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RUSSIAN FIXED INCOME MONTHLY № 03, 2005 published March 4th, 2005

Cbonds News Agency, Russia, St. Petersburg Prepared by Igor Sazonov E-mail: [email protected]

Russia’s fixed income monthly №03, 2005

TABLE OF CONTENTS

Monthly Tables ...... 3 Top News...... 12 Early Debt Repayment: Save Money Keeping An Eye On Rating Upgrade’s Costs ...... 12 External Debt Market ...... 14 Initial placements ...... 14 Sberbank Followed VTB and Issued Subordinated Debt ...... 14 Issue upsizes...... 18 Market performance ...... 18 Issues to come ...... 20 Gazprom: 3 Issues For The Next 10 Months...... 20 Domestic Debt Market...... 23 New Changes to Federal Law on Security Market Approved by Duma...... 23 CBR To Lower Reserve Requirements For Non-Residents’...... 23 GKO-OFZ market ...... 23 Municipal bond market ...... 24 Corporate bond market...... 25 Issues to come ...... 27 GKO-OFZ ...... 27 Municipal ...... 27 Moscow City Plans To Borrow RUR8.5 bln in March and RUR35.3 bln in 2005; 15-year Issue Is On Agenda ...... 27 Corporates ...... 28 Ratings...... 31 Essential ratings actions on Russia’s issuers: Feb 2005 ...... 31 Municipals...... 33 Corporates ...... 35

2 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Monthly Tables

Table #1 Russia's eurobond market sectors volumes (at par, USD* mln) 28.02.2005 31.01.2005 31.12.2004 Total volume of Russian eurobonds outstanding 70504 69208 67716 Sovereign eurobonds 43270 43257 43295 Corporate eurobonds 26210 24942 23366 Municipal eurobonds 1024 1009 1055 EURO/USD cross exchange rate 0.7556 0.7673 0.7339 * other than USD denominated eurobonds are recalculated to USD

Table #2 Monthly eurobond placements, upsizes and redemptions Eurobond placements Eurobond redemptions Amount at par Coupon, % Amount at par Issuer (mln) Issuer (mln) Rosbank (upsize) USD 75 9.750% ММК (EUR)* USD 132.35 Sberbank (init. placement&upsize) USD 1 000 6.230% Vimpelcom USD 300 8.000% MBRD USD 150 8.625%

Total* USD 1 525 Total* USD 132 * in USD equivalent

Table #3 JP Morgan EMBI+ spreads Jan 31st, Dec 29th, Change 2004 2004 (bps) EMBI+ 343 366 -23.00 EMBI+ Russia 179 205 -26.00 EMBI+ Ukraine 164 192 -28.00 EMBI+ Argentina 4980 5129 -149.00 EMBI+ Brazil 393 418 -25.00 EMBI+ Bulgaria 62 73 -11.00 EMBI+ Colombia 344 365 -21.00 EMBI+ Egypt 59 98 -39.00 EMBI+ Mexico 153 162 -9.00 EMBI+ Morocco 167 179 -12.00 EMBI+ Nigeria 639 728 -89.00 EMBI+ Panama 273 307 -34.00 EMBI+ Peru 211 239 -28.00 EMBI+ Philippines 399 435 -36.00 EMBI+ Poland 42 48 -6.00 EMBI+ Turkey 237 281 -44.00 EMBI+ Venezuela 437 461 -24.00 EMBI+ South Africa 80 94 -14.00 EMBI+ Latin America 419 439 -20.00 EMBI+ Ecuador 632 644 -12.00

3 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Table #4 Expected eurobond issues Expected placement/ № Issuer Currency Expected amount Lead(s) roadshow date 2 OMZ (CLN) 1H 2005 USD 100 mln 3 Rusal 1H 2005 USD 200-300 mln programme worth USD400 mln 2005 USD UBS, Merrill Lynch 4 Alfa Bank (EMTN) (USD340 mln already been placed) ABN Amro,Deutsche 2005 USD 150 mln 5 Bank of Moscow Bank,Depfa Bank USD1.9 bln (programme worth USD, USD5 bln, 2 tr worth EURO1 bln 2005 Deutsche Bank, UBS EURO and USD1.2 bln already been 6 Gazprom (ETMN) placed) 7 Gazprombank 2005 8 Evrazholding 2005 USD 9 Lukoil 2005 USD 500 mln 10 MDM Bank 2005 USD 200-300 mln 11 Rosbank 2005 USD 150 mln 12 Perekrestok 2005 USD 13 Sovcomflot 2006-2006 USD 300 mln 14 Razgulyaj-Ukrros 2005-2006 USD 150-200 mln Mar-Apr 15 City of Moscow 2006 EURO 410 mln 16 Transcreditbank early 2006 USD 100 mln

