OAO Lukoil raised $ 1.5 billion in Russia's largest sale of convertible bonds last week. 2015 notes rose, cutting the yield of 2.037 percent on Dec. 10 compared with 4767 percent on their fixed rate notes due in 2014. The difference of 273 basis points compared to a discount of 150 convertible bonds sold in February for OAO TMK, Russia's largest pipemaker.

Russia's bid to host the 2018 World Cup and speculation that can join the World Trade Organization helped lift the benchmark MICEX index 15 percent this quarter, beating a 4.9 percent advance for the index MSCI Emerging Markets. The holders of convertible bonds Lukoil can change the values for shares if the share price in London up 30 percent before maturity, according to the offering statement.

"The recent rally in stocks that attract the interest of other companies" to sell convertible bonds, said Gregory Klumov, head of Moscow-based investment Everest Asset Management, which oversees about $ 300 million convertible bonds Lukoil bought.

American depository receipts traded in London from Lukoil, the second largest Russian oil producer, added 4 percent this month to $ 57.50 yesterday in Moscow. Adverse reactions are needed to reach $ 73.7087 to enable exchange, the statement said.

Worldwide sales

The rally in equities of emerging markets is driving sales of convertible debt in the world. The amount of securities sold in China may rise to 100 billion yuan ($ 15 billion) this year from 5.4 billion yuan in 2009, according to Citic Securities Co., China's biggest brokerage. The S & P China Convertible Bond Index gained 3.1 percent this month compared with an increase of 0.2 percent for the notes of the business and government. The Shanghai Composite stock index advanced 3.8 percent in the period.

India's companies have sold at least $ 1.6 billion of foreign currency notes linked to equities this year, compared with $ 3.9 billion in 2009.

Companies with the values to issue convertible bonds are OAO Acron, the third largest Russian manufacturer of nitrogen fertilizer, and concern OAO Kalina, a cosmetics producer based in Yekaterinburg, Klumov said.

Ilia Popov, spokesman of Veliky Novgorod based Acron, did not return calls to his office. Kalina A spokesman, who declined to be identified, has not made any comments.

'Favorable' Conditions

Lukoil, the second largest Russian oil producer, last convertible bond issue in 2002 when it sold $ 350 million in 3.5 percent notes due in November 2007.

The sale was a "good opportunity to increase the liquidity of the company," said Andrei Gaidamak, strategic development director of Lukoil, in a telephone interview on 10 December. The terms were "favorable," he said.

The ruble gained 0.3 percent to 30.7275 per dollar by 10:54 am in Moscow. non-deliverable, or opinions that provide guidance to the expectations of currency movements and interest rate differentials and allow companies to hedge against currency movements, the ruble was 30.0100 in three months.

The yield on dollar bonds due in 2020 Russia rose 6 basis points, or 0.06 percentage points to 5.019 percent. The price of the ruble in the country, maturing in August 2016 fell, with a yield of 7.87 percent.

Default Swaps

The cost of protecting Russian debt against default by five years using credit-default swaps fell 1 basis point to 143 on December 9, below the peak of this year's 217, according to data provider the CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to its debt agreements.

Swaps credit-default for Russia, rated Baa1 by Moody's Investors Service, the third lowest investment grade rating, cost 16 basis points more than the contracts in Turkey, classified as four levels lower than Ba2. Russia swaps cost as much as 40 basis points less on 20 April.

The extra yield investors demand to hold the Russian debt rather than U.S. Treasuries fell 6 basis points to 199, according to JPMorgan Chase & Co. EMBI + index. The difference compared to 129 for Mexico's debt with similar qualifications and 168 for Brazil, two steps that is rated below Baa3 by Moody's.

The yield of Russian bonds is 31 basis points below the average for emerging markets, down from a maximum of 15 months from 105 in February, according to JPMorgan indexes.

"Unlike uncapped"

Exercise the rights of the bondholders receive ADR conversion, cash or a combination thereof, Lukoil said in a statement. If converted, the whole thing would be equivalent to about 2.4 percent of market value of Lukoil, Pavel Sorokin, oil analyst at Alfa Bank in Moscow, wrote in a note of 09 December.

Lukoil is the first sale to raise more than $ 50 million from Moscow-based TMK issued $ 412,000,000 in convertible bonds in February. Petropavlovsk London-listed Plc, the third largest gold producer in Russia, placed an issue of $ 330 million in January, as Russian companies sought alternative ways to refinance its debt after cutting the overall financial access to finance crisis .

Evraz Group SA, Russia's second largest steelmaker, based in Luxembourg, raised $ 900 million convertible bonds and shares in July 2009.

"The bond raised $ 1.5 billion in one day, that's pretty impressive," said Jason Manolopoulos, managing director of Capital Management Dromeus in Athens, who helps manage $ 100 million emerging market debt and bought bonds and Lukoil Evraz. Debt offers "a great downside protection" and "uncapped upside," he said in comments e-mail.