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LSE & MICEX Stock Exchanges Russian Ipos – Our Case Study

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LSE & MICEX Stock Exchanges Russian Ipos – Our Case Study LSE & MICEX Stock Exchanges Russian IPOs – Our Case Study Mark A. Gyetvay, Chief Financial Officer and Member of the Board of Directors 1-2 March 2006, MICEX Stock Exchange, Moscow, Russian Federation Our preparation for the capital markets 2 History of NOVATEK 1St private Formation of AOOT FIK New field placement of NOVAFININVEST developments drive Novatek shares Creation of Tarkosaleneftegas significant production growth First oil production IPO Privatisation of 100% of YNG Restructuring: Buyout of Kuibyshevtruboprovo Formation of acquired by Itera’s minorities in dstroy and creation of Khancheyneftegas NOVATEK TSNG and KhNG Disposal OАО SNP NOVA shareholders of non-core assets 1994- 1998- 1991 1993 1994 1998 1999 2000 2001 2003 2004 2005 2003 2004 Creation of Commencement Yurkharovneftegas New corporate name: of joint activities OAO NOVATEK with PNGG First gas production at East- Tarkosalinskoye YNG acquired by NOVATEK Stake in PNGG gradually Acquisition of nd built with control acquired Truboizoliatsya Shareholders start 2 private in 2001; minority stake consolidating interest placement of owned by subsidiary of in NOVAFININVEST – Novatek shares Gazprom in ’97-’04 current shareholder structure emerges Disposal of Gbent Tambey & Selkup 3 Key issues driving organizational restructuring The Group’s new Impending changes in business strategy Higher shareholder the Russian expectations and natural gas sector enhanced transparency Necessity to change: Corporate structure Reporting and Governance 4 Rationale for change Russian companies must effectively compete for limited capital in today’s global markets Through …… 9 Transparent ownership structure of assets 9 Adoption of best practices 9 Timely reporting of financial and operational results 9 Oversight and accountability at the Board level For …… 9 Investment and development requirements 5 Simple and transparent corporate structure Simplified corporate structure and improved transparency Pre-restructuring and IPO Post-restructuring and IPO NOVATEK Shareholders NOVATEK Shareholders Creation of distinct strategic business units to reflect core nature of business 32,3% 11% Tarkosaleneftegas Mangaseya Processing/ UPSTREAM DOWNSTREAM 43% 52,2% Midstream Khancheyneftegas Truboisolyatsya 100% 79% 88% 100% 100% Purneftegasgeologia Nova-Bank Yurkharovneftegas Nova ZPK NovaKhim 34% 100% Selkupneftegas Other Tarkosaleneftegas 100% 14% 80.6% ~99.% Holding Co. Purneftegasgeologia NovaTrans Novatek-Polimer Construction 100% business 100% Yurkharovneftegas Terneftegas Services 66% 41% Yargeo Geoilbent Media Consolidation of core asset base to 40% 50% improve operational efficiencies Nakhodkaneftegas Telecommunications Novasib and financial transparency 6 Our commitment to Corporate Governance Objectives NOVATEK policy 9 Quarterly IFRS accounts Transparency 9 International audits by PwC, reserves appraisal by D&M from 1997 9 Commitment to higher levels of disclosure via international listing 9 Full consolidation of core fields 9 OAO NOVATEK operating as a profit center Integrity of P&L 9 Plan to establish a fully-owned export trader by year-end 9 Independent Auditor + Audit Committee 9 LSE and domestic Russian listing (MICEX and RTS) Shareholder rights 9 Independent directors (3 out of 8 members) protection 9 Establishment of Corporate Governance Policies and Procedures 9 Focus on core upstream business, сorporate reorganization and Efficient capital divestiture program of non-core assets allocation 9 Dividend policy to balance investment opportunities with returning cash to shareholders Minimization of 9 Depository receipt program: Deutsche Bank Trust Co. Americas infrastructure risks 9 Independent registrar: National Registration Company (NRK) 7 Our investment case 8 Leveraging our intrinsic business model strengths Supportive macro and regulatory fundamentals Organic growth Consolidation platform based on achieved ample reserves Simple group and Enduring cost operating advantage and structure capital efficiency High standards of Superior corporate profitability and governance and cash flow transparency generation Experienced Clear business management and strategy and committed prudent financial shareholders management Low debt, strong liquidity, significant flexibility 9 Our capital market activities – case study 10 Landmark transaction for Russia One of the largest IPO of a Russian issuer, the first IPO of a Russian independent gas producer and the first Russian issuer under new UKLA requirements (effective 01.07.05) Morgan Stanley and UBS: Joint Global Coordinators Morgan Stanley, UBS and CSFB: Joint Lead Managers and Joint Bookrunners Troika Dialog: Co-Lead Manager Alfa Capital Markets and