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Home , Detsky Mir, Severstal

SSEECCUURRIIITTIIIEESS MMAARRKKEETT NNEEWWSSLLEETTTTEERR weekly

Presented by: VTB Bank, Custody

February 2, 2017 Issue No. 2017/04

Company News

VTB 24 CEO sees Post Bank’s capital raised by RUB 6.7 bln in 2017 On January 26, 2017 Mikhail Zadornov, CEO of bank VTB 24, stated that Post Bank, established in January 2016 on the basis of Russian Post and an affiliate of bank VTB 24, would receive RUB 6.7 bln capital injection in 2017. The injection will be done in two stages. The first stage will take place in May. The combined capital injection will reach RUB 6.7 bln this year, half of its coming from VTB 24 and half from Russian Post. The sum may be adjusted depending on implementation of the business plan.

MRIF fund converts preferred shares of Brunswick Rail into common shares On January 26, 2017 it was reported that investment fund Macquarie & CIS Infrastructure Fund (MRIF) converted preferred shares of Russian rail car leaser Brunswick Rail into common shares in December 2016. In November 2016, Brunswick Rail Limited reached an agreement with the European Bank for Reconstruction and Development and shareholders owning about 51% in the company on conditions of conversion of preferred shares. Under the agreement, Brunswick Rail was to convert preferred shares into 13.27% of common shares if owners of more than 85% sign the agreement until December 29, 2016. Before all the changes, major shareholders of Brunswick Rail were the company’s founders with a 24.4% stake, the MRIF with a 14.9% stake, International Finance Corporation with 13%, Sumitomo Corp. with 12%, VTB Capital Private Equity and Special Situations with 6.9%, and UFG Private Equity with 5.5%.

AFK raises stake in Concept Group clothes maker to 62.38% On January 26, 2017 it was announced that Russian multi-industry holding AFK Sistema raised its stake in Cyprus-based holding company Rangecroft Limited, which owns clothes producer Concept Group, to 63.28% from 40%. The stake was raised under existing agreements with one of Concept Group’s founders Leonid Khanik. Co-owners of Concept Group Khanik and Lars Pettersson remain partners of Sistema with stakes of 24.2% and 12.5%, respectively, and Khanik will remain chairman of the board of directors of the clothes producer.

Russian antitrust clears Rost Bank to buy 62% in Uralneftegazprom On January 27, 2017 it was stated that the Federal Antimonopoly Service approved a petition by Rost Bank to purchase a 62.27% voting stake in Orenburg Region-based oil and gas producer Uralneftegazprom. Rost Bank is ranked 17th by assets as of January 1 with assets amounting to RUB 627.3 bln. The bank is undergoing bailout procedures and is planned to merge with B&N Bank until the end of 2025.

Novatek buys back 125,000 common shares during January 23-27, 2017 On January 30, 2017 it was reported that independent gas producer bought back 125,000 common shares, including shares held in the form of global depositary receipts (GDRs), from January 23 through January 27. In May, the board of directors extended USD 600 mln buyback program until June 7, 2017. Under the program, the company will buy its shares and GDRs via its unit Novatek Equity (Cyprus) Limited.

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Rosgosstrakh board approves raising charter capital by RUB 4.6 bln On January 30, 2017 the board of directors of Russian insurance company Rosgosstrakh approved an increase in the charter capital by RUB 4.645 bln through an additional share offering. Rosgosstrakh will offer 116.126 bln additional common shares with a face value of 4 kopecks per paper publicly. The company’s charter capital currently amounts to RUB 18.58 bln and is split into 464.504 bln common shares with a face value of 4 kopecks per share.

Pharmstandard holders approve delisting from Exchange On January 31, 2017 it was reported that shareholders of pharmaceuticals producer Pharmstandard decided in favor of termination of the public company status and of delisting of the shares from the on January 30. The company will send a notification of release from an obligation to disclose the data envisaged by the law on securities to the central bank. The Moscow Exchange suspended trading of Pharmstandard shares from November 29, 2016. The company delisted from the also in November. In October 2016, Augment Investments raised its stake in Pharmstandard to 98.12%. Augment earlier said it planned to buy 100% in Pharmstandard and make the Russian company a non-public one as it would help the company to solve strategic goals in a better way and to not depend on the market volatility. According to Pharmstandard’s documents, Augment owned 96.19% in the company in 2016, while the company’s 100% affiliate Pharmstandard-Lekarstva had a 3.8% stake.

