ETF Discount to Peers Swells as MegaFon Delays

ETF Discount to Peers Swells as MegaFon Delays
Customers inspect mobile devices on display inside an OAO MegaFon store in central Moscow. MegaFon, Russia’s second-largest mobile provider, postponed its IPO campaign on Oct. 22, saying it needed to amend the prospectus. Photographer: Alexander Zemlianichenko Jr./Bloomberg

The Market Vectors Russia exchange-traded fund tumbled to the cheapest level versus the emerging-markets ETF since August as crude fell and OAO MegaFon delayed its initial share sale on the first day of marketing.

The biggest Russian ETF, which includes stock of OAO Gazprom, Russia’s largest company, and biggest lender OAO Sberbank, lost 3.1 percent last week to $28.02, 32 percent below the iShares MSCI Emerging Markets Index and the widest discount since Aug. 3, data compiled by Bloomberg show. The Bloomberg Russia-US 14 Index of the most-traded Russian shares listed in the U.S. sank the most since May in the week and equity futures rose 0.2 percent to 143,870 in New York on Oct. 26.

MegaFon, Russia’s second-largest mobile provider, postponed its IPO campaign on Oct. 22, saying it needed to amend the prospectus. The delay in the offer, which people familiar with the deal said valued the company as high as $11 billion, sparked speculation demand may have been below MegaFon’s expectations. Crude, which contributed about 50 percent of Russian government revenue last year, fell for a second week on concern inventories exceed slowing global energy demand.

“Russia had some bad corporate news with the MegaFon IPO delay,” Nicholas Smithie, an emerging markets strategist at UBS AG in New York, said by phone on Oct. 26. “On top of that, oil has been falling and that’s all combined to turn things into reverse.”


OAO TMK, the nation’s largest producer of steel pipes for the oil and gas industry, and natural gas producer OAO NovaTek were the biggest decliners in the ETF. Global depositary receipts of Moscow-based TMK sank 11 percent last week to $13.70, while Novatek GDRs in London tumbled 10 percent to $112, a three-month low.

The iShares emerging-market ETF lost 0.7 percent to $41.21 in the week. It includes shares of China Unicom (Hong Kong) Ltd., the nation’s second-largest mobile-phone company, America Movil SAB, the biggest mobile-phone company in the Americas by subscribers, and Samsung Electronics Co., the world’s top maker of TVs and mobiles.

Investors pulled $32 million from Russian equity funds in the week through Oct. 24, the third week of outflows, according to EPFR Global data released at the end of last week. The 30-stock Micex Index in Moscow slumped 1.8 percent last week.

Crude oil on the New York Mercantile Exchange sank 4.8 percent last week to settle at $86.28 a barrel, while Brent crude for December settlement on the London-based ICE Futures Europe exchange slipped 0.5 percent to $109.55. Urals crude, Russia’s chief export blend, slid 0.5 percent to $108.56 in its third straight weekly drop.

‘A Later Date’

MegaFon said in a filing it will proceed with marketing “at a later date,” after including recent acquisitions and third-quarter results in the prospectus.

The carrier is determined to complete the IPO before year-end, with the delay postponing the planned sale by a few weeks, according to two people familiar with the matter. The shares may start trading in late November or December, they said.

The Bloomberg Russia-US gauge dropped 3.8 percent last week to 94.47, the lowest level since Sept. 5.

The RTS Volatility Index, which measures expected swings in futures, rose 3.4 percent on Oct. 26 to 25.93 points.

Futures contracts on the ruble expiring in December slipped

0.1 percent to 31.65 per dollar.

Oil Inventories

Oil may extend declines this week as U.S. inventories rise and the global economic slowdown saps demand, according to 16 of 36 analysts surveyed by Bloomberg. Fifteen respondents are predicting gains in crude, while five forecast prices will be little changed. Production in the U.S. climbed for a seventh week to 6.61 million barrels a day in the week ended Oct. 19, a 17-year high.

The S&P GSCI Index of 24 commodities fell 2.6 percent to

638.97 last week, the largest decline in more than a month.

OAO Mechel, Russia’s biggest producer of steelmaking coal, fell 8.2 percent, its biggest weekly slide since May, to $6.41. Shares in Moscow retreated 6.3 percent for the week to 206.20 rubles, or the equivalent of $6.57. One ADR represents one ordinary share.

The Moscow-based company said on Oct. 22 that it was temporarily suspending mining at some facilities in its Bluestone mining complex in the U.S.

CTC Media Inc., owner of Russia’s fourth-largest television channel, posted a 6.9 percent weekly drop, the biggest since May, to $8.77 as Igor Semenov, an analyst at Deutsche Bank AG, cut his rating on the shares to hold from buy.

United Co. Rusal, the world’s largest aluminum producer, sank 1.1 percent to HK$4.35 in Hong Kong as of the city’s noon trading break. The MSCI Asia Pacific Index fell 0.1 percent.

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