Interfax reported, citing the head of the Russia's antitrust authority, that Raspadskaya (RASPAD, Ba3/-/B+), Russia's second-largest producer of coking coal, will be fined only about 100 mn rubles (USD 3.9 mn) for exploiting its near monopolistic position to set artificially high coking coal prices in domestic market. We remind that on July 29, Russia's Federal Anti-Monopoly Service (FAS) initiated legal proceedings against Evraz Group and Raspadskaya.

 

Since Raspadskaya has already lowered the price for coking coal of its own volition, the company possibly will not be asked by FAS to do so.

 

We do not expect the inflicted penalty to have a substantial effect on company’s financial and operational performance. On September 23, Raspadskaya plans to announce its H1 2008 financial results that we expect to be credit-positive. We also expect “benign measures” to be applied for Evraz as for Raspadskaya and Mechel.

 

Shortly after the announcement of FAS on July 29, the only Raspadskaya’s Eurobond due in 2012 (ISIN:XS0301347372) clearly underperformed the market, which was in line with our immediate underweight recommendation (please refer to our comment "Evraz and Raspadskaya under investigation by Russia’s FAS: We hope for the better scenario!" dated 30 July 2008). Although we do not expect Raspadskaya’s spreads to react dramatically on the good news under the current market conditions, we see no reasons for underweighting the company’s Eurobond from now onwards. We change our relative value recommendation on Raspadskaya’s 2012 bond from underweight to marketweight relative to the JP Morgan RUBI Other Index and reiterate our neutral recommendation on the company’s Eurobond on a spread basis.