Russia Stocks Rally as Rosneft Jumps on TNK-BP; Brent Oil Gains

Russian stocks climbed as oil rose, boosting investor confidence in the world’s largest energy producer. OAO Rosneft rallied as the state oil producer agreed to buy the company from BP Plc (BP/) and its billionaire partners.

The Micex Index (INDEXCF) rose 1 percent to 1,474.92 by the close in Moscow. Telecom and oil and gas stocks were the biggest gainers. Telephone provider OAO Rostelecom increased 1.5 percent. OAO Gazprom, the natural gas export monopoly, added 1.3 percent. United Co. Rusal, billionaire Oleg Deripaska’s aluminum producer, jumped 3 percent.

Brent crude rose as much as 0.8 percent to trade at $110.97 a barrel. Russia received 50 percent of budget revenue from oil and gas sales last year. The U.S. Federal Open Market Committee, which sent the Micex to a bull market last month by announcing a third stimulus round, meets Oct. 23-24. BP will sell its 50 percent stake in Russia’s third-largest oil producer for $17.1 billion in cash and 12.8 percent of Rosneft’s shares, according to a statement today.

“Russian investors are awaiting the main event this week: the Fed meeting,” Alexander Ivanischev, a chief strategist at Infina Investment Co., said by phone. “The market has long awaited the Rosneft deal. After this purchase, Rosneft will be Gazprom’s equivalent in the oil sector.”

OAO TNK-BP Holding (TNBP), the traded unit of BP Plc’s Russian venture, dropped 1.6 percent to 78.50 rubles. Rosneft rose 2.6 percent to 219.75 rubles and climbed 2 percent in London trading.

Liquidity Boost

The sale of TNK-BP is “a major liquidity event for the Russain market,” Victoria Lazareva, a partner at United Capital Parters, which manages $1.5 billion in Russian assets, said in an interview. “Even if just $3 to $5 billion from the proceeds are reinvested into Russian liquid or private equity, it might positively impact the local asset prices.”

Renaissance Capital expects the Rosneft-BP deal to trigger more deals in the Russian oil sector, according to a report today. OAO Lukoil and preferred shares of OAO Surgutneftegas are stocks that may benefit based on these expectations, according to the report.

The purchases would increase Rosneft’s crude production to as much as 4.5 million barrels, and boost its market value to rival Gazprom’s 3.7 trillion rubles ($120 billion). Exxon Mobil Corp. (XOM), the world’s biggest oil company, pumped the equivalent of 4.15 million barrels of crude a day between April and June.

Russian stocks fell earlier by as much as 0.6 percent as a report showed Japan’s exports dropped. The dollar-denominated RTS Index (RTSI$) rose 0.2 percent to 1,497.63.

MegaFon IPO

A European Union summit last week failed to discuss further financial assistance for Spain, according to French President Francois Hollande.

Russian Depositary Index (RDXUSD) climbed 0.4 percent to 1,689.06. All metals on the London Metal Exchange fell, including nickel and tin.

OAO MegaFon (MFON), the Russian wireless carrier planning an initial public offering, postponed its IPO marketing campaign today, raising investor speculation that demand may have trailed expectations.

The delay signals demand hasn’t been as strong as MegaFon expected, said Alexander Golovtsov, who helps manage $2.8 billion at UralSib Asset Management in Moscow. MegaFon is seeking to sell as much as 20 percent of its stock, including shares owned by Sweden’s TeliaSonera AB (TLSN) and some from the carrier itself, in an IPO that may become one of the largest by a Russian company.

Promsvyazbank Delay

“MegaFon is planning to go public in a sector that is well-positioned but not over-saturated,” Yuri Morogov, a portfolio manager at OAO Sberbank CIB’s telecom fund, said in an interview on Oct. 19.

OAO Promsvyazbank put off its initial public offering on Oct. 15. The offers it was getting for shares to be listed in London didn’t reflect “fair value,” it said.

OAO Mobile TeleSystems gained 1.4 percent to 236.09 rubles, the highest level since Sept. 17. The risk profile of Russia’s largest mobile operator may improve as its parent company AFK Sistema weighs exiting the Indian market, UralSib Capital said today in a report.

Sistema Shyam won’t take part in the license auction as it was “unfairly penalized” by the India’s Supreme Court ruling in February and is appealing its decision, the company said on Oct. 19, the deadline for bidding.

The Micex trades at 5.7 times estimated earnings after gaining 5.2 percent this year. That compares with a multiple of 10 times for the MSCI Emerging Markets Index, which has added 10 percent.

Russian equities have the lowest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg.

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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