Lukoil Drags Down Russian Stocks as BofA Forecasts Oil-Tax Pain

  • Lukoil headed for lowest close in '15 on bets profit to suffer
  • Ruble depreciates after strengthening versus dollar on Monday

Russian equities retreated for a fourth day as investors speculated a possible tax on oil producers will hurt earnings at companies including Lukoil PJSC and OAO Rosneft.

Lukoil, Russia’s second-biggest oil company, has dropped as much as 6 percent since Friday when two people with knowledge of the plan said the country may raise taxes on crude producers starting next year to narrow the budget deficit. The stock has an 11 percent weighting in the Micex Index, which dropped 1.1 percent to 1,680.75, poised for the longest stretch of declines in two months.

The tax proposal, if implemented, could reduce the operating earnings of oil companies by up to 20 percent, Bank of America Corp. said. Russia, which depends on oil and gas for about half of its fiscal revenue, is facing a recession after Brent plunged and sanctions over Ukraine restricted borrowing for some of the nation’s biggest companies and banks.

“The government will be shooting itself in the foot if it raises taxes that dramatically,” Slava Smolyaninov, an equity strategist at BCS Financial Group in Moscow, said in e-mailed comments. “Lukoil and Rosneft specifically were most negatively impacted by the rumors of increasing taxation.”

Rosneft, Russia’s largest oil producer, slipped 0.1 percent on Tuesday, taking a two-day retreat to 2.8 percent. Lukoil’s six-day slide has pushed its 14-day relative strength index toward 30, a level that signals to some analysts that a stock is oversold and poised for a rebound.

The authorities in Moscow have started discussions with companies about changing a crude-extraction tax formula, a person familiar with the plan said last week. The modification, if approved, could bring the state about 609 billion rubles ($9 billion) next year and 1.6 trillion through 2018, the individual said, citing Finance Ministry estimates. The people asked not to be identified because the information isn’t public yet.

President Vladimir Putin is holding a government meeting today to discuss measures to finance the fiscal deficit, which is forecast to reach 3 percent of gross domestic product.

The ruble weakened 0.3 percent against the dollar to 66.2020 by 12:07 p.m. in Moscow after adding 0.8 percent yesterday. Brent crude dropped 1.4 percent to $48.23 per barrel.

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