4 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Table #5 Russian eurobonds quotes Issuer Maturity date Price Yield, Yield, Change end Jan end Dec Aries, 14 25.10.2014 123.87 6.22% 6.30% -0.07% ALROSA, 08 06.05.2008 105.12 6.21% 6.81% -0.60% ALROSA, 14 17.11.2014 106.12 7.90% 8.30% -0.40% Alfa-Bank, 05 19.11.2005 104.00 4.56% 5.52% -0.96% AFK Sistema, 08 14.04.2008 108.38 7.11% 7.21% -0.10% AFK Sistema, 11 28.01.2011 104.50 6.18% 6.82% -0.64% Zenit Bank, 06 12.06.2006 101.48 8.15% 8.25% -0.10% Bank of Moscow, 09 28.09.2009 104.25 6.83% 7.02% -0.19% Petrocommerce Bank, 07 09.02.2007 103.50 5.54% 8.04% -2.50% Russian Standard bank, 07 LPN 02.04.2007 101.50 6.93% 7.57% -0.64% WBD, 08 21.05.2008 101.50 7.87% 8.14% -0.27% VTB, 08 11.12.2008 104.70 5.40% 5.35% 0.05% VTB, 11 12.10.2011 107.00 6.12% 5.91% 0.21% VTB, 15 04.02.2015 99.63 6.34% Vimpelcom, 05 26.04.2005 100.87 3.80% 2.96% 0.84% Vimpelcom, 09 16.06.2009 108.88 7.45% 8.12% -0.67% Vimpelcom, 10 11.02.2010 101.25 7.60% Vimpelcom, 11 22.10.2011 101.88 7.97% 8.39% -0.42% Gazprom, 07 25.04.2007 108.50 4.77% 4.81% -0.04% Gazprom, 09 29.10.2009 118.37 5.88% 5.80% 0.08% Gazprom, 10E 27.09.2010 113.00 5.05% 4.96% 0.09% Gazprom, 13 01.03.2013 119.20 6.48% 6.51% -0.03% Gazprom, 20 01.02.2020 106.10 5.98% 6.01% -0.03% Gazprom, 34 28.04.2034 117.50 6.07% 7.18% -1.11% Gazprombank, 05 04.10.2005 104.00 1.95% 2.56% -0.61% Gazprombank, 08 30.10.2008 105.00 5.56% 5.76% -0.20% Evrazholding, 06 25.09.2006 103.20 6.41% 4.11% 2.30% Evrazholding, 09 03.08.2009 110.75 7.87% 8.66% -0.79% Nikoil, 06 06.07.2006 101.00 7.46% 7.71% Nikoil, LPN 19.03.2007 102.16 7.61% 7.95% -0.34% MDM Bank, 05 16.12.2005 103.88 5.28% 6.32% -1.04% MDM Bank, 06 (LPN) 23.09.2006 103.63 6.74% 7.61% -0.87% Megafon 02.12.2009 101.25 7.58% 0.0802 -0.44% MinFin, 05 14.05.2008 93.44 5.10% 5.18% -0.08% MinFin, 06 14.05.2006 98.50 4.24% 4.39% -0.15% MinFin, 07 14.05.2011 85.87 5.77% 5.80% -0.03% MinFin, 08 14.11.2007 95.90 4.87% 4.87% 0.00% ММК, 08 21.10.2008 103.00 6.89% 7.42% -0.53% City of Moscow, 06 28.04.2006 108.50 2.97% 2.99% -0.02% City of Moscow, 11 12.10.2011 109.30 4.71% 4.81% -0.10% Mobile Telesystems, 08 30.01.2008 108.13 6.53% 6.67% -0.14% Mobile Telesystems, 10 14.10.2010 105.25 7.14% 7.43% -0.29% Mobile Telesystems, 12 28.01.2012 102.13 7.55% 7.81% Nizhnii Novgorod Region, 07 03.04.2005 99.99 29.03% NOMOS, 07 13.02.2007 102.42 7.59% 8.03% -0.44% NorNickel, 09 30.09.2009 99.00 7.29% 7.68% -0.39% Rosneft, 06 20.11.2006 112.81 4.79% 4.77% 0.02% Russia, 05 24.07.2005 102.00 3.45% 3.01% 0.44% Russia, 05DEM 31.03.2005 100.55 1.28% 2.50% -1.22% Russia, 07 26.06.2007 111.94 4.43% 4.49% -0.06% Russia, 10 31.03.2010 110.00 4.63% 4.70% -0.07% Russia, 18 24.07.2018 144.38 6.08% 6.28% -0.20% Russia, 28 24.06.2028 170.50 6.68% 6.83% -0.15% Russia, 30 31.03.2030 105.75 6.19% 6.27% -0.08% Sberbank FRN, 06 24.10.2006 101.25 2.01% 3.20% -1.19% Sberbank, 15 11.02.2010 99.80 6.22% Severstal, 09 24.02.2009 103.62 7.46% 8.12% -0.66% Severstal, 14 19.04.2014 105.06 8.38% 8.97% -0.59% Sibneft, 07 13.02.2007 108.25 6.68% 6.69% -0.01% Sibneft, 09 01.01.2009 110.50 7.45% 7.68% -0.23% TNK, 07 06.11.2007 113.19 5.59% 5.57% 0.02% Ural-Siberian Bank, 06 06.07.2006 101.00 7.46% 7.69% -0.22% HCFB, 08 04.02.2008 103.14 7.73% 8.26%

5 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Table #6.1 Outstanding Russian eurobond issues Issuer Currency Amount Maturity date Coupon Coupon outstanding, period mln (times p.a.) Sovereign eurobonds Russia USD 20 308 31.03.2030 2,25 - 7,5% 2 Russia USD 3 122 31.03.2010 8.250% 2 Russia USD 3 466 24.07.2018 11.000% 2 Russia USD 2 969 24.07.2005 8.750% 2 Russia USD 2 500 24.06.2028 12.750% 2 Russia EURO 639 31.03.2005 9.375% 1 Russia USD 2 400 26.06.2007 10.000% 2 MinFin USD 2 837 14.05.2008 3.000% 1 MinFin USD 1 750 14.05.2006 3.000% 1 MinFin USD 1 750 14.05.2011 3.000% 1 MinFin USD 1 322 14.11.2007 3.000% 2 Corporate eurobonds Ritzio Group USD 45 23.12.2005 12.75% 2 AvtoVAZ (CLN) USD 150 Sept 2005 11.75% 2 Alfa Bank USD 175 19.11.2005 10.750% 2 Alfa Bank USD 50 3 and 6 months papers zero-coupon Alfa Bank USD 120 3 months -1 year zero-coupon Alfa Bank (ETMN 1 tr.) USD 190 Apr 06 8.000% Alfa Bank (ETMN 2 tr.) USD 150 Jan 07 7.750% Alrosa USD 500 06.05.2008 8.126% 2 Alrosa USD 500 17.11.2014 8.875% 2 Zenit Bank USD 125 12.06.2006 9.250% 2 Bank of Moscow USD 250 28.09.2009 8.000% 2 Petrocommerce Bank USD 120 09.02.2007 9.000% 2 Russia Standard (LPN) USD 30 28.05.2005 11.000% 2 Russia Standard (LPN) USD 300 02.04.2007 8.750% 2 Russia Standard (LPN) USD 300 28.09.2007 7.800% 2 TRUST (CLN) USD 100 1 year 2 TRUST (CLN) USD 200 3 years 2 Ural Siberian Bank USD 140 06.07.2006 8.875% 2 WBD USD 150 21.05.2008 8.500% 2 VTB (FRN) USD 325 01.04.2005 3-mLibor+200 bps 4 VTB (FRN) USD 300 27.07.2007 3-mLibor+290 bps 4 VTB (FRN) USD 350 22.06.2006 3-mLibor+135 bps 4 VTB USD 550 11.12.2008 6.875% 2 VTB USD 450 12.10.2011 7.500% 2 VTB USD 750 04.02.2015 6.315% 2 Volgatanker (CLN) USD 120 16.08.2007 9.250% 2 Vimpelcom USD 250 26.04.2005 10.450% 2 Vimpelcom USD 450 10.06.2009 10.000% 2 Vimpelcom USD 300 11.02.2010 8.000% 2 Vimpelcom USD 300 22.10.2011 8.375% Gazprom USD 500 25.04.2007 9.125% 2 Gazprom USD 700 21.10.2009 10.500% 2 Gazprom USD 1750 01.03.2013 9.625% 2 Gazprom EURO 1000 27.09.2010 7.800% 1 Gazprom USD 1250 01.02.2020 7.201% 2 Gazprom USD 1200 28.04.2034 8.625% 2 Gazprombank EURO 150 20.09.2005 9.750% 1 Gazprombank USD 1050 30.10.2008 7.250% 2 Evrazholding USD 175 25.09.2006 8.875% 2 Evrazholding USD 300 03.08.2009 10.875% 2 Kopeyka (CLN) USD 40 03.04.2006 12.000% 2 MBRD USD 150 01.03.2008 8.625% 2 MDM Bank USD 200 16.12.2005 10.750% 2 MDM Bank (ECP) USD 160 3-12 months 2 MDM Bank USD 200 23.09.2006 9.375% 2 Megafon USD 375 01.12.2009 8.000% 2 ММК USD 300 21.10.2008 8.000% 2 ММК USD 150 30.06.2008 4.375% 2 Moscow Narodny Bank USD 200 01.09.2007 3mLibor+180 bps 2 Moscow Narodny Bank EURO 50 07.12.2008 Euribor+120 bps 1 Mobile Telesystems USD 400 30.01.2008 9.750% 2 Mobile Telesystems USD 400 14.10.2010 8.375% 2 Mobile Telesystems USD 400 01.01.2012 8.000% 2 Nikoil USD 150 19.03.2007 9.000% 2 NOVATEK USD 100 01.09.2005 9.125% 2 NOVATEK USD 200 16.06.2006 7.750% 2 NOMOS-Bank USD 125 13.02.2007 9.125% 2 NorNickel USD 500 30.09.2009 7.125% 2

