We have miscellaneous, but interesting pieces of information that bodes well for Russia as 2007 closes. Future Russian President Medvedev is using words like competitiveness in a recent speech, its too early to tell but we’ll see exactly what he means in the approaching months and year. We here at GR Invest see the further development of the fixed income market to include second-tier companies and smaller municipalities and quasi-government authorities. Several factors will influence this including increasing mutual fund investing of the Russian middle and upper classes. The percentage of investment is just a fraction of what they are in the rest of Europe, even much less than what they are in Eastern Europe. The Kremlin has informed regional governments priorities will include health care and education, undoubtedly billions will come from the central government-local authorities will also be expected to contribute and bond offerings will be an option. There will likely be a relief rally after elections, both in the equity and bond markets, foreign money will be looking for a home, and many companies will be offering bond IPOs to help satisfy the demand. We have previously discussed the expected skyrocketing of inflation, that so far has been kept down before elections. With the rise in inflation, many Russian domestic investors will expect higher returns from bonds and other instruments. This combined with the expected increase in volume in IPOs could bring even more attractive rates from new issues.

And coincidentally, Gazprom has just announced an agreement with BASF to develop a large gas field. I wanted to feature a bond from this company, because quite frankly, everything seems to be looking up. We talked about Medvedev being the next President and the positive things for the firm that he is helping to run, what many people haven’t noticed is the recent price increases that have been negotiated or are planned to be negotiated with its customers and of course new markets in the long-term are being opened south towards China. I’m talking specifically about price increases that are scheduled to be passed on to Ukraine and Georgia, among others. Europe is up next. The bond I’m talking about is payable in Russian Rubles, matures in 560 days, and has an effective YTM of 6.82%. S&P rates the bond BBB/Stable, we feel it might even be better than that due to the rising price of natural gas in general, the near monopoly this firm holds on Russia’s reserves, and currency reserves and stabilization fund reserves approaching a half trillion. The rates and security are a good deal especially when compared to the uncertain U.S. and European corporate debt market-present and future.

This week’s bond originates from banking concern, Bank Zenit. It is one of the country’s largest diversified bank’s, with branches throughout the country and participation in a broad exposure of industries ranging from defense, to municipal governments, to energy concerns like the giant oil company Tatneft. The bond pays an attractive YTM of 9.45%, maturing in 410 days, and is paid in Russian Rubles. It enjoys a Ba3/Stable rating by Moodys and a B/Positive rating by Fitch. Given the stable financial position of the Russian government, an economy that is flush with cash, a stable banking sector, and a time-frame of about a year, we rate this bond superior in the risk-reward opportunities it affords you.

President Putin has just ended months of speculation and officially endorsed Deputy Prime Minister Medvedev as his replacement, which is to say he will be Putin’s replacement after March elections. Keep in mind, Russia is like a huge battleship that needs a long time, a lot of time, and skilled hands to change course, but with Medvedev, the Kremlin just might have their man. He has spent much of his career teaching or engaged in the practice of law. This is crucial for Russia for it comes at a time when one of the things holding a good economy from developing even further is the development of simplified legal codes enforced by qualified and impartial justices. It won’t happen overnight but in my humble but informed opinion, if it’s going to be done he is the man to do it. His experience with Gazprom has given him the wisdom to confront another key issue confronting Russia, that is the needed capital to expand and maintain oil and gas producing fields. This is an exciting time to be reporting on Russian business and politics, expect much more as the story develops.

President Putin has just ended months of speculation and officially endorsed Deputy Prime Minister Medvedev as his replacement, which is to say he will be Putin’s replacement after March elections. Keep in mind, Russia is like a huge battleship that needs a long time, a lot of time, and skilled hands to change course, but with Medvedev, the Kremlin just might have their man. He has spent much of his career teaching or engaged in the practice of law. This is crucial for Russia for it comes at a time when one of the things holding a good economy from developing even further is the development of simplified legal codes enforced by qualified and impartial justices. It won’t happen overnight but in my humble but informed opinion, if it’s going to be done he is the man to do it. His experience with Gazprom has given him the wisdom to confront another key issue confronting Russia, that is the needed capital to expand and maintain oil and gas producing fields. This is an exciting time to be reporting on Russian business and politics, expect much more as the story develops.

With the recent announcement that the Dixy supermarket chain has sold a 51% stake to a private investment group, I think its time to explore the food group some more and see if we can make you some money in the process. Today’s bond is from Wimm-Bill-Dann, a huge food company in Russia, being the leader in the juice and dairy segments of the market. The instrument matures on 12/15/2010, is payable in Rubles, and is liquid as this company is not only a well known company in Russia, but is listed on foreign exchanges as well. It is rated BB-/Stable by S&P, Ba3/Stable by Moodys. The YTM bid is 8.41% and YTM offer is 8.21%. We feel this security is a bargain in the making because of its depressed price, due to the fact corporations’ ability to generate revenue is limited by written and unwritten government price controls, this is already factored into the price. We expect the controls to be lifted after the election and expect WBD to benefit from this as well as a growing and developing consumer market within Russia. As an investor you stand to benefit from a possible substantial rise in the bond coupled with a rise in the Ruble. For a more complete picture of this company, please see our profile section.

Well, United Russia has won recent elections in a landslide and although I could write pages of analysis as to what the near-term, medium-term, and long-term ramifications will be, let’s just say in the near future I can sum everything up in one word-“stability”. What I’d like to talk about today is what to look for when purchasing Ruble denominated bonds and seeing if they are a good buy for you if you live outside Russia and will be converting them into your own currency at maturity rather than re-investing. We hear a lot of noise concerning interest rates, housing numbers, deficits and other figures, and I don’t want to underestimate the importance of these numbers and their impact upon currencies day to day. One important thing to remember though, is compare the growth of Russia’s economy to your national economy over the timeframe you plan to hold your investments. Ultimately the strength of any currency depends on economic growth of the country that is attached to it, the more an economy grows, the more its currency will rise and when looking back at history, you will see this time and time again.

Just as they say no man is an island, the same holds true for countries. For our American investors, recent Federal Reserve statements concerning rate cuts will undoubtedly have an impact upon the dollar vs. international currencies. The fixed income investments you purchase today stand as a secure investment when looking at the Russian economy in general. Additionally, take into account the Ruble’s appreciation vs. the U.S. Dollar. We would caution you if the flipside of this equation was a concern but with interest rates being cut by the Americans, look for continued appreciation of the Ruble. This combined with some attractive rates, promise real rates of return competitive with any country in its class.