Russia Stocks Retreat as Mechel Decline Outweighs VTB Advance

Russian equities fell for a third day as OAO Mechel, the country’s biggest coking-coal producer, declined on concern Chinese industrial demand may ebb.

The Micex Index dropped 0.7 percent to 1,362.57 by the close in Moscow, after increasing 2.5 percent last week. Mechel sank 0.8 percent to 123.20 rubles. OAO Novolipetsk Iron & Steel lost as much as 2.1 percent, closing down 1 percent at 52.78 rubles. VTB Group, Russia’s second-largest bank, jumped 3.8 percent to 4.71 kopeks.

Growth in Chinese industrial company profits slowed in March with net income increasing 5.3 percent from a year earlier, down from a 17.2 percent pace in the first two months, the National Bureau of Statistics said on its website on April 27. VTB rose after it said investors agreed to buy all $3.3 billion of the shares it’s selling to increase capital.

“Investors are selling metal producers today,” Vladimir Bragin, head of research at Alfa Capital in Moscow, where he helps manage $2.9 billion, said by phone. “People are fixing their profits today before the May holidays. It’s very good news that VTB managed to secure buyers for the entire share sale.”

VTB’s supervisory board approved issuance of 2.5 trillion new ordinary shares at 4.1 kopeks each, according to an April 26 statement released after the market closed. Norwegian, Qatari and Azeri wealth funds will buy stock in the placement, the company said today. The depositary receipts surged 5.9 percent to $3.005 in London.

Tough Market

“The VTB share sale news is very good because they managed to secure serious investors, including the Norwegian wealth fund,” Mark Rubinstein, head of research at IFC Metropol, said by phone from Moscow. “The market is tough and the fact that they managed to sell everything is positive.”

MSCI Inc. may cut Mechel and Novolipetsk’s depositary receipts from its Russia Index during the May 15 rebalancing, according to a note from VTB Capital today.

The three sovereign funds agreed to buy more than 50 percent of the offering, Chief Financial Officer Herbert Moos said on a conference call today.

The Russian government controls 75.5 percent of the shares in VTB and its stake will drop to 60.9 percent as a result of the additional sale, according to today’s statement.

Russia may sell 5 percent of OAO Rosneft this year in addition to a stake in the OAO Alrosa diamond miner and OAO Inter RAO UES, Andrei Belousov, Russia’s economy minister, said in Moscow today. The government sees 2013 state-asset sale proceeds at 320 billion rubles ($10 billion), he said.

ETF Outflows

Crude oil, Russia’s chief export earner, reversed losses, trading up 1.2 percent at $94.15 a barrel in New York.

Russian equities have the cheapest valuations among 21 emerging markets tracked by Bloomberg. The Micex trades at 5.1 times 12-month estimated earnings and has lost 7.6 percent this year, compared with a 10.3 multiple for the MSCI Emerging Markets Index, which has dropped 2.7 percent in the period.

The number of shares traded on the Micex was 81 percent above its 30-day average, while the gauge’s 10-day price swings subsided to 11.780. The dollar-denominated RTS Index gained 0.4 percent to 1,387.54.

The RTS Volatility Index, which measures expected swings in stock futures, added 2.5 percent to 21.09. The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, rose 0.2 percent to 26.33, while the Bloomberg Russia-US Equity Index increased 0.3 percent to 92.84.

Investors have pulled more than $350 million out of the ETF since February, cutting assets to the lowest level since 2009.

Outflows from the Market Vectors Russia ETF totaled $94 million this month through April 24, after reaching $260 million in March, the biggest monthly loss since May 2011, data compiled by Bloomberg show. The fund’s total assets fell to $1.27 billion at the end of last month, the least since November 2009, the data show.

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