6 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Table #6.2 Outstanding Russian eurobond issues (continuation) Issuer Currency Amount Maturity date Coupon Coupon outstanding, period mln (times p.a.) Corporate eurobonds Promsvyazbank USD 100 27.10.2006 10.250% Razgulay Group (CLN) USD 50 29.03.2005 11.500% 2 Rosbank USD 300 24.09.2009 9.750% Rosneft USD 150 20.11.2006 12.750% 2 Salavatnefteorgsyntez (CLN) USD 40 02.04.2007 8.875% 2 Salavatnefteorgsyntez (CLN) USD 50 28.04.2008 8.750% 2 Sberbank USD 1000 24.10.2006 3mLibor+175 bps 4 Sberbank USD 1000 11.02.2015 6.230% 2 Severalmaz USD 150 09.03.2006 8.875% 2 Severstal USD 325 24.02.2009 8.625% 2 Severstal USD 375 19.04.2014 9.250% 2 Severstaltrans (CLN) USD 110 16.03.2006 9.500% 2 Sibneft USD 400 13.02.2007 11.500% 2 Sibneft USD 500 15.01.2009 10.750% 2 Sistema USD 350 14.04.2008 10.250% 2 Sistema USD 350 28.01.2011 8.875% 2 TNK USD 700 06.11.2007 11.000% 2 HCFB USD 150 04.02.2008 9.125% 2 Municipal eurobonds City of Moscow EURO 400 28.04.2006 10.950% 1 City of Moscow EURO 374 12.10.2011 6.450% 1

7 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Table #7 Russia's domestic financial markets volumes (RUR, mln) 28.02.2005 31.01.2005 30.12.2004

GKO-OFZ market volume (at par) 595 770 570 730 557 560 Domestic corporate debt market volume (at par, placed issues) 259 038 255 138 257 303 - non-financial companies 218 063 214 163 213 913 - banks and financial companies 40 975 40 975 43 140 Number of issues 200 199 201 Number of issuers 170 168 171 Municipal bond market volume 132 351 126 545 128 249 Non-financial companies issues/ bank credits to enterprises, % (estimation) 7.2% 7.3% 7.4% RUX Cbonds Index 172.97 170.28 168.60

Table #8 Russia's domestic debt markets turnovers (RUR, mln) 28.02.2005 31.01.2005 30.12.2004 GKO-OFZ (CBR data) 13 902.9 6 545.6 50 097.4 Municipal domestic bonds (exchange market, Cbonds data) 57 423.9 23 978.3 36 981.9 Municipal domestic bonds (OTC market, NDC data) 15 829.0 28 737.2 Corporate domestic bonds (exchange market) 70 296.6 31 621.3 52 345.3 Corporate domestic bonds (OTC market, NDC data) 25 368.9 56 508.7 Corporate domestic bonds, total turnover 56 990.2 108 853.9 Domestic corporate bond market velocity (monthly turnover / issues amount) 22.3% 42.3%

8 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Table #9 Domestic corporate bond placements and redemptions Bond Placements Bond Redemptions Amount at par Amount placed Demand on Number Amount at par Issuer (RUR) (RUR) auction (RUR) of Bids Issuer (RUR) Gazprom 4s 5 000 000 000 5 000 000 000 10 300 000 000 77 MGTS 3s 1 000 000 000 Baltic Finance Agency 2 000 000 000

Total 5 000 000 000 5 000 000 000 10 300 000 000 77 Total 3 000 000 000 * Only issues with the size more than RUR1bln (USD 30 mln) are included

9 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Table #10 Expected corporate RUR bonds issues Issuer Expected Expected Leads Current issue status placement issue amount № date (RUR) 1 Russian Standard Bank Mar 1, 2005 3 000 000 000 Gazprombank Registered 2 North West Telecom Mar 3, 2005 3 000 000 000 Web Invest Bank, Svyazbank Registered 3 Russian Textile Alliance Mar 10, 2005 1 000 000 000 Transcreditbank Registered Registered 4 Ak Bars Bank 2s Mar 2005 1 500 000 000

