Russian economy,financial market,

investment instruments,

risks

Strong Export Positions

Public finance:structure of budget expenses

Current structure

Other revenues

14%

Severance tax17%

Export duties32%

Corporate profit tax

7%

Uniform social tax

5%

VAT25%

Prospective structure (2009)

Uniform social tax

5%

Corporate profit tax

7%

Export duties20%

Severance tax10%

Other revenues

18%

VAT40%

Public finances:structure of budget expenses

Expenses of the federal budget in 2007 are provided for in the amount of 17,5% of GDP (over USD 20bn)

% of budget expenses

% of GDP

Inter-budget transfers 33,3 5,8

National defense 15,0 2,6

Issues of national significance 12,2 2,1

Law enforcement activities 12,2 2,1

National economy 9,5 1,7

Education 5,1 0,9

Social policy 3,9 0,7

Health care and sport 3,8 0,7

Culture and mass media 1,2 0,2

Tax reform:two vectors of different direction

Introduction of flat rate schedule of income tax on individuals on the level of 13%

Reduction of corporate income tax from 35% to 24%

Reduction of VAT rate from 20% to 18% Cancellation of sales tax Reduction of UST rate Differentiation of severance tax rate

depending on fields

Imposition of severance tax and increase of export duties on oil and oil products

Russian stock market:History In 2007, Russian market will be 12 years old. 1992-1997 privatization auctions and first allocation of

securities in the market. Formation of the basis of the stock market.

Origin of GCO market – 1993 … end of the same 1998. In September 1995, the first exchange – Russian Trade

System (RTS) - began computation of the index In 1993, the Federal Commission on Securities Markets

(FCSM) was established, having among its main functions regulation of activities in the stock market

Placement of the first bond debt in the domestic market - 1999 Gazprom bonds

The first technical default on bonds – 2002, Sibur company (underwriter - Reiffeisenbank)

The first IPO in the Russian market – RBC (Rosbiznesconsulting), a media sector company

Russian stock market:Structure in terms of composition of participants Regulators Associations and SRO Stock Exchanges Depositories and registrars Professional participants of the

Securities Market Issuers Investors

Russian stock market:Regulators

Federal FinancialMarket Service

Central Bank of Russia

Ministry of Finance

Stock market

Russian stock market:Associations and Self-Regulating Organizations

National Association of Securities Market Participants NAUFOR (~300 brokers)National Association of Funds NFA (~300 banks)Professional Association of Registrars, Transfer Agents, and Depositories PARTAD (~80)National League of Managers NLU (~70)

SROFFMS

Professional participants

in the market

MICEX – Moscow Interbank Currency Exchange (foreign currency market, bond market, share market, clearing, indices)

RTS – Russian Trading System (forward market, market of shares of second and following issues, clearing, indices)

Russian stock market:Exchanges

Russian stock market:MICEX

Average amount of trading per

month, USD bnNumber of traded

securities

Foreign currency 5,4 -

shares 4,0 325

bonds 1,4

544:430 – corporate105 – municipal9 - Eurobonds

Maximum value of MICEX index is 1758 points

Russian stock market:RTS

Average amount of trading per month,

USD bnNumber of

securities traded

Forward market 8,4 -

shares 2,8 392

bonds 0,025 161

Maximum value of RTS index is 1984 points

Russian stock market:structure in terms of amount of trading

Growth of the stock market amounted to 85% in 2005 and to 67% in 2006.

Second-Tier Stock Market

Market Capitalisation of National Companies

100 1000 10000 100000

Brazil

South Africa

India

Korea

China

Russia

Italy

Australia

ОМХ

Switzerland

Spain

Germany

Canada

Hong Kong

Euronext

UK

Japan

USA

USD Billion

Source: RTS, World Federation of Exchanges

As of 31 Dec. 2006 Log Scale

Russian stock market:Structure in terms of place of trading

0102030405060708090

2000 2001 2002 2003 2004 2005 2006

Stock market Over-the-counter market

«IRC» - MICEX«RTS-Start» - RTS

Russian stock market:IPO projects of Stock Exchanges

Listing broker

StockExchange

- Companies of medium-size and small capitalization - Possibility of public and private placement - Possibility of legalization of business

Russian stock market: Depositories and registrars

 II

quarter

2004

II quarter 2005

II quart

er 2006

Special depositories 26 24 26 Mutual funds 295 329 438Share investment funds 5 5 5Non-government pension funds 227 256 248

Number of operations performed 63486 68984 117530

- Law “On the Central Depository”. - Bringing of depositories to compliance with new requirements (capital, certified equipment, programs of insurance of current activities and risks)- Bringing of registrars to compliance (Effects of raidership)

Investment companies – financial companies having any of the four, or all of the four licenses (broker, dealer, trustee, or depository license)

Credit institutions – banks having, along with banking license, one or more licenses of professional participant. Moscow Interbank Currency Exchange (currency market, bond market, share market, clearing, indices).

