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Yukos/Sibneft divorce announcement sends stocks climbing...

The Russian equity market saw gains posted across the board on Tuesday after the ?confirmation? of the divorce between Yukos and Sibneft. It remains to be seen if this latest agreement will hold any better than the previous ones. The market reaction (Yukos +7.7%) however revealed eagerness for any kind of certainty about the company. The Yukos bounce, due largely to international investor buying interest (recorded ADR volume of $372 mn matched reported domestic turnover), also reflects the extent to which this discounted stock has become under-owned. With the exception of Surgutneftegaz (-1.2%, and the market?s worst YTD performer), other leading stocks rose in line with the benchmark RTS Index (+1.3%). The largest telecom stocks outperformed ? MTS +1.5%, Rostelecom +1.9% and Vimpelcom +2%.

Vimpelcom's gain should be more than reversed today on the news that a criminal investigation has now been opened against the company. This serves as a sobering reminder of the central risk of state-business relations obscured by yesterday?s relief rally in Yukos.

Russian external debt was stronger yesterday in line with US Treasuries. Russia added 0.6% with its spread tightening by 3 bp to 255. Sovereign domestic debt was flat while most liquid corporate rouble bonds were marginally lower, mainly due to the results of the Gazprom rouble bond placement. This three-year Rb 10 bn issue was sold at a yield of 8.0%, while demand was Rb 15.9 bn. The yield was notably higher than expected, which suggests that investors may be somewhat less optimistic on the further appreciation of the rouble given its weakness during the last three days. It also signals that they may be less optimistic about any further compression in domestic interest rates, given that there will be large OFZ placements today.