Russian stocks headed for a second week of declines and the ruble slumped as OAO Mechel, the nation’s biggest coking-coal producer, fell to a record and tension with neighboring Ukraine showed little sign of abating.
The Micex Index (INDEXCF) of equities declined 0.5 percent to 1,440.86 by 4:36 p.m. in Moscow, extending its loss this week to 3.1 percent and the retreat in February to 0.8 percent on a closing basis. Mechel slumped as much as 40 percent and traded down 28 percent to 38 rubles, sliding for the fourth day. OAO Gazprom (GAZP), the country’s biggest natural gas producer, fell 1 percent to 139.08 rubles, slipping for a fifth day.
Russia’s currency and stocks declined this week as it began on Feb. 26 a series of military exercises in the western and central regions, while the government said the move was not related to events in Ukraine. Russian troops are “directly involved” in a conflict in the Crimea region, acting Ukrainian President Oleksandr Turchynov said today. Tensions flared in the southern Ukraine as an armed group occupied parliament and government buildings in the capital of the region, replacing the Ukrainian flag with Russia’s tricolor.
“With Ukraine, the uncertainty persists as investors are afraid that Russia will use force to intervene,” Anvar Gilyazitdinov, who manages about $10 million at Rye, Man & Gor Securities in Moscow, said by phone.
OAO Moscow Exchange halted Mechel (MTLR)’s trading for 30 minutes from 11:36 a.m. today, switching trading to a discretionary auction because its shares traded down more than 20 percent over 10 minutes and it belongs to the A1 equities investment list, according to the bourse’s website statement.
Mechel sees no fundamental reason for a decline, its financial situation is stable and obligations are being met, the company said in an e-mailed statement today. The company is going to ask the financial markets regulator to investigate the issue, it said.
Mechel plans to sell a stake in its Elga coal mine to an Asian investor this year to help repay borrowings, Chief Financial Officer Stanislav Ploschenko told reporters in Moscow on Feb. 26. It agreed with lenders to extend or refinance some loans in December, allowing a cut in debt due this year to $1 billion from $2 billion. The shares have slid for four straight days this week, slumping 39 percent.
“Mechel continues to search for cash to repay its borrowings and the market is skeptical of its success,” Gilyazitdinov said. “What happened today looks like a margin call.”
Russia-focused equity funds posted $111 million in outflows in the week ended Feb. 26, according to UralSib Capital’s e-mailed note, which cited EPFR Global data. This is the eleventh week of outflows, according to UralSib.
The ruble has depreciated 9.1 percent against the dollar this year, the second-worst performance among 24 emerging-market peers tracked by Bloomberg after Argentina’s peso, as U.S. Federal Reserve stimulus cuts curbed appetite for developing-nation currencies.
Russia’s equities have the cheapest valuations among 21 developing countries monitored by Bloomberg, with shares on the Micex trading at 5.2 times projected 12-month earnings, compared with a multiple of 10.3 for the MSCI Emerging Markets Index.
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