SSEECCUURRIIITTIIIEESS MMAARRKKEETT NNEEWWSSLLEETTTTEERR weekly

Presented by: VTB Bank, Custody

October 25, 2018 Issue No. 2018/40

th Please be advised that November 4 is a public holiday (“Unity Day”) in the Russian Federation. Please note that November 5 th is an official day off.

Company News

USM gives control of stake in Mail.Ru to Internet firm’s management On October 22, 2018 USM Holding’s founder and co-owner Alisher Usmanov stated that USM Holdings had handed over control of its share in Mail.Ru Group to the Internet company’s management in the name of General Director Boris Dobrodeyev. Usmanov mentioned that he had been preparing this transfer over recent years because he is sure that high-technology companies should be headed by a young generation. He also expressed certainty that under their rule, the holding will strengthen its position on the market even more. On October 22 Mail.Ru Group announced changes on its board of directors. Mail.Ru Group said that MF Technologies (MFT) has nominated Boris Dobrodeyev, Dmitry Sergeyev, Alan Vaksman, and Sergei Mednov as new directors to the board of the company to replace Sergei Soldatenkov, Ivan Streshinsky, Anna Serebryanikova, and Vlad Wolfson. MFT is a joint venture set up by MegaFon, USM, state industrial corporation , and local bank Gazprombank, to which MegaFon contributed its stake in Mail.Ru Group, or 5.23% of capital and 58.9% of votes. MegaFon owns 45% of MFT; Gazprombank 35%, Rostec 11%, and USM has 9%. MFT has stated that USM is no longer the ultimate controlling party of Mail.Ru Group and that as a result there is no single party controlling Mail.Ru Group via MFT. Mail.Ru representatives have also stated that there is no change in the ownership of MF Technologies. MFT has also informed Mail.Ru Group that going forward the CEO of Mail.Ru Group will be authorized to exercise the voting rights of the shares held by MegaFon and USM in MFT. As such MFT has also nominated Boris Dobrodeyev and Dmitry Sergeyev to the board of directors of Mail.Ru Group. Changes in the board of directors do not affect Chairman of the board Dmitry Grishin. This ensured the presence of three representatives of Mail.Ru Group on the board of directors. After quitting Mail.Ru Group, USM Holdings will develop e-commerce during the next five to 10 years and wants to create a big player in this industry in Europe. In September, the Russian Direct Investment Fund (RDIF), local mobile operator MegaFon, and Mail.Ru Group announced setting up an e-commerce joint venture with Chinese behemoth Alibaba about AliExpress in and Pandao. The partners plan to close the deal in January-March 2019.

Transneft says can spend RUB 20 bln on 3-year buyback program According to a presentation demonstrated on 22 October, 2018 Russian oil pipeline monopoly Transneft plans to spend up to RUB 20 bln, or 8% of the company’s market capitalization, on a 3-year buyback program for preferred shares. First Vice President Maxim Grishanin said that the option program is to be adopted in 2019 and resorted to in case of an unjustified decrease of the share price. Transneft also said that it plans the same of higher growth of annual dividends in absolute terms in the medium term. The requirements of the state as a key shareholder were listed as one of the priorities in fulfillment of the dividend program. Capital expenditures will be additionally reduced by up to RUB 120 bln in 2018-2023.

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Schlumberger fulfills all Russian demands for EDC acquisition On October 23, 2018 CEO of U.S. oilfield servicing giant Schlumberger Paal Kibsgaard told reporters that the company had fulfilled all Russian requirements for an acquisition of a share in Eurasia Drilling Company (EDC), and is now waiting for regulatory approvals. When asked about whether Schlumberger’s bid for a stake in EDC had a deadline, he said that the companies were in an open discussion of the deal, but would not disclose details. EDC said in July 2017 that its shareholders approved the sale of a 51% stake in the company to Schlumberger. In November of the year, the Federal Antimonopoly Service’s Deputy Director Andrei Tsyganov said that the service and Schlumberger were working on a mechanism to protect the company’s investment in EDC and Russian economic interests in case of new Western sanctions. In April 2018, Russian government’s commission for foreign investment control preliminary approved a request of Schlumberger to acquire between 25% plus one share and 49% in EDC.

VTB Bank buys 24.84% in TransContainer from FESCO on 22 October, 2018 Russia’s second biggest lender VTB Bank and the country’s largest railroad container operator TransContainer stated that VTB Bank had acquired direct control over 24.84% in TransContainer by buying the stake from Far Eastern Shipping Company (FESCO). FESCO also said it sold its entire 25.1% stake in TransContainer: 24.8% to VTB Bank and 0.3% to another investor. The company will use the money to reduce its debt burden, including redemption of liabilities under a repo deal that was secured by the stake, FESCO said. A VTB representative said that the bank had signed a forward contract to sell the stake in TransContainer to another investor simultaneously with the purchase from FESCO. The counteragent, pricing parameters, and other details of the deal were not disclosed. VTB Bank is FESCO’s largest creditor, and it will use the money from the deal to reduce the company’s debt.

VTB Capital sends mandatory offer on Novorossiysk Grain Plant On October 24, 2018 it was stated that Russia’s VTB Capital sent to the central bank a mandatory offer to buy out 46.7 mln shares, or 69.2% of the issued capital, of Novorossiysk Grain Plant. In August, VTB Capital increased its stake in Novorossiysk Grain Plant to 29.9% from 22.25%. VTB Capital also owns 0.94% of the company indirectly. A spokesperson for United Grain Company (UGC), the holder of 51% of the plant, said that it does not plan to change its stake.

