Severstaltrans represents an interesting play on the overall health and growth of the Russian economy, as it is one of the largest transportation and railroad companies in the country. This particular bond issue of the company has an effective interest rate of 9.08% and is payable in the familiar U.S. Dollar. It is payable in 952 days and having the safety of being such a large company, its bond issues are reasonably liquid on the exchange. That combined with our optimism about the Russian economy in general, coupled with economic growth especially of the industrial kind make this an issue well worth looking into.

This week’s bond features an instrument from Ros Business Consulting and is payable in U.S. Dollars, (a sight becoming almost rare). RBC is the premiere business information network in Russia, having a channel that is the equivalent of CNBC, it has several online newspapers, and even has an IT subsidiary. The effective YTM of the bond is 9.47% and matures in 636 days. We feel this is a good value due to the increasing desire of the business community for investment information regarding Russia, (they have an English website as well), the growth of the internal Russian market, and the dominance they have in their niche.

Crazy like a fox? The Russian government puts up many barriers to the importation of manufactured products. The high cost of foreign automobiles can attest to that. What we’ve seen in the automotive industry alone is the expansion of existing plants and the starting of construction of new plants to help sell in Europe’s largest auto market, and they have decided in many cases to export from Russian plants to the surrounding Eastern European region. The end result is thousands of good paying manufacturing jobs, a good manufacturing base stays home, and this has ripple effects to other sectors as well. To a lesser extent we can see this in other industries as well. If this was by design, or just a lucky break, it is really mute. It is happening now and its effects could be profound and long lasting. In a partially related matter, chemical company Rohm and Haas has announced plans to build a coatings plant in the Moscow area, obviously in order to supply the growing industrial sector.

It appears that one of our major concerns is now being addressed the Russian government, that is tax breaks given to oil companies for depleted oil fields in order to encourage further exploration, details are sparse now, stay tuned for details. The federal government is meeting with major foreign oil corporations in to develop offshore oil fields in Eastern Siberia as well as the difficult Arctic Region. In this case they are seeking not only foreign capital but technology as well. These are good years to be a driller.

This week’s bond comes to us from the Republic of Komi, located in the Northern part of European Russia. It is a province rich in forest, coal, oil, natural gas, gold, and even diamonds. The durations of the bond is for 156 days, with an effective yield of 9.77%, payable in Rubles. The bond is rated Ba2/Stable by Moody’s and BB-/Positive by Fitch. We think the yield on the bond is a wonderful value considering the risk/reward profile. The Republic’s economy is focused on diversified natural resources, resources showing strong worldwide demand, it is a short-term instrument maturing in only five more months, there is great stability in the national financial markets, look for the status quo until elections, and of course the federal government has currency reserves of over 400 bln. USD should there be a crisis. Altogether, we feel the yield and security of the bond can’t be beat.

Severstal, Russia’s largest steel maker will build a new plant in the Saratov region increasing its production and steel available to the domestic marketplace by over 50%. This is more of a bet on Russia’s future than a scramble to meet a shortage of steel. We’ve talked about ambitious infrastructure projects the government will be sponsoring all over the country, not to mention increased demand for housing and commercial construction. Like the U.S., certain segments of the real estate industry in Moscow and St. Petersburg have taken a downturn recently, with the more expensive niche hurting the most. We feel when looking at the country as a whole, you must examine the fact the affected areas comprise only a small section of the country affecting only a small percentage of the people (although a wealthy small section at that). The demand and fundamentals are still strong in most of the rest of the country. Additionally, Russia is building a pipeline to connect to the Baltic. This is going to take supply away from at least a half dozen Central and Eastern European nations connected to the pipeline already in use, forcing them to pay several more dollars a barrel for their refineries.

Over the next five years the Russian agricultural sector will receive 43 Billion USD from federal and state governments in an effort to increase Russia’s self-reliance upon its own production. As we touched on in previous analysis, there are companies set to benefit from this and other macro factors. Due to rising prices and a drought in parts of the country, wheat prices in the country have risen dramatically. The government is considering the possibility of releasing reserves of wheat in order to help alleviate prices.

The Russian agricultural sector, a good place to be in the next decade? In short, it is shaping up to be that way. For our readers that have never been here, Russia is a land of diverse climates and topography. Much of it resembles the central Canadian provinces in both climate, soil, and other essential elements of agriculture. What has changed in the past few years has been things such as the introduction of new technology, financing, land rights, support from local governments, and of course the worldwide rise in commodity prices spurring increased production. With the predicted rise of food commodities to feed a developing planet, the Russian agriculture industry promises some growing returns.