Asset Management companies – operate within the framework of individual or joint management strategies, having one or two available licenses for trust management or joint investment management

Russian stock market:Professional participants in the marketLicensing of professional activities in the stock market is performed by the Federal Financial Markets Service (FFMS, former FCSM)

Russian stock market:Professional participants in the market

15%38%

47%Investment companies (broker) Banks Management companies

Trust management, Mutual investment funds, Close-end investment funds

Trust management, Brokerage services, Common Fund of Bank Management, DEPOSITS

Trust management, Brokerage services

The latest achievements in the sphere of regulation of professional participants in the stock market

-Development of the project of prudential supervision in the stock market

-Regulation of ethical standards in the stock market

-Development of the mechanism of introduction of GIPS standards for adequate assessment of profitability of trust management

Russian stock market:Professional participants in the market

Russian stock market:Issuers

The highest free-float is recorded with Sberbank of Russia – 0,92,

The lowest one is recorded with ОАО Irkutskenergo 0,08

Industry Major issuersPercentage

of capitalizati

on

Average free-float

Oil and gas Gazprom, Rosneft, Lukoil, TNC-ВР Over 60% 0,33

Ferrous metallurgy

HLMC, EurasHolding 7% 0,24

Mobile Communica-

tionsMTS, Vympelcom 4,5% 0,35

Largest industries in terms of capitalization

Russian stock market:Issuers

Capitalization gained

(USD bn)Ultimate free-float

Number of subscribers

ОАО Rosneft 10.6 0,12 115 000

ОАО Sberbank 8.8 0,92 46 000

ОАО VTB - 0,25 ~ 150 000

«General public IPO»

1. More than 40 companies plan their IPOs for 2007-2008. Among the novices are insurance companies, coal companies, retail chains, construction companies, air carriers. Dilution of the share of oil and gas sector in capitalization of the Russia’s market.

2. Entry of companies with medium-size or small capitalization to the IPO market – private placements. Simplified version of private placement.

3. Increase in the number of free-floating shares after additional issues.

4. Emergence in the organized market of large amount of over-the-counter addressed transactions.

5. Large interest to share market on the part from private investors.

Russian stock market:IssuersTrends in the IPO market

Russian stock market:IssuersStep-by-step strategy of entry to stock market

Loan against billsof exchange

Bonded debt

IPO in Russia

IPO in London

Less than 5 years

- Western funds – 60% of investment is Russian money invested via foreign funds

- Russian investors1. Institutional companies of financial and non-

financial sectors2. Qualified investors3. Individuals

Russian stock market:Investors

Russian stock market:InvestorsInvestment instruments

Object of investment Profitability Profitability less

inflation rateBusiness 40-70% 30-60%

Real estate 30-50% 20-40%Stock market 15-25% 5-15%

Forex 12-15% 2-5%Bank deposits 9-11% (-1%) – 1%

«Pillow» 0% (-10%)

Participants in financial marketBanking sector

Number

Russian banks 1080

Banks with foreign participation 60

NCO 45

Russian Banks:The Biggest Deals With Foreigners

Date Seller Buyer Amount of deal, USD

Million

% of equity purchas-

ed

Price to book value ratio

Dec. 2004 Delta Bank GE Consumer Finance

100 100 4,5

Apr. 2005 KMB Bank Banca Intesa 90 75 3,9

Aug. 2005 Deltacredit Societe Generale 110 100 3,2

Jan. 2006 Monchebank DnBNOR 21 97 2,2

Feb. 2006 Impexbank Raiffeisen International

550 100 2,9

Jun, Sep. 2006

Rosbank Societe Generale 634 20 4,5

Jul. 2006 Investsberbank OTP Bank 477 96 3,9

Nov. 2006 Orgresbank Nordea 318 75 4,0

Participants in financial marketBanking sector

PercentageMoscow banks 58%Assets of 10 largest banks 53%Capital of 10 largest banks 46%Clients of 10 largest banks 56%Credits of 10 largest banks 56%

Concentration in banking sector

Participants in financial marketBanking sectorGrowth of assets in banking sector

2363 31604145

56017137

9750

13750

18000

020004000

60008000

100001200014000

160001800020000

2000 2001 2002 2003 2004 2005 2006 2007 F0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

Assets, billion rubles % of GDP

Participants in financial marketBanking sectorGrowth of credits to general public with respect to GDP and assets