5 Rusagro Group Mar 2005 1 000 000 000 Sberbank Registered 6 Impexbank 2s Mar 2005 1 000 000 000 Impexbank Registered 7 LenspetsSMU Mar 2005 1 000 000 000 Bank of Moscow Registered 8 Tatenergo Mar 2005 1 500 000 000 Zenit Bank Registered Registered 9 Uralsvyazinform 5s Mar-Apr 2005 2 000 000 000 ICB, Rosbank Avangard Bank Registered 10 Apr 2005 Avangard Bank 1 000 000 000 Registered 11 East Line Handling 1Q 2005 3 000 000 000 VTB 12 Mirax Lenstroimontazh spring 2005 1 000 000 000 Planeta Capital Registered 13 SOK Avtokomponent spring 2005 1 100 000 000 Soyuz Bank Registered 14 Nizhnekamskneftekhim 4s 1H 2005 1 500 000 000 MDM Bank, IC Troika Dialog Registered 15 Baltimor-Neva 2005 1 000 000 000 NIKoil Registered 16 Voulkan Finance 2005 1 000 000 000 MDM Bank Registered 17 Gazprom 6s 2005 5 000 000 000 Rosbank and Renaissance Registered 18 LSR Group 2005 1 000 000 000 ICB, Nikoil Registered 19 GT-TETS Energo 2005 1 500 000 000 MIB Registered 20 Megafon 3s 2005 3 000 000 000 Web Invest Bank, Svyazbank Registered 21 Megafon 4s 2005 2 300 000 000 Registered 22 Megafon 5s 2005 1 500 000 000 Registered 23 RTK Leasing 4s 2005 2 250 000 000 Raiffeisenbank,TRUST Registered 24 NPO Saturn 2005 1 500 000 000 Bank of Moscow Registered Chelyabinsk Tube Rolling Raiffeisenbank Registered 25 3 000 000 000 Plant 2005 26 Incom Nedvizhimost 2005 1 500 000 000 Impexbank, Rosenergobank Suspended 27 NIKoil 2005 2 000 000 000 NIKoil Suspended 28 Soyuz Bank 2005 1 000 000 000 Soyuz Bank Suspended 29 SU-155 Capital 2005 2 500 000 000 Alfa Bank Suspended MDM Bank 30 Pipe Metallurgical Company 2005 3 000 000 000 Suspended 31 Adamant Finance 1 500 000 000 Planeta Capital The decision on the issue is 32 AVTOVAZ 5 000 000 000 The decision on the issue is 33 Zenit Bank 2 000 000 000 The decision on the issue is 34 Detskij Mir 2 000 000 000 The decision on the issue is 35 European bearing corporation 1 000 000 000 Promsvyazbank The decision on the issue is 36 Kubanenergo 1 200 000 000 The decision on the issue is 37 United Metallurgical Company 3 000 000 000 The decision on the issue is appro ed 38 PIT Investments 1 500 000 000 The decision on the issue is 39 Perekrestok TD 1 500 000 000 HSBC, VTB, Alfa Bank The decision on the issue is 40 Tinkoff Invest 1 000 000 000 The decision on the issue is 41 Pyatyorochka Finance 1 500 000 000 The decision on the issue is 42 Sibirtelecom 5s 3 000 000 000 The decision on the issue is 43 Sibirtelecom 6s 2 000 000 000 The decision on the issue is 44 Slavinvestbank 1 000 000 000 The decision on the issue is

10 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Table #11

RUX-Cbonds Corporate Index Date Index value Index YTM (%) RUX-Cbonds Index, Month Performance

173.00

172.00

171.00 28.02.2005 172.97 8.70 170.00 25.02.2005 172.80 8.72

24.02.2005 172.36 8.79 01.02.2005 03.02.2005 05.02.2005 07.02.2005 09.02.2005 11.02.2005 13.02.2005 15.02.2005 17.02.2005 19.02.2005 21.02.2005 23.02.2005 25.02.2005 27.02.2005 22.02.2005 172.59 8.76 RUX-Cbonds Index YTM Month Performance 21.02.2005 172.36 8.85

18.02.2005 172.13 8.89 9.00 17.02.2005 172.09 8.89 8.60 16.02.2005 172.11 8.86

15.02.2005 172.00 8.90 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 02. 02. 02. 02. 02. 02. 02. 02. 02. 02. 02. 02. 02. 02.

14.02.2005 171.93 8.91 01. 03. 05. 07. 09. 11. 13. 15. 17. 19. 21. 23. 25. 27.

11.02.2005 171.77 8.86 RUX-Cbonds Index, Year Period Performance

10.02.2005 171.71 8.87 172.5

09.02.2005 171.59 8.91 167.5

08.02.2005 171.46 8.94 162.5 157.5 07.02.2005 171.54 8.88 152.5 04.02.2005 171.45 8.86 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2005 2005 2005 2005 2005

03.02.2005 171.00 9.04 02. 03. 03. 04. 04. 05. 05. 06. 06. 07. 07. 07. 08. 08. 09. 09. 10. 10. 11. 11. 12. 12. 01. 01. 01. 02. 02. 28. 13. 27. 10. 24. 08. 22. 05. 19. 03. 17. 31. 14. 28. 11. 25. 09. 23. 06. 20. 04. 18. 01. 15. 29. 12. 26. 02.02.2005 170.93 9.06

RUX-Cbonds Index YTM Year Performance 01.02.2005 170.72 9.13

31.01.2005 170.28 9.40 10.50 Index increment for

8.50 the month 1.32% Index increment for 6.50 year 2005 1.58% 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2005 2005 2005 2005 2005

YTM change for the 02. 03. 03. 04. 04. 05. 05. 06. 06. 07. 07. 07. 08. 08. 09. 09. 10. 10. 11. 11. 12. 12. 01. 01. 01. 02. 02. 28. 13. 27. 10. 24. 08. 22. 05. 19. 03. 17. 31. 14. 28. 11. 25. 09. 23. 06. 20. 04. 18. 01. 15. 29. 12. 26. month, b.p. -36

11 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Top News

Early Debt Repayment: Save Money Keeping An Eye On Rating Upgrade’s Costs

Russian President Vladimir Putin spoke for early repayment of the country’s external debt totalling USD115 bln. “The economic expediency of repaying it as soon as possible is obvious”, - the President said at the meeting with Russian Finance Minister Aleksey Kudrin.

The Finance Minister noted that the average level of interest rates for servicing the debt amounts to 7-13 percent. “These credits were taken out in the times that were difficult for Russia,” said Kudrin. “The cost of its servicing is three to four times higher than in the G-7 countries. Up to USD7 billion are spent annually on servicing Russia’s external debt.” Answering this Putin said that “it is economically advisable to pay off the debt as soon as possible”.

The Russian Finance Minister also said that using the assets from Stabilization Fund to pay off the external debt will allow to take the load off the future budgets and to save extra money not having to pay interest rates. “From the every $10 billion of repaid debt we will be able to save from $700 million to $1.3 billion,” Kudrin said.

