Why are Russian stocks so cheap?

[flixil]

Sistema breakdown

http://www.reuters.com/article/2014/04/03/jsfc-sistema-idUSnBw035465a+100+BSW20140403

 

With income attributable to Sistema from bashneft of 1130 over 1992 (in 2013), the value of Sistema without bashneft shoudn't be 67% down from before the CEO was charged with charges?

 

From 21... This makes 9.24  More or less the current price.

 

I bought some at 12.58 and I am thinking of buying more if it falls a more.

I might had been too optimistic at 12.58, but 9 looks like a safe floor to buy from.

 

http://www.ft.com/intl/cms/s/0/452433ec-43fc-11e4-8abd-00144feabdc0.html#axzz3EQXeVgH6

[Lance]

I'm watching Sistema.  Added to CTCM this morning.  I'm long LUKOY, OGZPY and SBRCY.  Am also watching MBT.

 

 

Thanks,

Lance

[rukawa]

What is the long thesis on Sistema?

[60North Investments]

What is the long thesis on Sistema?

 

For me the long thesis WAS couple of weeks ago that Sistema was trading at a 30-40% discount to its stakes in MTS and Bashneft, not even considering all the other smaller stakes they have. Now, with the increased possibility of having the Bashneft stake taken away for nothing, I think the case is more like betting on the possibility that the Bashneft stake won't be taken away for 0 and that it's currently trading at a 15% discount to its MTS stake (again not considering the smaller stakes which could surely be worth 1bUSD). It's quite clear to see that the case now looks worse than couple of weeks ago, and depends quite largely on the probability of Bashneft stake being 0 for Sistema. If you give it a +90% chance that Bashneft will be zero, then it seems that today's price isn't a real bargain.

[peterism]

IMHO Oil, telecommunications and media are strategic for current rulers of Kremlin.

It will be interesting to see if they go after these assets of Sistema as well?

 

This week on Tuesday legislators in RU approved changes to legislation regarding ownership of

media companies. Foreign owners will be allowed to own max 20% from share capital

of media companies. Lets see how CTCM will deal with that. 

[60North Investments]

IMHO Oil, telecommunications and media are strategic for current rulers of Kremlin.

It will be interesting to see if they go after these assets of Sistema as well?

 

This week on Tuesday legislators in RU approved changes to legislation regarding ownership of

media companies. Foreign owners will be allowed to own max 20% from share capital

of media companies. Lets see how CTCM will deal with that.

 

I can't say I know this for sure, but my guess is that it's going to be one difficult battle for Kremlin to get Sistema's stake in MTS as much of it is listed in the US. The plan of listing the Bashneft stake partly in London was perhaps partly an effort in reducing the likelihood of getting wiped out of it.

[flixil]

www.sistema.com webpage seems to have been deleted.

[phil_Buffett]

www.sistema.com webpage seems to have been deleted.

 

really ugly. i sold out my stake few days ago. made a mistake. sure sistema has had great assets but the government is too big. this was a mistake from me to invest in a Special Situation like this. glad to be out.

[flixil]

Sistema webpage is running again with a new press release:

 

http://www.sistema.com/press/press-releases/2014/09/statement-regarding-sistema%E2%80%99s-stake-in-ojsc-bashneft.aspx

[pocoapoco]

CTCM getting crushed today due to the mass media law progressing through parliament.

It's not clear to me how this would affect existing shareholders ...how would they get the ownership below aggregate 20%?  I can't seem to find any good info.

I could imagine some sort of restructure with new shares representing 20% of the company and maybe an exchange offer or something? So you would get mostly cash.

 

Anyone have a better sense of the outcome of the shares if this passes?

[Packer16]

I think the concern about cap is either a forced buyback for non-Russians or for a dilutive share offering to non-Russian holders.  Either way pretty bad for existing non-Russian shareholders.

 

Packer

[peterism]

CTCM getting crushed today due to the mass media law progressing through parliament.

It's not clear to me how this would affect existing shareholders ...how would they get the ownership below aggregate 20%?  I can't seem to find any good info.

I could imagine some sort of restructure with new shares representing 20% of the company and maybe an exchange offer or something? So you would get mostly cash.

 

Anyone have a better sense of the outcome of the shares if this passes?

 

MTG is largest foreign shareholder with 39% stake. I think that they will be politely asked to sell their shares to some government owned/controlled entity or second largest owner Telcrest. Free float is 36%, so they need to reduce it just by 16% to get to 20%.

 

[pocoapoco]

Like Packer said I guess the worst case would be existing shareholders would be forced out at a low price.

