Ruble Seen Extending Rally by Credit Agricole as Surgut Tumbles

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The ruble climbed with the price of crude as Credit Agricole CIB predicted the currency will extend its rally. Shares of OAO Surgutneftegas fell on bets the government will dip into the oil producer’s cash pile.

The Russian currency strengthened 0.8 percent to 50.626 as of 4:07 p.m. in Moscow, the first day of trading after a public holiday on Monday. Climbing oil prices and a cease-fire in Ukraine have made the ruble the best performer globally this year with a 20 percent advance.

The ruble’s gains are slowing the pace of price growth and allowing the central bank to push ahead with rate cuts as it unwinds a string of emergency increases that stemmed the currency’s 46 percent slump last year. Now government officials are concerned about the ruble’s strength as the currency’s appreciation reduces budget revenue from exports priced in dollars and hurts local companies’ competitiveness.

“The ruble can appreciate further on higher oil prices and cross the 50 threshold,” Sebastien Barbe, Paris-based head of emerging-markets research and strategy at Credit Agricole CIB, said by e-mail Tuesday. “That said, the central bank and government will not be very happy beyond this point, as they want to limit the deterioration in external competitiveness. The ruble may find it difficult to appreciate beyond this point on intervention fears.”

Brent crude, which is used to price Russia’s main export blend, jumped 1.2 percent to $65.71 per barrel, rising for the first time in four days. Russia gets about half of its budget revenue from the oil and natural-gas industries.

Surgut’s Cash

Bank of Russia has moved to stem the ruble’s appreciation by reducing the amount of dollars it makes available at repurchase auctions as well as increasing the cost of the funds. The $50 billion program was introduced in October to help companies pay their foreign debts. As the peak payment period passed, banks used the cash to bet on higher-yielding ruble assets, fueling the currency’s rally.

“Oil is trading above $65 a barrel and major players have returned from the holidays and are catching up on ruble trading,” Alexei Egorov, an analyst at PAO Promsvyazbank in Moscow, said by phone. “Fifty is the ruble’s fair value, the Finance Ministry and the central bank won’t let it strengthen beyond that level.”

With sanctions over Ukraine having severed Russia from the global financial system, President Vladimir Putin is considering releasing some of Surgutneftegas’s $34 billion of cash, according to three bankers close to the Kremlin who asked not to be identified because of the sensitivity of the topic.

Dividend Threat

Surgut’s preferred shares slumped 5.1 percent to 38.815 rubles, the most on the benchmark Micex stock index, which retreated 1 percent to 1,691.14. The company’s ordinary shares fell 3.8 percent.

“This fear of the government coming after Surgut’s money has long been on investors’ minds since the company has such a big cash pile,” Anvar Gilyazitdinov, a fund manager at Rye, Man & Gor in Moscow, said by phone from Moscow. “In light of these rumors, there’s a heightened risk of Surgut not paying or cutting its dividends, which was the main driver of interest for the stock. There’s a risk and I’m very cautious.”

PAO Uralkali climbed 2.1 percent to 157.45 rubles. OAO UralChem, one of its largest investors, said it won’t return shares in the potash company’s $1.5 billion buyback program, leaving a bigger portion of the cash pile to minority holders.

Russia’s five-year government bonds declined, increasing the yield 11 basis points to 10.91 percent. The Finance Ministry will offer 25 billion rubles ($493 million) of debt at an auction on Wednesday, including 15 billion rubles of floating-coupon bonds due in January 2020 and 10 billion rubles of fixed-coupon May 2020 bonds, it said in a website statement.

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