Putin signs decree to transfer 92.31% in UAC to Rostec On October 24, 2018 it was disclosed on the government’s website that Russian President had signed a decree to transfer 92.31% in United Aircraft Corporation (UAC) to state industrial corporation Rostec from government ownership. The transfer was suggested earlier by the Russian government. Yury Borisov has told reporters that economic impact from the transfer may amount to RUB 120 bln rubles by 2025.

Sviaz-Bank raises capital by RUB 18 bln after Globexbank merger On October 24, 2018 it was stated that Sviaz-Bank had raised capital by RUB 18 bln via a share issue after a merger of Globexbank, seniorage and Sviaz-Bank’s undistributed profit. Sviaz-Bank placed more than 10.8 trln common shares at about RUB 0.0016 per share. The total face value is formed by Globexbank’s charter capital of RUB 10.014 bln, seniorage of RUB 4.242 bln, and undistributed income of RUB 3.539 bln. Russian state bank Vnesheconombank (VEB) launched merger of two subsidiary banks Globexbank and Sviaz-Bank to convert all shares it owns in Globexbank into shares of Sviaz-Bank in August. VEB can sell the asset no later than in 2020, according to an earlier statement by former CEO Sergei Gorkov.

Dividends/coupons Lukoil board of directors recommends RUB 95 per share in January-September dividends On October 19, 2018 it was stated that the board of directors of Russian oil company Lukoil had recommended paying RUB 95 per share in dividends for January-September. The record date is recommended on December 21. Lukoil paid RUB 85 per share, or 24% of the International Financial Reporting Standards (IFRS) net profit, in dividends for January-September 2017. In full 2017 it paid RUB 215 per share.

Government to discuss ’s 2018 dividends in March-May On October 22, 2018 Deputy Finance Minister Vladimir Kolychev told reporters that the government will discuss 2018 dividends of Russian gas giant Gazprom in March-May 2019.

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Acron to pay RUB 1.6 bln in dividends from undistributed net profit On October 22, 2018 it was stated that the shareholders of Russian fertilizer producer Acron had approved payment of RUB 1.621 bln, or RUB 40 per share, in dividends from an undistributed net profit for previous years. The shareholder register for the dividends will be closed on October 30. In September 2017 Acron’s shareholders approved paying RUB 9.5 bln, or RUB 235 per share, of undistributed profit of previous years in dividends. The final dividends for 2017 made RUB 7.499 bln, or RUB 185 per share. Businessman Vyacheslav Kantor is the main shareholder of Acron.

VTB Bank can pay less than 50% of net profit in 2018 dividends On October 22, 2018 CEO of the Russia’s second largest bank VTB Andrei Kostin told reporters that the bank can pay less than 50% of its net profit in dividends for 2018. Kostin mentioned that the central bank had allowed a one-year delay (in introduction of the Basel standards for capital adequacy of banks), and the Finance Ministry is likely to reduce dividends for 2018. For this reason the dividends will amount to less than 50%. He added that the bank is able to replenish its capital using only the profit it makes. On October 18, Finance Minister said that systemically-important Russian banks may pay less dividends from their net profit and use the money to raise capital in order to comply with the Basel standards. In May, VTB Bank’s shareholders approved paying 0.345 kopecks per common share, 0.055 kopecks per preferred share of the first type, and 0.551 kopecks per preferred share of the second type, or a total of RUB 73.5 bln in dividends for 2017, which accounted for 61% of the bank’s net profit under International Financial Reporting Standards (IFRS).

Rostelecom shareholders to mull January-September dividends at EGM on December 24 On October 24, 2018 it was stated that the shareholders of Russian state-controlled telecom operator Rostelecom will consider the first payment of interim dividends for January-September at an extraordinary general meeting (EGM) on December 24. Rostelecom President Mikhail Oseyevsky first mentioned the company’s plan to pay dividends twice a year in June and confirmed the information in August, saying that dividends could be distributed in January-March 2019. Biannual dividends will support Rostelecom’s shares, he said then. The operator’s shareholders received RUB 14.05 bln, or RUB 5.05 per common and preferred share in dividends for 2017. Under Rostelecom’s new dividend policy, approved in March, it will distribute at least 75% of its free cash flow in dividends, or at least RUB 5 per common share, on results of 2018-2020. The operator will also spend at least 50% of the net profit calculated under International Financial Reporting Standards, but no more than 100% of this figure, on dividends.

NLMK board recommends paying RUB 6.04 per share in July-September dividends On October 25, 2018 it was reported that the board of directors of Russian steelmaker Novolipetsk Steel (NLMK) had recommended paying RUB 6.04 per share in dividends for July-September. The shareholders will consider the board’s recommendation at an extraordinary general meeting on December 21. The register for the meeting will close on November 26. The company earlier approved paying RUB 5.73 per share in dividends for January-March and RUB 5.24 per share in dividends for April-June. Vladimir Lisin holds around 84% in NLMK through Fletcher Group.

Please be advised that the information presented in this newsletter is based on the following sources: National Settlement Depository (NSD); Clearstream Banking; Euroclear Bank; PRIME-TASS information agency; “Kommersant”, "Rossiyskaya Gazeta”, “Izvestiya, "Vedomosti”, “The Times“ newspapers, and others.

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