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. Last Updated: 07/27/2016

Strong Markets Slip After Delay of Loan

Markets that started the week strongly slipped Thursday and Friday on news that the International Monetary Fund would delay the latest monthly disbursement of its $10 billion loan to Russia.

But the fallback wasn't enough to wipe out earlier gains. The dollar-adjusted Moscow Times Index of leading Russian shares gained 4.32 percent for the week, to 129.24, despite losing 1.47 percent Friday.

"The market was fairly stable all week, but the IMF decision to hold back its tranche was a definite damper," said Nick Mokhoff, head equity trader with Alliance Menatep.

Another downer on equities was a share dilution by the holding company that controls oil producer Surgutneftegaz. It was announced Thursday that an additional 534 billion rubles worth of shares had been issued, raising the holding's stake in Surgut to 43.5 percent from 38 percent.

The company said there were no plans to place the shares on the secondary market.

Viktor Petaleff, equities trader at Renaissance Capital, said sale of the shares had been restricted to the holding concern, and the price was 15 cents apiece -- well below market levels.

"We thought Russia had grown out of this sort of thing," he said, "but nothing surprises us."

The success of Gazprom's placement of American Depository Receipts, or ADRs, at the beginning of the week had relatively little effect on the price of Gazprom's domestic shares, which rose a mere 4.08 percent for the week.

The poor showing of the Gazprom share in Russia was attributed to a ban Gazprom has imposed on arbitrage operations -- the buying of domestic shares and their sale abroad in ADR form at a higher price.

Demand was strong for the ADRs, which must meet strict U.S. conditions. They allow foreigners to buy shares in dollar denominations while avoiding Russia's complex settlements system.

The government's goal of depressing yields on the market in treasury-bills, GKOs, made little progress during the week, held back by the bad IMF news. Other factors included high Central Bank reserve requirements on commercial bank ruble accounts -- though it was announced Friday that the requirement will be eased Nov. 1 -- and a reorganization of the GKO dealer system. Yields hovered around the 55 percent level throughout the week.

The dealer reorganization involved the appointment of major banks as primary dealers, giving them certain privileges in return for underwriting a part of each GKO issue.

Lack of foreign money has also put a brake on the downward trend, which saw yields dip below 50 percent two weeks ago. Foreign investors have exhausted the funds they earmarked for ruble bonds.

"There is hope that the nonresidents will be back at the start of November, but that will depend on Yeltsin's health and a resolution of the IMF impasse," said Alexei Goncharov, head of the information department in Russian Brokerage House C.A. & Co. Ltd.