To begin with, Russia repaid early its remaining USD3.33 billion of debts to the International Monetary Fund early February. The money came from the country's budget stabilization fund, according to the statement posted on the government's web site. Under the original terms in 1996, Russia was due to make its last payment in 2008. Finance Minister Alexei Kudrin said the early payment saved the country USD204 million in interest. Russia's early repayment of USD3.3 billion of debt to the International Monetary Fund shows the success of those loans and of the authorities' efforts to rebuild the economy, the Washington-based lender said in a statement.

"Russia's ability to repay the IMF ahead of schedule reflects its strong fiscal and balance-of- payments position against a background of high oil prices," IMF Managing Director Rodrigo de Rato said in the statement.

14.02.2005 - MosNews Putin Urges Early Repayment of Russia’s Whole External Debt

Meeting with Finance Minister Alexei Kudrin on Friday, Feb. 11, Russia’s President Vladimir Putin spoke in favor of the earliest possible repayment of external debt. Kudrin told the President that as of the beginning of the years Russia’s total external debt amounted to $115 billion.

07.02.2005 Russian gold, forex reserves fall USD3.4 bln - CB

The Central Bank of Russia said its gold and foreign-exchange reserves fell $3.4 billion between January 28 and February 1, to $124.9 billion from $128.3 billion. CB First Deputy Chairman Alexei Ulyukayev earlier said the reserves grew significantly between January 21 and 28, partly because the Finance Ministry had deposited $3.3 billion with the CB to pay the International Monetary Fund (IMF).

"All other things being equal, the figure will fall by $3.3 billion the following week," Ulyukayev said. The Finance Ministry paid the money to the IMF on January 31. In January as a whole, the reserves grew by just $386 million or 0.3% to $124.927 billion from $124.541 billion, the CB said on its web- site.

10.02.2005 - Interfax Russia's gold, forex reserves at USD125.7 bln on February 4

12 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Russia's gold and foreign currency reserves were at $125.7 billion on February 4, down from $128.3 billion on January 28, the Central Bank said in a press release Thursday.

In 2000 Russia’s external debt amounted to USD158.4 billion or 89.5 percent of the GDP. In the beginning of 2003 it amounted to USD122.1 billion or 35.7 percent of the GDP. In the beginning of 2004 the external debt amounted to $119.1 billion, and now this sum is approximately USD115 billion and less than 30 percent of the GDP.

Russia, the world's second-largest oil supplier, is depositing revenue from oil sales into a stabilization fund that now stands at about RUR700bln (USD25 bln), and the government is trying to negotiate early repayment of some of Russia's USD44 billion debt to the Paris Club of sovereign lenders -- at the same time as trying to fight off growing pressure for the Fund to be spent inside Russia. With foreign exchange reserves of about USD119 bln, the largest outside Asia and more than it owes, Russia is well-placed to pay down debt.

However, the negotiations with the Paris Club on early repayment of this debt came to a kind of deadlock after Russia won its third and final investment-grade rating from Standard & Poor's on Jan. 31st. The decision of the rating agency signalised to the Russia’s creditors that the discount that Russia may receive from the Paris Club on the early repayment might be reduced significantly or even a premium could be received. Nevertheless, considering current budget problems of some of the Russian creditors we could predict that the less dependent position of Russia in the negotiation would result in the redemption with a discount as the most likely outcome, or redemption at par in the worst case. The next round of talks is scheduled for the beginning of March – we’ll wait and see…

25.02.2005 - Interfax Russia pays off USD2.33 billion in foreign debts in February

The Russian Finance Ministry has allocated $2.332 billion to pay off and service Russia's foreign debt in February, the ministry said in a report released on Thursday. The sum includes payments to official crediting countries, including the Paris Club. The sum paid to these countries in February reached $2.285 billion, with $1.224 billion for debt principle and $1.061 billion as interest.

The sum paid to international financial organizations in February reached $46.835 million, with $38.3 million for debt principle and $8.535 million as interest. Russia did not make any Eurobond, domestic state forex loan bond (OVGVZ), or state domestic loan bond (OGVZ) payments in February, the statement says.

18.02.2005 - Reuters Paris Club hardens position on Russia debt-sources

Russia's investment grade sovereign debt rating has made creditor nations in the Paris Club unwilling to accept a discount on the money they are owed, creditor nation sources said on Thursday. Russia is in talks to repay early roughly $44 billion in debts to Paris Club members in three tranches. In return it wants a discount, or "haircut", on the total amount it owes.

A Russian Finance Ministry official signalled that Moscow was in no mood to give ground and analysts also said Paris Club members are unlikely to make any headway on requests for a premium from Russia.

13 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

External Debt Market

Initial placements

Sberbank Followed VTB and Issued Subordinated Debt

Sberbank followed another state-owned bank Vneshtorgbank (VTB) and issued Russia's second subordinated issue ever. Early February biggest Russia’s bank sold its eurobond due in 2015. The issue was placed in two tranches worth USD850 mln and USD150 mln on February 4th and 7th, respectively. The bonds yield 6.23% p.a. in both cases, issue price – par. The eurobonds were issued by UBS Luxembourg S.A. for financing of subordinated credit to Sberbank in accordance with S rule. The deal was structured as a 10-year bond with a 5-year irrevocable period then a step-up in the coupon.

UBS Investment Bank is the sole bookrunner and lead-manager of the issue. UBS proposed price guidance of 212.5bp over mid-swaps for the Sberbank bond, and the pricing came at 249bp over Treasuries. The issue generated an order book of USD1.3 bln million and was allocated to 123 accounts. Geographic breakdown was 52% UK; 14% Asia; 9% Switzerland; 7% Germany; 5% Austria; 3% France; 3% Greece; 2% Scandinavia and the rest of Europe – 5%. By investor type, 66% were sold to Funds; 22% to Banks and 12% to Private Banks.

Moody's assigned a Baa2 rating, the same as Sberbank's long-term senior rating. Fitch Ratings assigned a BB+ rating to the bond.

In the last ten years no Russian company has been able to borrow cheaper than Sberbank. Sberbank made a successful placement due to favorable market conditions, which benefited from the Russia’s rating upgrade and good conditions on US Treasuries market. The second factor is especially applicable to the doublet tactics offered by lead to the issuer to make the upsize just after the release of January's US payroll figures. The lead advised the borrower to opt for an USD850 mln issue rather than the USD1 bln it was hoping for. And when Sberbank returned to the market for an extra USD150 mln on Monday it took the advantage from both the market condition improvement and good performance of the initially placed bond on the secondary market.