1,93 3,4

5,4

8,7

16,4

22

2,33,6

5,5

8,1

12,112,1

0,6 1,1 1,3

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007F year

%

of assets of GDP

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

Mar.2005 Aug.2005 Dec.2005 Feb.2006 Mar.2006 Ju.2006 Jul.2006

Participants in financial marketBanking sector

Evaluation of Russian banks (P/BV)

- In 2006, the average value of multiplier (P/BV) in the sector was 3,3 – 3,5.- Maximum multiplier in Russia was recorded in acquisition of UFG (United Financial Group) by Deutsche Bank - 10 (P/BV)

Participants in financial marketBanking sector

Shares of banks in Russian stock marketFree-float Мcap, $m P/E

2006P/BV 2006

Sberbank of Russia 0,92 39 482 13,8 3,6Uralsib 3 594 11,0 2,0

Bank of Moscow 0,20 2 614 18,7 2,6Rosbank 0,08 3 096 0,1 3,4

Promstroybank 0,48 1 403 8,8 2,5Vozrozhdenie 500 13,2 3,4

Prospective issuer banks:Rosbank, Gazprombank, Uralsib, KIT-Finance Bank

Participants in financial marketInsurance sector

Indices

Insurance companies 918

Insurance premiums collected in 2006 USD 23.5bn

Insurance indemnity payments in 2006 USD 13.5bn

Participants in financial marketInvestment companies

Indices

Investment companies over 900

Capitalization (2006) USD 1.7bn

Assets (2006) USD 9.5bn

Profit (2006) USD 0.4bn

Participants in financial marketAsset management companies

Indices Asset management

companies over 200

Trust management USD 10.2bn

Funds of NPF USD 15.3bn

Mutual and investment funds USD 14.6bn

Types of rating agencies in Russia

International rating agencies National Rating Agencies Trade rating agencies Agencies at media holdings Information and marketing rating agencies Rating agencies at associations, unions, and

partnerships

Conducts activities related to rating and ranking of participants in financial market on the basis of financial and economic indices from 2000.

Assesses reliability and solvency of participants in financial market

Provides information support to decision-making in management and business, outsourcing with respect to risk management systems in terms of assessment of contracting party risk, and monitoring with application of scoring models.

Advances initiatives aimed at improvement of Russia’s investment climate and transparency of participants in financial markets

National Rating Agency

Brokers

Management companies

Banks

EnterprisesInsurance companies

Brokers 250Management companies 100Banks 200Insurance companies 22Enterprises 15

Participants in financial market in the Agency’s ratings

Pattern of default probabilityProbability of default depending on the term

  Up to 180 days Up to 1 year Up to 2 years Up to 3 yearsAAA 0,0% 0,0% 0,0% 0,0%AA+ 0,0% 0,0% 0,0% 3,0%AA 0,0% 0,0% 1,5% 5,5%AA- 0,0% 0,0% 4,0% 8,0%A+ 0,0% 1,0% 8,0% 12,0%A 0,0% 3,0% 10,0% 15,0%A- 0,0% 6,0% 13,0% 18,0%

BBB+ 0,0% 7,0% 15,0% 20,0%BBB 0,0% 10,0% 18,0% 23,0%BBB- 1,5% 14,0% 22,0% 28,0%BB+ 7,0% 20,0% 30,0% 35,0%BB 11,0% 26,0% 36,0% 41,0%BB- 15,0% 30,0% 40,0% 45,0%B+ 22,0% 37,0% 47,0% 54,0%B 26,0% 41,0% 51,0% 58,0%B- 30,0% 45,0% 55,0% 62,0%

CC+ 38,0% 53,0% 63,0% 71,5%CC 44,0% 59,0% 69,0% 77,5%CC- 49,0% 63,0% 73,0% 81,5%C+ 56,0% 70,0% 79,0% 84,0%C 62,0% 78,0% 87,0% 92,0%C- 69,0% 86,0% 93,8% 98,8%D 100,0% 100,0% 100,0% 100,0%

No risk

Low risk

Moderate risk

Increased risk

High risk

Maximum risk

Distribution with respect to rating scale

0

20

40

60

80

100

120

140

160

ААА АА А ВВВ ВВ В СС С

Target audience of ratings

Our ratings are recognized by market participants and applied as criteria in risk management systems they use;

Banks, investment companies, asset management companies, insurance companies, clearing floors, exchanges, industrial enterprises, and investors apply our ratings in their activities;

Rating report presented by our Agency may be used as independent public assessment by the Agency in activities of a company or a bank;

Ratings are used as criteria in holding of tenders by DIA and MHCA, by major private and public companies, and in accreditations carried out by regulators - FFMS, Ministry of Finance, and Central Bank of RF.

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