 

I presume they would indeed have to reduce free float to structurally prevent non Russians from acquiring shares.  Or perhaps another alternative would be a dual share structure where there is an exchange for "b" shares that foreigners can hold with the same economic rights but no voting/control rights.  Not sure if that would satisfy the legislation

 

I like the price here economically but who knows what you'll end up with.  I guess that's the bet.

 

[Palantir]

I mean we could also have a situation where your properties are confiscated by Pooty.

 

In Soviet Russia, stock sells you!

[Viking]

Russia RSX ETF is once again trading near 52 week lows. It looks like things have 'stabilized' in the Ukraine (ie not getting worse). Interesting.

[FiveSigma]

Viking, what makes you believe "things stabilized" in Ukraine?

 

Just yesterday 7 Ukrainian soldiers died and nine were wounded from a direct Rebel tank strike into an APC.

 

There are reports of dozens of Rebel/Russian army artillery and Grad strikes of Donetsk airport, Debal'tsevo, areas close to Mariupol' happening every day.

 

Russia is continuing to bleed reserves and rouble is continuing to lose ground daily.

 

Some stabilization!

[Viking]

Five Sigma, by 'stabilized', I mean the crisis no longer looks to be escalating further out of control.  I am not suggesting anyone is happy with where everything is at or that it is not a brutal situation for those involved. When I read that the EU is meeting to review whether they will begin removing some sanctions placed on Russia this suggests to me that things are at least not 'escalating'.

[VersaillesinNY]

An interesting article by George Soros:

 

Wake Up, Europe

 

http://www.nybooks.com/articles/archives/2014/nov/20/wake-up-europe/?insrc=hpss

 

Well, you know, I was a human being before I became a businessman.

George Soros

 

I refused a job in a brickworks because I knew that the further down the social scale you go, the harder you have to work,

because it gets easier to check on your actual output. If they had offered me the job of a manager, I might have taken it. 

For intellectuals, physical labor is doubly difficult: their heads are always somewhere else and their hearts are not in their work.

Tivadar Soros - Maskerado

[rukawa]

Pzena is investing in Gazprom:

 

http://imarketreports.com/the-long-and-short-of-sohn-london-barrons.html

http://www.pzena.com/uploads/documents/Pzena_Investment_Management_Newsletter/PzenaNews4Q13.pdf

[TwoCitiesCapital]

I sold out of my small holdings in Russia earlier this year to add to Altius and FNMA as they tanked. I'm looking to get back in when I roll my 401k over into my Roth IRA.

 

I do have a concern though that I wwas hoping the board could help me with:

 

1) what would happen to ADR holders in the US if there were some sort of financial sanctions that prevented foreign ownership OR the US simply makes it illegal to transact in Russian investments. Would that simply mean no more buying/selling or would I be forced out of the position and liquidated? Any supporting documentation for similar occurences?

 

2) I saw commenters on seekingalpha.com claiming they could no longer purchase the shares through fidelity and other US brokers as recently as November. Any of you having issues purchasing/selling shares.

 

 

[rpadebet]

I sold out of my small holdings in Russia earlier this year to add to Altius and FNMA as they tanked. I'm looking to get back in when I roll my 401k over into my Roth IRA.

 

I do have a concern though that I wwas hoping the board could help me with:

 

1) what would happen to ADR holders in the US if there were some sort of financial sanctions that prevented foreign ownership OR the US simply makes it illegal to transact in Russian investments. Would that simply mean no more buying/selling or would I be forced out of the position and liquidated? Any supporting documentation for similar occurences?

 

2) I saw commenters on seekingalpha.com claiming they could no longer purchase the shares through fidelity and other US brokers as recently as November. Any of you having issues purchasing/selling shares.

 

Look up what's happening with CTCM for 1).

[matjone]

rpadebet - can you provide a link to an explanation of what you are talking about wrt ctcm?

[rpadebet]

rpadebet - can you provide a link to an explanation of what you are talking about wrt ctcm?

 

I am referring to the newly passed russian media law which prohibits non-russians from holding greater than 20% of Russian media assets. What CTCM will do is up in the air. The underlying business is doing ok, but there are real political risks involved even in non-energy and non-bank stocks in Russia.

[tengen]

http://www.theguardian.com/world/2014/dec/15/russia-interest-rate-rise-17pc-rouble-collapse-oil-price

 

Russia’s central bank has taken drastic action to halt the rouble’s freefall on the foreign exchanges by raising interest rates by 6.5 percentage points to 17%.

 

Announcement came at roughly 1am Moscow time!

[FiveSigma]

That's panic. Central Bank of Russia lost control of the currency market.

 

Expect a wave of defaults within 3 months.