The main issue terms are listed below:

Issuer: UBS (Luxembourg) S.A. Borrower: Sberbank Ratings: Baa2/BB+ (Moody’s/Fitch) Structure: Lower Tier II sub-debt Size: US$ 850 million Price: 100.00 Coupon: 6.23% s/a Spread: mid swaps +210; UST + 249 UST: T 35/8 01/15/10 Hedge ratio: 0.95 Step-up: prevailing 5yr UST + 373.5 Settlement : 11-Feb-2005 Call: 11-Feb-2010 Maturity: 11-Feb-2015 Lead : UBS

14 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Later this month UBS Investment Bank submitted an application for listing of Sberbank’s eurobonds worth USD1 bln to the UK Listing Committee, as informed by Sberbank.

07.02.2005 - Cbonds Sberbank eurobond’s book reached USD1.3 bln with 52% of the issue went to UK

Last Friday Sberbank, the biggest bank in Russia, sold its USD850 mln due in 2015 eurobond. The bonds were priced at par yielding 6.23% p.a. The securities were released under the S rule. UBS acted as the issue lead- manager.

08.02.2005 - Cbonds New Issue-Sberbank adds USD150 mln to 2015 bond

Following are terms and conditions of a bond increased on Monday.

Borrower: Sberbank Issue Amount: USD150 million Maturity Date: February 11, 2015 Coupon: 6.23 pct Issue price: Par Lead Manager(s): UBS Ratings: Baa2 (Moody's) Full fees: 0.35 pct Notes: Par call on February 11, 2010; Issue size now totals $1.0 billion

Sberbank, which accounts approximately for 62% of retail deposits in Russia and almost 29% of Russia's overall banking assets, is the largest bank in central and Eastern Europe by Tier 1 capital. Sberbank’s IFRS sub-aggregate net revenue for the 9-months period of 2004 grew by 40% y-o-y, from RUR11.82 bln to RUR16.547 bln. Income before tax amounted to RUR21.52 bln, as compared to RUR13.7 bln y-o-y. The Central Bank of Russia possesses the Sberbank controlling block of shares in the bank.

Currently Sberbank also has 3-year FRNs due in 2006 outstanding. They were issued in October of 2003 in amount of USD1.0 bln at 3 months LIBOR + 1,75% (3.85% p.a.).

On Feb 8th VimpelCom, the Russian mobile phone operator, priced its USD300 mln five- year 144a euronotes. The notes bear an annual interest rate of 8.0% or 433bp above the comparable Treasury and will be due in February 2010. JP Morgan and UBS acted as the sale lead managers.

238 accounts placed orders for the bonds totalling almost USD2 bln. By investor type, funds took 78% and banks 22%. By geographic breakdown, accounts in the US took 40%, the UK 29%, Switzerland 6%, Germany 5%, Asia 4%, Scandinavia 4%, France 3% and the rest of Europe 9%.

The issue main terms are as follows:

Borrower: Vimpelcom Issue Amount: USD300 million Maturity Date: February 11, 2010 Coupon: 8.0 pct Issue price: Par Reoffer price: Par

15 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Spread: 433 basis points Underlying govt bond: over the 3.625 pct January 2010 UST Payment Date: February 11, 2005 Lead Manager(s): JP Morgan & UBS Ratings: B1 (Moody's), BB- (S&P) Listing: Lux Full fees: 0.625 pct Denoms: (K)100-1 Governing Law: English Negative pledge: Yes Force Majeure: IPMA 2 Cross Default: Yes

Like Sberbank before it, Vimplecom also benefited from good timing of the issue; the high demand for Vimpelcom’s bonds broke Gazprom’s record, whose issue was four times oversubscribed. To compare with, recently MTS 7-year bonds worth USD400 mln were placed at 8.05% p.a. on very good terms, with only double oversubscription. One could say that the issuer paid almost no premium to the market.

From the other hand, the strong demand for the issue means that the market no longer considers Vimpelcom’s tax claims a serious threat.

08.02.2005 - Reuters New Issue-Vimpelcom prices USD300 mln 2010 bond

Russia's second biggest mobile phone operator, Vimpelcom priced its five-year USD300 million Eurobond at a coupon rate of 8 percent. Following are terms and conditions of a bond priced on Tuesday.

Vimpelcom intends to use the net proceeds of the debt financing partly to repay indebtedness including, at maturity, a portion of the USS250 mln notes due April 2005 and partly to continue the development and expansion of its networks, including through possible acquisitions or investments in existing wireless operators within Russia and/or the CIS, or by establishing new wireless operators or entering into local partnerships or joint ventures within Russia and/or the CIS.

Including the new loan, Vimpelcom has USD1.3 bln worth of eurobonds and RUR3 bln of domestic bonds outstanding on the market. Last October the company placed seven-year notes worth USD300 million at a coupon rate of 8.375 percent. Last summer it placed USD450 million of five-year eurobonds at a 10.0 percent coupon.

The Vimpelcom’s borrowing programme for the current year amounts to USD1 bln, including not only eurobonds, but also other types of loans. So, USD300 mln have been already attracted, USD700 mln have remained. According to the company’s information, the required funds will be raised by means of extension of current syndicated credit agreements, borrowing on the Russian and international financial markets, and bank loans. Vimpelcom’s debt totalled USD1.924 bln, inclusive of interest payments, as of September 30, 2004.

10.02.2005 - Cbonds VimpelCom’s borrowing program for 2005 amounts to USD1 bln

The business plan of VimpelCom mobile operator provides for attraction of borrowings worth around USD1 bln in 2005, according to the company’s official statement. These funds are meant for financing of the capital investment program, debt repayment, and possible acquisitions.

16 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

However, the issuer wouldn’t wait, and on Mar 2nd attracted a syndicated loan worth USD425mln at LIBOR+2.5%. Citibank N.A. and Standard Bank London Ltd. acted as the lead-managers and underwriters of the loan facility.

03.03.2005 - AK&M Vimpelcom has attracted a three-year unsecured amortization loan facility of USD425 mln

JSC Vimpelcom has attracted a three-year unsecured amortization loan facility to the value of US$425 million. The loan rate is LIBOR+2.5%. Citibank N.A. and Standard Bank London Ltd. acted as the lead-managers and underwriters of the loan facility. The purpose of the facility is to redeem the current indebtedness and to develop company activity in Russia.

Vimpelcom’s authorized capital is RUR288,538 thousand. The main stockholders of the company are Alfa-group (32.9 percent of authorized capital) and Telenor (26.6 percent).

On February 25th, 2005 Moscow Bank of Reconstruction and Development (MBRD) launched and priced its debut USD150 mln eurobond due 2008 via the sole bookrunner Dresdner Kleinwort Wasserstein. The fixed coupon bond matures in 3 years and was sold on Reg S basis. Due to the successful book-building process the issue was priced at par with a coupon of 8.625%, which was 25bps tighter than the original price talk of 8.875% area.

