Oligarch Misfortunes Set Up Russian Market Trade

If the oligarch bailout is any indication, the Russian markets may be close to the bottom.

Yesterday, Russia allowed Mikhail Fridman, one of the country’s richest ‘oligarchs’, to tap into its $50 billion rescue fund to pay back a $2 billion bank loan that faces a margin call.

By tapping into the loan, he will avoid giving up his 44% stake in Vimple Communications (VIP), which was posted to Deutsche Bank (DB) as collateral against the loan.

Fridman isn’t alone. Another oligarch faces a deadline this Friday to put up additional collateral on a $4.5 billion loan secured by a 25% holding in OAO Noriksk Nickel.

The Russian ETF (RSX) tells the recent tale of the oligarchs' troubles. The ETF traded near $60 per share in June, and now trades in the $15 dollar range, as the collapse of commodities hurt the resource based economy.

The oligarchs' situation was very similar to the forced selling by U.S. CEOs due to margin calls that happened right around the October 10 market trough.

One of the most notable was the CEO of Chesapeake Energy (CHK), who was blown out of huge position in company stock. It was so bad he was forced to put out a press release saying that he involuntarily sold almost all his shares in order to meet a margin loan call.

Over 3 trading days in October, he was involuntarily liquidated out of roughly 30 million shares, which hit a low of $11.99 on October 10. In July, the CEO had paid an average price of $57.25 to buy stock.

But just a few weeks later, Chesapeake shares trade over $20, driven higher by speculators and value seekers that were quick to take advantage of the CEO’s misfortune.

Count on speculators to pounce on beaten-down Russian stocks soon, as well.

The low of the RSX in the $11 area, and aggressive traders looking to go long may want to use that area as a stop.

Disclosure: none

Comments

[Andy Abraham:]

We will be seeing many more forced liquidations...This is not just a Russian or US event...all over the world... However this will create tremendous situations for those that are patient and liquid...

Andy

2008 Oct 30 12:11 PM

[Heydar ...:]

I thing VIP is a great stock and once clouds go away you will see a Bright
Sun shine and stock will be trading arround $40/share

2008 Nov 02 12:55 PM