Glencore may not seek a seat in Rosneftэs board On February 1, 2017 a source close to oil major stated that Glencore was not interested in a seat in the board of directors of oil major Rosneft. In December, Glencore and the Qatar Investment Authority (QIA) bought a 19.5% stake in Rosneft for RUB 692 bln, which is now held by the companies’ 50-50% joint venture QHG Shares Pte. Ltd., registered in Singapore. The sources were unaware of QIA plans to propose its nominees, and a spokesperson for the authority and the Energy Ministry declined to comment. A Rosneft executive stated that the new shareholders would be represented in the board in a proper manner. All candidates to the company’s board must be nominated by early March, according to the rules. QHG Shares Pte. Ltd. is the third largest shareholder after Rosneftegaz and BP. Sergei Vakhrameyev, a manager of GL Asset Management, said that BP was likely to obtain two seats in the board. He added that QHG Shares may also get two seats, if it has a sufficient number of votes.

Detsky Mir’s IPO completely covered with bids On February 1, 2017 a banking source stated that Russia’s largest children goods retailer completely covered the basic volume of its initial public offering (IPO) with bids. On January 26, Detsky Mir said that multi-industry holding Sistema and other shareholders would float up to 247.9 mln shares of the company. The offer accounts for about 33.55% of Detsky Mir’s capital, with the price range of RUB 85-105 per paper, which corresponds to the offering amount of RUB 21.1 bln – RUB 26 bln and to a valuation of the company from RUB 62.8 bln to RUB 77.6 bln. Detsky Mir plans to float the shares on February 10. Currently, Sistema owns 72.6% in the retailer, the Russia-China Investment Fund has 23.1%, and top managers of the retailer have 3.78%. According to the IPO prospectus, Sistema plans to sell 166.814 mln shares, or a 22.57% stake in the company and raise RUB 14.2-17.5 bln by cutting its stake to 50% plus one share. The fund may sell 73.9 mln shares, or 10% for RUB 6.3-7.8 bln by cutting the stake to 13.1%. Top managers will also sell part of their shares.

MTS widens price range for buyback to RUB 270-290 per share On February 1, 2017 it was reported that MTS, one of Russia’s leading mobile operators, widened the price range in a share buyback to RUB 270-290 from RUB 253-283. The company also announced that the tender offer in respect to American depositary shares (ADSs) was extended, in accordance with applicable rules and regulations governing tender offers, until 11:59 p.m., time, on February 14, unless further extended or terminated. The tender offer for ADSs was previously scheduled to expire at 5 p.m., New York City time, on February 14. The tender offer for the common stock will expire, as before, at 10 a.m. on February 15. MTS is ready to buy back common shares for up to RUB 4.647 bln from minority shareholders. The proportional part of the stock will be also bought back from MTS’s core shareholder, multi-industry holding Sistema. The ongoing offer is a second round of MTS’ buyback program with the first ended in December 2016, when the operator purchased shares from minority holders for RUB 345.8 mln and from Sistema for RUB 355.1 mln. MTS said earlier it could buy back shares from the market for up to RUB 10 bln.

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Source says Russia’s TMK SPO bid book oversubscribed On February 2, 2017 a banking source stated that the bid book for a secondary public offering of Russian oil and gas pipe producer TMK was oversubscribed under the current guidance range. The company guided investors for a pre-market placement price of RUB 74.5 per security. The bid book will be closed at 7.00 p.m. Moscow time on February 7. On January 31, TMK said it launched an SPO to offer up to 139,000 mln common shares corresponding to 13.44% of the company’s capital. The company’s subsidiary Rockarrow Investments Limited will sell the shares, and TMK will spend the collected money to buy back its shares from VTB Bank under an option according to an agreement with the bank. The buy-back volume will not exceed funds raised in the SPO. , , VTB Capital and Aton act as organizers of the placement.

Transneft says 3-4 companies interested in buying NCSP shares On February 2, 2017 Nikolai Tokarev, CEO of shareholder , stated that three to four companies were interested in purchasing shares of Novorossiysk Commercial Sea Port (NCSP). Multi-industry Summa Group and oil pipeline monopoly Transneft own 50.1% in NCSP on a parity basis, and Transneft controls 10.5% more in the company on its own. The Federal State Property Management Agency owns 20% and affiliates of Russian Railways own 5.3%. The government plans to privatize the agency’s stake in NCSP in 2017.