The issuer managed to attract the book of almost USD950 mln with 114 accounts involved, which enabled MBRD to increase the size from the originally planned USD100 mln target to USD150 mln. The bulk of the issue was bought by investors from Asia and UK (33% and 31%, respectively); 13% went to Switzerland, 6% - to Germany, 5% - to US and 6% were bought by the rest of European countries. By investors type the issue distribution picture was as follows: Retail/Private Banks took 44% of the issue amount, Funds – 26%; Banks – 25%, other – 5%.

According to the lead data, high level of investor interest allowed MBRD to allocate 44% of the orders to “buy-and-hold” retail investors in line with MBRD’s objectives. In addition, the excess demand has translated into solid secondary market performance, with the issue trading slightly above par following the launch.

The issue was assigned a B1 long-term rating by Moody’s, and a B rating by Fitch. The bank itself is rated B1 by Moody’s and B- by Fitch. MBRD is 95% owned by Sistema Group.

The brief issue terms summary is given below.

Issuer: Dresdner Bank Aktiengesellschaft Borrower: Moscow Bank of Reconstruction and Development (MBRD) Maturity Date: Mar 03rd, 2008 Instalment Date: Mar 03rd, 2008 Coupon: 8.625% Issue price: 100 Re-offer price: 100 Spread: 496.5 over 3-year UST Leads: Dresdner KW RegS only Common: 021382175

17 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

ISIN: XS0213821753 Denoms: 2000/2000 Listing: Lux Ratings: B1/B (Moody’s/Fitch) limited recourse loan participation notes

28.02.2005 - Cbonds Moscow Bank for Reconstruction and Development placed eurobonds worth USD150 mln, coupon rate at 8.625%

Moscow Bank for Reconstruction and Development, part of AFK Sistema, placed international bonds worth USD150 mln on Friday, announced Dresdner Kleinwort Wasserstein, the issue lead-managers. The bonds are due in 2008 and carry a coupon of 8.625% p.a. The issue was placed at par.

Issue upsizes

While this bulleting was being written, Promsvyazbank upsized its bond due 2006 by additional USD100 mln. The bond was sold at 102.5% of par. Dresdner Kleinwort Wasserstein lead-managed the sale. The bond initial placement had occurred on Oct 19th when the issuer placed its debut USD100 million 2-year eurobond at 10.25 percent (upper guidance range limit, named by the leads (ING and UBS)).

Promsvyazbank, which shelved the launch of the bond from mid July due to turmoil in the Russia’s local banking sector, had originally planned a three-year USD200 mln issue – so the issuer finally hit the borrowing amount target.

02.03.2005 - Cbonds Promsviazbank placed further USD100 mln worth of bond due in October 2006

Promsviazbank placed further USD100 mln worth of bond due in October of 2006. Coupon rate equaled 10.25% p.a. The information was provided by Dresdner Kleinwort Wasserstein, the issue lead-manager. The further bonds were priced at 102.5%.

The issue terms after the upsize are as follows:

Issuer: Promsvyaz Finance S.A. Borrower: Promsvyazbank Issue Amount: USD200 mln Maturity Date: October 27, 2006 Coupon: 10.25 pct (semiannual) Payment Date: October 27, 2004 Issue price: Par Reoffer price: Par Spread: 772 bps over the UST Lead Manager(s): ING and UBS Ratings: B1 (Moody's), B- (S&P), B (Fitch) Listing: Lux Denoms: 50,000 Governing Law: English Negative pledge: Yes

Market performance

18 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Virtually all Russian eurobonds posted price gains in February mostly due to the upsurge in the first few days of the month and corporates outperformed sovereigns at the same time.

Russia’s rating upgrade to investment level by S&P came about at the same time with a weak January payroll report in lucky coincidence, while the yield on the benchmark 10- year Treasury bond plunged below the 4% psychological level. As a result, Russian benchmark 2030 eurobonds rose above their historical maximum of 107%. However, the bonds did not stay on this level for long. Profit taking caused by a firmer stance of the Paris Club at negotiations over early redemption of Russian debt – one of the major buying factors – reduced Russia’30 quotes to 105%. We consider this a neutral level for the Russian benchmark bond, at which neither bears nor bulls are strong enough to make a significant change in absence of other market-moving news.

As we forecasted, 2018 and 2028 bonds looked better than the benchmark Russia’30. In early February they were above the sovereign curve. The bonds’ yields dropped by 20 and 15 bps respectively, compared to just 8 bps of Russia’30. These debts are still offering higher yield and remain an attractive investment, especially amidst absence of growth factors. Besides, in our opinion, 2018 and 2028 eurobonds can serve as a waiting ground for investors, as in the absence of clear trading ideas they will be looking for yield along the yield curve.

As to the outlook for this month, investors should have a clear understanding of the factors they should be watching. The recently resumed growth of crude oil prices is a good example, but hardly still topical. The rating has been already assigned and further movement up the investment grade ladder calls for reorganization of domestic policies.

In spite of the fact that the next President elections in Russia are due only in 2008, the fight may start as early as this year, which would distract the government from implementation of vital reforms. Paris Club is the other factor. We believe that the only possibility for an upside is for Russia to agree on extra premium for the early redemption. Otherwise we could expect some “following the wind”. In this case “wind” is represented by UST, which have recently posted some strong yield gains. This will keep Russian eurobonds under pressure. Pretty much all the market participants expect FRS to continue its quarter pint rate hikes on every policy meeting. US jobs data is due on Friday, March 4. It determines the short-term UST dynamics, and consequently, Russian eurobonds as well. On the whole, the market is expecting new jobs figure at about 210,000. We believe that the data will be even stronger.

In the corporate segment, eurobond movements suggest that the banking sector has taken a leadership position. Petrokommertsbank and Sberbank’06 bonds posted the highest gains, followed by Alfa-Bank and MDM-Bank. Growth of bank securities, in our opinion, is entailed by recovery after the summer credibility crisis in the banking sector, as well as developments around BNP Paribas and Russian Standard. By the way, the yield on the later has fallen by 64 bps. We believe that bank eurobonds remain attractive.

The other sector we advise paying attention at is telecoms. We believe that MTS bonds, the sector benchmark, are already overbought, so we shall evaluate the other issues against MTS as a landmark. In this respect, VimpelCom bonds haven’t lost their appeal, especially in the long end, due in 2010 (-67 bps in yield in February) and 2011. Upon the rating upgrade of AFK Sistema, its debt is expected to perform well as well.

