Putin Price Growth Freeze to Further Sink Power Stocks
Russian power companies, the worst performers on the Micex (INDEXCF) Index this year, will extend losses after President Vladimir Putin supported a measure to freeze utility prices next year, Renaissance Capital Ltd. said.
OAO RusHydro, Russia’s biggest renewable energy producer, tumbled 1.2 percent at 1:48 p.m. in Moscow after extending the biggest 12-month plunge on record in New York. Federal Grid (FEES) Co., the nation’s power transmission monopoly, dropped for a second day in the Russian capital following the steepest decline in almost two weeks in London trading on Sept. 12. The RTS Index and benchmark Micex retreated today.
The group of utilities on the gauge have tumbled 31 percent in 2013, compared with a 1.3 percent gain for the broad index, according to data compiled by Bloomberg based on total returns. The Economy Ministry, which is seeking ways to slow consumer-price growth, has proposed freezing utilities’ prices next year. President Putin supported the measure at a budget meeting Sept. 11, Economy Minister Alexei Ulyukayev said.
“There is no more hope, not even a chance, for those revenues and profits initially planned by utilities,” Vladimir Sklyar, an analyst at Renaissance Capital, the investment bank controlled by billionaire Mikhail Prokhorov, said by phone from Moscow yesterday. “Investors should look at Russian utilities as the government’s tools for achieving certain macroeconomic indicators and not real companies. The sector will no doubt remain the worst performer among Russia stocks.”
Russia’s central bank refrained from cutting its main interest rates today as policy makers await a decision on regulated tariffs with inflation still above target, even as the economy grows at its weakest pace since 2009. Bank Rossii expects inflation to slow further in 2014, it said today. The RTS Index (RTSI$) dropped 0.8 percent while the Micex headed for the biggest decrease this month with a decline of 0.6 percent.
The proposed freeze on regulated-price growth for natural gas, power and rail monopolies may help lower the inflation rate by 40 to 50 basis points, Ulyukayev said in a Sept. 9 interview with the Interfax news service. If tariffs are frozen, the ministry may lift its 2014 growth forecast to 3 percent from 2.8 percent, he said this month. Gross domestic product will rise 1.8 percent this year, the Economy Ministry said in August.
Grid companies need to control their costs to “manage the tariff growth freeze,” Dmitry Bulgakov, an analyst at Deutsche Bank AG in Moscow, said by phone yesterday. “The likelihood that the value of power companies will be improved by favorable regulatory decisions are low. Most of the improvements should come from changes in corporate governance and focus on value creation.”
RusHydro (RSHYY) retreated to 54.69 kopeks in Moscow today while the London-traded stock declined 1.7 percent to $1.62. The securities in New York dropped 1.2 percent to $1.64 on Sept. 12, the first decrease in four days. The ADRs, each representing 100 underlying shares, traded at a 3.3 percent discount to the Moscow-listed stock.
Federal Grid, which posted a 10.5 billion ruble ($321 million) first-half loss compared with a profit a year earlier, lost 1.6 percent to 10.41 kopeks in Moscow, bringing a two-day drop to 4.6 percent. The stock slipped 0.6 percent to $1.59 in London trading yesterday, the steepest retreat since Aug. 30, with trading volume at almost five times the average of the past 90 days, according to data compiled by Bloomberg.
Mechel (MTLR), Russia’s biggest producer of coal for steelmakers, tumbled 4 percent in Moscow after declining 7.4 percent, the most since June 20, to $3.62 in New York yesterday. The ADRs closed 3.4 percent above the company’s Moscow-listed stock, after reaching the widest premium since 2010 on Sept. 11.
West Texas Intermediate crude tumbled today as the U.S. and Russia started talks on a plan for Syria to surrender its chemical weapons to avert a strike that investors speculate may disrupt oil supplies. Crude for October delivery declined 1 percent to $107.53 a barrel on the New York Mercantile Exchange.
The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. fell for the first time in seven days yesterday, with a decrease of 0.7 percent. The Market Vectors Russia ETF, the biggest U.S.-traded exchange-traded fund that holds Russian shares, dropped 0.5 percent to $27.96.
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