Vnesheconombank: Co-Managers The transaction priced at US$ 966 million (including 10% greenshoe option) and the book was more than thirteen times oversubscribed. The GDR’s priced at the top of the US$ 14.75 – 16.75 price range Novatek considered a must own stock in Russian portfolios and a pure play on the Russian gas market Compelling investment Experienced A rare play on Critical size of Attractive case supported by management the Russian the offering market outstanding growth team gas market fundamentals potential Ground breaking Russian deal 11 Transaction overview timetable Schedule of key transaction items March April May June July Week of 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27 4 11 18 25 Kick off meeting Preparation of IFRS accounts FY 2004 & 1Q 05 IFRS accounts published Business plan & valuation work Business, legal & financial due diligence Prospectus drafting Filings with the UK UKLA review period Analyst presentation Research report preparation Research report published (outside US) Analyst investor education Setting of price range (7 July) Printing and distribution of prelim. Prospectus (7 July) Management road-show / book building Pricing & allocation Printing and distribution of final prospectus Closing (July 26) Source: UBS Investment Bank 12 Management roadshow Management conducted 56 One-on-One meetings with investors as well as a series of group meetings and conference calls in primary investment centers - Moscow, London, New York, San Francisco, Boston, Frankfurt and Rotterdam Roadshow schedule Summary of meetings # of Conversion Company Meetings Ratio (%) 8 July Moscow 1 UK 20 100 2 11 July London USA 24 92 3 12 July London Europe 13 78 4 13 July New York Overall conversion ratio > 90 5 14 July New York 1 Other Russian IPO’s 6 15 July San Francisco Evraz-Holding 53 7 18 July Boston 2-3/ 9 8 Pyaterochka 61 8 19 July London 9 Sistema 75 9 20 July Frankfurt/Rotterdam Mechtel Steel 67 7 Source: UBS Investment Bank 7 4-5 13 NOVATEK trading performance pre-IPO 155 7-Jul-05 2.0 Price range set 1.8 145 22-Jun-05 Novatek trading volume (000' shares) volume trading Novatek Announcement to float (IPO) 1.6 with LSE listing, syndicate 135 20-Jul-05 research published Pricing 1.4 1.2 125 1.0 Indexed 115 0.8 105 0.6 0.4 95 0.2 85 0.0 03 Jan 05 25 Jan 05 16 Feb 05 10 Mar 05 01 Apr 05 25 Apr 05 17 May 05 08 Jun 05 30 Jun 05 22 Jul 05 Novat ek Volume Novatek Russian O&G Composite² International Gassy Composite³ RTS Gazprom Notes: 1 As of 23 July 2005 2 Includes: Lukoil, Sibneft, Surgutneftegas 3 Includes: Burlington Resources, XTO Energy, Chesapeake Energy, Encana, Quicksilver Resources, Bill Barrett, BG Novatek shares rallied approximately 39% over the marketing period of the IPO – +15% since announcement of price range, over the bookbuilding period – +39% since the announcement of the IPO, over the marketing period 14 Book summary Limited price sensitivity across the price range and an extremely well covered book representing the largest ever demand for a Russian IPO Summary of final book of demand Total demand @ US$ 16.75 per GDR 681,581,020 Coverage @ US$ 16.75 per GDR (excl. Greenshoe) 13x Demand build up day-by-day (at mid point of range) Demand at price 12,000 800 10,777 10,786 700 10,000 600 8,000 500 6,150 6,000 400 300 GDRs (million) GDRs 4,000 3,605 Tot al demand (US$m) 2,497 200 1,818 2,000 1,183 100 Offer size, 680 incl. 445 greenshoe0 US$966m 8 July 11 July 12 July 13 July 14 July 15 July 18 July 19 July 20 July 14.75 15.00 15.25 15.50 15.75 16.00 16.25 16.50 16.75 (US$/GDR) Source: UBS Investment Bank Source: UBS Investment Bank 15 IPO allocation Demand build up Allocation by geography Allocation by demand type 100 Ro W Ru ssi a 14% 14% Global EMEA 80 16% 12% Germany 60 6% 40 Top 10 investors = 90% of the offering Top 20 investors = 100% of the offering % of offer % of Pan- 20 UK 33% GEMS Euro 0 US 36% 36% 0 100 200 300 400 33% No. of investors Source: UBS Investment Bank Source: UBS Investment Bank Source: Morgan Stanley 9 High quality investors declared interest early on and placed sizeable orders before meeting management 9 Early demand covered the book in the first two days of the roadshow supported by Russian dedicated funds generating critical mass 9 Large orders and oversubscription resulted in the book closing two days early 9 Thirteen times coverage from a good mix of Russian dedicated funds, global funds and sector specialists 16 Evolution of new investors in Russian IPO’s Novatek received 30 orders for over US$ 100 MM compared to nil for the other issuers Russian IPO orders over US$ 10MM 2002 2005 200 51 150 8 8 53 2005 Expansion 100 191 71 50 0 LUKOIL Sistema Pyaterochka Evraz Novatek Total Source: Morgan Stanley 17 First Russian IPO to price at the top range Novatek has demonstrated the strongest performance among recent Russian deals Price ranges and
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