Yelena Zubova
To ease tight stock market
Prime Minister Vladimir Putin said on Friday that Russia's Vnesheconombank (the state Bank for Development and Foreign Economic Affairs) would be the government's agent in placing state money in Russian stocks and bonds this week. There are plans to invest up to 250 billion roubles of state funds before year's end, which, as analysts say, should be enough to stabilize the struggling market. The government said it was also considering investing part of the pension savings to revive the market.
Stock market players have been waiting for three full weeks for the promised bailout, ever since President Dmitry Medvedev pledged 500 million roubles in support of the stock market in mid-September, with half of that amount to be provided this year.
Last Friday, Mr Putin also said that the government would spend 175 billion roubles on stock in Russian companies this year and next to support share prices.
"Development Bank will start placing funds in Russian shares, not foreign shares, next week," Putin said quoted by Reuters. State controlled Development Bank will be the government's agent in carrying out the support package, Putin said.
The bank will also receive a 75 billion rouble capital injection by the end of the year, which could ultimately be used for either share or corporate bond purchases, Putin said. The amounts add up to 250 billion roubles.
At least 175 billion roubles more will be earmarked in the 2009 federal budget to stabilize the country's financial system. The amount is comparable to two-week's trading on the Russian stock market (200 billion roubles over the period).
Finance Minister Alexei Kudrin made several important clarifications on the conditions of government investments at last Saturday's meeting of G-7 finance ministers and monetary regulators in Washington, to which Russia was invited by the United States. He said the government wouldn't invest more than 5% in one company, in order to diversify risks.
The list of issuers was not disclosed, but Kudrin said decisions would be based on companies' ratings and free float.
"These will be long-term investments, for 10-15 years, which will enable us to preserve money and gain profit. The government won't go profiteering," he said.
"Government support will revive the liquidity-deprived stock market. However, it is unlikely that we will see a sharp growth. The trend will more likely be slow and gradual," said Ovanes Oganesyan, a strategist with Renaissance Capital group.
"The 175 billion roubles promised by the government are likely to send the RTS index up to 1000 points," said Khalil Shekhmametyev, chief analyst with the Otkritie financial corporation. He added that the government investing in bonds was particularly important because the debt market reflects the extent of the risk of the country's financial instruments.
Kudrin also talked in September about the government's plans to boost stakes in important companies such as Gazprom, Rosneft, VTB, and Alrosa, although the latter is not publicly traded.
"Evidently, stocks will also be bought over-the-counter, from major investors, funds, and Western banks. These operations will have a beneficial effect as well, easing the stock markets' pressure on quotes," said Sergei Karykhalin, chief analyst at the Kapital managing company. "If they move slowly and make purchases at culminating moments for external markets, we'll see stabilization, not sharp growth."
"Buying on secondary markets will shrink the mass of securities eligible for Repo deals with the Central Bank. Therefore, we are more likely to see direct purchases from issuers, as several large companies with government stakes have had large new issues registered lately," said Vladimir Bragin, an analyst with Investment Bank Trust. He said that this would not affect the secondary market directly, but would boost liquidity in general.
Total bond issues by Gazprom, Gazprom Neft, Rosneft and Russian Railways are worth 185 billion roubles, and by Sberbank and Rosselkhozbank total 70 billion roubles.
The Agency for Housing Mortgage Lending (AIZhK) also plans to place 28 billion roubles on the debt market, and pension savings now stored with VEB accounts could be invested in AIZhK bonds.
"Buying the mortgage agency's bonds is a valid option, stipulated in the Development Bank's investment declaration. Such deals were approved by both parties a month ago," said Anna Yartseva, the Agency's spokesperson, adding that the actual decision will be made by the Development Bank's credit committee.
Kudrin said a bill on investing pension savings would be introduced in parliament soon.