BANKER'S BLOG: Aton sells Celtic stake; Goldman bends over to VTB

By bne IntelliNews August 15, 2007

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One of the big stories in mid-August – during the dull dog days of summer when a bit of domestic news is a welcome distraction from the crashing and burning of global markets – was the purchase by steelmaker Severstal of a stake in Celtic Resources Holding, an AIM-listed mining company with gold operations in Kazakhstan and a copper project in Russia.

Severstal bought a 22% stake for $55m, according to reports, which is little more than coffee and pastry change for Severstal chief Alexei Mordashov. The purchase suggests that Severstal is aiming to diversify its mining business, following on from a base metal exploration joint venture with Anglo American signed last year. On a financial multiples basis the company was purchased at a discount to CIS gold peers, at a 2007 price-earnings ratio of 10, versus an industry average of 35.

The seller of the stake was Aton International, the brokerage house recently purchased by Italian bank UniCredit Group. Word is that Aton has had the asset on its books for a long time, and held it while the shares underwent a long and sustained correction, from a peak of the 500-pence-per-share level seen in early 2004, to 200 pence today. Apparently Aton managed to more or less break even (suggesting the company registered a flat profit over a 4-plus-year time horizon during the rampant bull market of the Russian equity market over most of that period… bad call, lads). Presumably the sale of the stake was pushed by the new Italian owner who, despite its acquisitiveness in the wild west (Moscow isn't Milan, the number of shoe stores per capita notwithstanding), may have felt a bit queasy holding a dodgy gold producer on its books.

Much of the problem is that Celtic has gotten into tussles with the likes of Alrosa, Polyus Gold and Norilsk Nickel, to whom it was forced to sell a key asset at a bargain-basement price. Together with concerns about management, this has contributed to the demise of the shares. (Funny thing is that Celtic shares have bounced 25% since late June… surely no one with inside knowledge of the deal, which was at around an 11% premium to Monday's close, was acting on their insight? No, nothing like that ever happens in the Russian equity market, never!)

Goldman: bending over?

This just in: in an interview with Kommersant, VTB CEO Andrei Kostin said Goldman Sachs head Lloyd Blankfein – as in, the big honcho who sits in New York, for whom Russia is about as important as his decision about what colour tie to wear – personally called him to apologize for a research report written by a Goldman analyst about VTB, apparently telling Kostin that he didn't agree with his analyst's point of view. The report, dated August 6, was an initiation of coverage with a 'sell' recommendation, citing high valuations of the shares. "Fast growth at a (relatively) high price; initiate as Sell," read the headline: hardly offensive stuff. The London-based lead analyst of the report, Jernej Omahen (whose recommendation, incidentally, is the only sell amongst the eight analysts who have a recommendation on the shares, according to Bloomberg; there are three 'buys', four 'holds', and one 'sell'), must be – and should be – livid.

If true – and why would Andrei Kostin make up something like that? – it's an alarming statement on the role and place of research at what is supposedly one of the standard bearers of high ethics and professionalism in the investment banking industry globally. For the head of a bank to personally call (or even privately call, or become remotely involved at all) the CEO of a company to discuss a research report written by one of his analysts is absurd, and knocks down pretty much every Chinese wall around. Goldman must be smarting from eating other banks' dust in its Russia business, and Mr. Blankfein (again, if indeed Kommersant didn't completely garble the story) is bending over – deeply and frequently, it would appear – in an effort to catch up.

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