Russian Stocks Plunge on Concern Putin Rebuke Destroys `Haven'

By William Mauldin

July 25 (Bloomberg) -- Russia's RTS Index fell the most in six months, plunging it into a bear market, after Prime Minister Vladimir Putin said OAO Mechel will be investigated for overcharging for raw materials.

The 50-stock RTS index sank for a fourth day, dropping 5.1 percent to 1,960.67 at 5:15 p.m. in Moscow, or 21 percent below its May 19 high. A drop of 20 percent from a peak within a year is the common definition of a bear market.

Putin rebuked Mechel's billionaire shareholder Igor Zyuzin for not attending a meeting with steelmakers yesterday and said prosecutors will investigate whether the Russian coal and steel producer sold raw materials in Russia at twice the price as abroad. The company's American depositary receipts fell 38 percent yesterday in New York.

``It seems that Russia has decided to control everything with centralized oversight,'' said Zina Psiola, who manages $1.1 billion in Russian equities at Clariden Leu AG in Zurich. ``This is the way that Venezuela already took, and we know the outcome: It's bad for investors and bad for the country.''

Putin is seeking to curb inflation, which quickened to an annual 15.1 percent in June, the most since December 2002. He is also pushing his Cabinet to investigate instances of price collusion among oil refiners and food producers.

The Micex Index tumbled 5.2 percent today to 1,492.32, its lowest since November 2006 and the biggest retreat today among equity markets included in global benchmarks.

Censure

Putin's censure of Mechel, combined with falling oil prices, has ``finished'' Russia's reputation among some investors as a ``safe haven'' in the global equity market this year, according to Roland Nash, chief strategist at Moscow-based Renaissance Capital. Mechel said it would release a statement later today on the allegations.

Some brokers compared the Mechel turmoil with the assault on OAO Yukos Oil Co., which was bankrupted in Putin's presidency after the government claimed more than $30 billion in back taxes. The company's founder, Mikhail Khodorkovsky, is serving eight years in a Siberian labor camp, while some of his company's oil assets were transferred to state-controlled OAO Rosneft.

Investors ``fear something worse to come,'' wrote Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow, in a note to investors today.

``Russia's institutional framework is still a work in progress,'' said Daniel Salter, emerging-markets strategist at ING Groep NV in Russia. ``The corporate sector remains subservient to the whims of the state.''

Sberbank

TNK-BP, BP Plc's joint venture in Russia, fell 2.3 percent today to $1.925 on the RTS exchange a day after Chief Executive Officer Robert Dudley left Russia, citing ``sustained harassment'' amid a shareholder dispute.

Stocks of steelmakers and coal producers fell after Putin's comments. Evraz Group SA, Russia's second-biggest steelmaker, dropped 9.9 percent to $82 in London trading. OAO Severstal, the biggest steelmaker, fell 51 rubles, or 11 percent, to 407 rubles.

OAO Sberbank, Russia's biggest bank, slumped 5.9 rubles, or 7.8 percent, to 69.80 rubles. The bank said net income in the first quarter climbed 16 percent to 31.1 billion rubles ($1.33 billion), or less than the mean estimate of seven analysts surveyed by Bloomberg News.

Rosneft declined 4.8 percent today to 228.60 rubles, heading for a weekly loss of 9.8 percent. Oil prices have declined 15 percent from their July 3 high.

The RTS climbed as high as 2,487.92 on May 19, after Putin, who became prime minister under President Dmitry Medvedev, said oil producers would get tax breaks.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.