Dividends/coupons Russian Grids not to take loans to pay 50% of profit in dividends On February 1, 2017 Renaissance Capital said in a research note following a meeting of power utility Russian Grids with investors that the utility was ready to pay 50% of its net profit in dividends if this was stipulated by the government and had no plans to take loans to bring this together with the investment needs. The company does not know yet the amount of dividends which it will receive from its affiliates, which is why it will decide on its dividends after seeing financial results for January-March. Two other participants of the meeting stated that Russian Grids expects the total debt to fall 4.6% to RUB 557 bln in 2016. The company refinanced RUB 237 bln of loans in 2016 and the weighted average interest rate was reduced by 2.6 percentage points to 8.9%. The company’s net profit is expected to be at least at the level of 2015 in 2016, profitability and earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to grow. Renaissance Capital said that Russian Grids’ refinancing plan for 2017 amounts to RUB 75 bln. Half of the debt is in banking loans, another half in bonds. The debt to EBITDA ratio is expected to be below 3, at about 2.

Severstal board recommends RUB 23 bln in October-December 2016 dividends On February 1, 2017 the board of directors of Russian steelmaker recommended paying RUB 27.73 per share, or around RUB 23.23 bln, in dividends for October-December 2016. The shareholders will consider the recommendation at an annual general meeting on June 9. The register for the meeting will be closed on May 15. Severstal paid RUB 20.27 per share in dividends for October-December 2015. In 2016, the company paid RUB 8.25 per share, or a total of RUB 6.91 bln, in dividends for January-March, RUB 19.66 per share, or a total of RUB 16.47 bln, in dividends for April-June, and RUB 24.96 per share, or a total of RUB 20.91 bln, in dividends for July-September. , chairman of the board of directors, indirectly holds 79.2% in Severstal. The company paid a total of RUB 49.32 bln in dividends for 2015.

Eurobonds / DRs places USD 600 mln Eurobonds at 5.125% On January 27, 2017 a banking source stated that Russian aluminum giant UC RUSAL was placing USD 600 mln 5-year Eurobonds at 5.125%. The initial yield guidance stood at around 5.375% annually and was later lowered to 5.25% and then to 5.125-5.25%. The bid book was oversubscribed almost twice. A source close to the placement said that at the initial guidance the bid book stood at around USD 2 bln. He added that the offering would be completed soon. The banking source said that 19.5% of the total bids were submitted by Russian investors, 27% by investors from continental Europe, 17.5% from the U.K., 19% from the U.S., 15.5% from Asia, and 1% from the Middle East. RUSAL held meetings with investors in Europe, North America, and Asia in the period from January 20 through January 25. J.P. Morgan, Credit Agricole, Citi, Credit Suisse, Gazprombank, ING, Raiffeisen Bank International, Sberbank CIB, Renaissance Capital,

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SG, UBS, UniCredit Bank, and VTB Capital act as the placement’s organizers. RUSAL said it plans to use proceeds from the Eurobond placement to refinance existing loans.

Nordgold confirms possibility of delisting of GDRs from LSE On January 31, 2017 it was announced that gold producer Nordgold, more than 90% controlled by Russian tycoon Alexei Mordashov, might delist its global depositary receipts (GDRs) from the London Stock Exchange (LSE). On January 30, Kommersant business daily reported citing industry sources that Nordgold might buy minorities’ stakes or delist its shares from the LSE as it thinks that the shares are undervalued, and there is no rotation of papers among key minorities, which could increase the liquidity of shares. The board of directors continues to consider options for maximizing shareholder value, including a potential delisting of the company’s global depositary receipts, although no decision is taken and there is no certainty that the company will delist. The company will keep the market updated.

Polyus sells USD 800 mln 6-year Eurobond at 5.25% On February 1, 2017 a banking source said that Russian gold producer had sold USD 800 mln of six- year Eurobonds at a yield of 5.25%. Initially, the company set the yield guidance in a 5.25%-5.5% range, but during bookbuilding it was lowered to 5.1-5.25%. Demand for Eurobonds reached USD 1.7 bln. The company held a road show on January 27-30 in Europe and the U.S.; Alfa Capital Markets, Gazprombank, J.P. Morgan, Renaissance Capital, Sberbank CIB and VTB Capital were appointed as the organizers of the series of meetings and the placement. Jersey-registered Polyus Gold International will act as the issuer of securities. The previous placement of Eurobonds was done in October 2016, when the company sold USD 500 mln of 5-year Eurobonds with a yield of 4.7%.

Alfa-Bank plans London road show of ruble Eurobond February 7, 2017 On February 2, 2017 a banking source stated that Alfa-Bank plans to hold a road show of ruble-denominated Eurobond in London on February 7. The circulation of the Eurobonds may be set at up to five years depending on market conditions of the placement. J.P. Morgan and Alfa-Bank will organize the road show and the possible placement.

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 Moscow Times“ newspapers, and others.

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