Crude Drop Sinks ADRs Amid Oil Tax Plan: Russia Overnight

Russian stocks fell a fourth day in New York as oil slid and a Finance Ministry official said the government is considering a plan to boost taxes on crude output.

The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. slipped 0.2 percent to 94.35, as stocks from OAO Mechel (MTLR) to OAO Surgutneftegas dropped. Futures contracts on Moscow’s dollar-denominated RTS Index declined less than 0.1 percent to 140,210 in New York hours. OAO Mobile TeleSystems (MBT), Russia’s largest mobile provider, sank to trade at a record discount versus OAO MegaFon as gains in the No. 2 provider brought their market values into line.

Russia’s Finance Ministry is seeking $2 billion by raising taxes on crude output, according to a document presented to officials and figures confirmed by ministry aide Svetlana Nikitina yesterday. While producers including state-run OAO Rosneft and independent OAO Lukoil have lobbied for tax cuts, the government of the world’s largest energy exporter relies on oil and gas for about 50 percent of its revenue. Crude sank a fourth day in New York in the longest slump this year.

“The nation is boosting its dependence on oil prices and the market doesn’t like it,” Vladimir Tikhomirov, chief economist at Otkritie Financial Corp. in Moscow, said by phone yesterday. “Any decrease in oil becomes even more negative for Russia as a whole, not just for its companies. The market would like the dependence to be reduced instead.”

The RTS Volatility Index, which measures expected swings in the stock futures, gained 1.9 percent to 20.99. The Market Vectors Russia ETF (RSX), the largest exchange-traded fund dedicated to Russian equities, slipped 0.1 percent to $27.30.

Oil Prices

Crude for June delivery lost 1 percent to $94.21 a barrel on the New York Mercantile Exchange yesterday. Brent for June settlement dropped 0.2 percent to $102.60 a barrel on the London-based ICE Futures Europe exchange. Urals crude, Russia’s major export blend, gained 0.3 percent to $101.78.

Urals has averaged $107.62 a barrel this year, from $27 in 2000, Vladimir Putin’s first year as president, data compiled by Bloomberg show.

A higher mineral extraction tax rate will be partly offset by a decrease in export duties, according to the Finance Ministry’s plan presented to government officials in Moscow yesterday. Finance Minister Anton Siluanov said in October that the price of oil would need to be $105.10 a barrel for the country to balance the budget.

Mechel had the biggest drop on the Bloomberg Russia-U.S. index. The nation’s second-most indebted mining company said May 13 that sales of the commodity used to make steel sank 11 percent in the first quarter. The Moscow stock slid 2.9 percent to 122.90 rubles, or $3.92. Surgutneftegas fell 5.3 percent, the most since Oct. 31, to $6.61.

Mobile TeleSystems

Mobile TeleSystems dropped 0.1 percent to $20.02 in New York yesterday, pushing valuations to 8 times estimated earnings, a 35 percent discount to MegaFon (MFON), data compiled by Bloomberg show. MegaFon jumped 4.9 percent to $33.36 in London yesterday, bringing its market value in line with MTS at $20.7 billion.

“The discount is unjustified and will shrink,” Ilya Balakirev, head of research at UFS-Finance Investment Co. in Moscow, said by phone yesterday. He has hold ratings for both MegaFon and MTS. “MegaFon has reached its fair value as it won’t be able to increase its market share.”

MegaFon, the nation’s second-biggest mobile phone company, had 64.6 million users in Russia and former Soviet states at the end of last year, compared with 100.7 million for MTS and 106.2 million for VimpelCom Ltd. (VIP), according to data by Advanced Communications & Media. MTS plans to start faster services for smartphones and tablets this autumn in a bid to increase revenue, according to a statement yesterday.

Ruble futures showed the currency strengthening 0.1 percent to 31.68 per dollar in U.S. hours. Russia’s ruble fell less than 0.1 percent to 31.3560 per dollar yesterday and gained 0.1 percent to 35.5023 against the dollar-euro basket used by the central bank to manage swings that erode exporter competitiveness.

United Co. Rusal, the world’s largest aluminum producer, rose 0.3 percent to HK$3.87 in Hong Kong trading as of 11:19 a.m. local time. The MSCI Asia Pacific Index gained 0.8 percent.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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