19 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

At the moment, metallurgical sector draws a lot of attention. On the whole, we remain positive over eurobonds of MMK, Severstal, and NorNickel, after redemption of MMK issue worth 100 mln euro, confirmation of Severstal ratings, in spite of the company’s ambitious plans in mergers and acquisitions. Severstal’s long issue deserves special attention. Eurasholding debt has been mixed, the short issue falling behind. However, we do see value in longer bonds.

The merger of Gazprom and Rosneft is hardly transparent. The agencies confirmed both company’s ratings, but we recommend to hold back from Gazprom in near-term. Nevertheless, in long-term perspective Gazprom’34 and Gazprom’13 are sure to yield a fair return.

Issues to come (see the table section also, table#3)

International issuance of Russian companies is quite likely to remain high in 2005, while spread between the yield on Russian corporate Eurobonds and U.S. Treasury bonds will continue to narrow. This is borne out in part by the placement statistics for the past two months. The overall volume of Russian corporate eurobond issues amounted t USD993 mln in January and USD1.625 bln in February.

Among the main events during first two months of the year 2005 one could recall Sberbank of Russia with USD1 bln placed in ten-year eurobonds at 6.23% in February with the spread was 249 basis points relative to five-year U.S. T-bills. Another sub-sovereign issuer, Vneshtorgbank has placed USD750 mln in sub debt eurobonds. Moreover, Vneshtorgbank plans to borrow a total of USD3 bln on international debt market this year.

Gazprom: 3 Issues For The Next 10 Months

As for Russia's largest eurobond issuer Gazprom, that company may place three eurobond issues over the coming ten months. The anticipated ceiling on the first two ones are USD900 million and USD1 billion. These bonds may circulate for seven to ten years. Gas giant has already mandated ABN Amro and Credit Suisse First Boston for its first bond of the year, likely to be a dollar denominated 10-year benchmark. The launch is planned for the first half of 2005.

According to the source in the company, the eurobonds will be issued under the program of participation certificates totaling USD5 bln. The source noted that the issue structure will be identical to the previous two issues and will involve the special purpose company Gaz Capital S.A. (Luxembourg) that will issue loan participation bonds and place them with foreign investors on the Luxembourg Exchange.

Gazprom plans to borrow RUR110 bln in 2005, and RUR90 bln in 2006, as the company’s management announced recently at a meeting with investors. Ruble debt will account for 50% of the overall amount (RUR110 bln), and foreign currency debt - for another 50%.

24.02.2005 - Cbonds Gazprom’s BoD approved attraction of a long-term loan

Gazprom’s BoD approved attraction of a long-term loan, the company’s statement says. A banking source informed that it would be eurobonds worth up to USD1 bln or 1 bln euro, with maturity of at least three years. ABN AMRO bank and CSFB have been mandated as the lead-managers for the issue

20 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

The biggest shipping company in Russia – state-owned Sovkomflot – intends to obtain an international credit rating. It is necessary in order to place eurobonds worth USD300 mln, possibly, already this year. Sergey Frank, CEO of Sovkomflot said that the company needs access to additional financing sources. Frank noted that the company invited financial advisor, who would help it obtain an international credit rating. He was referring to Morgan Stanley. A source close to the company confirmed that the final objective of the cooperation is issuance of eurobonds worth USD150-300 mln. The placement is likely to take place this year.

Sovkomflot is one of the top twenty tanker companies of the world. It operates 44 vessels, including 32 tankers with a deadweight of 3.1 mln tons. According to preliminary data, Sovkomflot’s income in 2004 amounted to USD397 mln, net revenue – USD116 mln.100% of the company’s stock is owned by the State.

01.02.2005 - Reuters Russian shipping firm may issue USD300 mln bond-paper

Russia's largest shipping firm Sovcomflot wants to obtain an international rating by May to issue a Eurobond of up to $300 million, a business daily reported on Tuesday. Vedomosti newspaper quoted a company source as saying a bond in the range of $150 million to $300 million may be offered before the end of 2005.

Rosbank is considering opening a USD300 million medium-term notes programme in 2005, the bank Deputy Chairman German Aliyev said at a press-conference today. The notes issued under the programme will have 3-5 year tenors, according to him. The decision on the programme and its exact terms are to be set later. The EMTN issuance is expected to facilitate the bank financing sources diversification and serve as another cash management tool according to Aliyev.

17.02.2005 - Cbonds Rosbank plans to introduce new instruments on the domestic debt market, and expand its operations on the international markets

German Aliev, Deputy CEO at Rosbank, announced at a press-conference that the bank had no current plans of bond placement on both domestic and external markets. However, Rosbank does not exclude the possibility of EMTN issuance in the framework of borrowing program for 2005 worth USD300 mln with 3-5 year maturity. The EMTN program targets primarily the bank’s financing sources diversification.

As to the outlook on the investment banking business development, Aleksey Porkhun, director of investment banking services at Rosbank, said in 2005 Rosbank intended to put the emphasize on expansion of its activities both on CIS and international markets. In particular, the bank is going to accelerate activities in the field of attraction of international financing for its clients.

The Rosbank’s Deputy Chairman stressed that Rosbank does not want to tap existing eurobonds this year. He also added that Rosbank has no plans for ruble issuance in 2005. Currently Rosbank has USD300 mln eurobond due 2009 and a USD130 mln eurobond maturing in 2012 outstanding.

Moscow City intends to place another eurobond issue to the value of about EURO410 mln in April of 2006, as the head of the Moscow state borrowing Committee Sergey Pahomov reported at press-conference. According to the Russian legislation the municipalities have right to borrow abroad only to re-finance current external debt. On April 28, 2006, the loan to the extent of 350 million Euro will be repaid, and new securities could be issued to

21 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005 refinance this loan. Eurobond can make up to 410 million Euro with a maturity from 7 to 10 years. Profitability of the issue can average 6.5-7 percent.

10.02.2005 - Cbonds Moscow to issue 15-year domestic debt in 2005, and eurobonds in 2006 – Moscow State Debt Committee

Moscow government is getting ready to submit the terms of bond issue with maximum maturity of 15 years to the Russian Finance Ministry, as informed by Sergey Pakhomov, Chairman of the State Debt Committee of the City of Moscow.

…

To the question on the plans of eurobond issuance, Pakhomov said that according to the budgetary regulations Moscow would have such opportunity no sooner than in April of 2006, when the nest eurobond issue was due.

LUKOIL renewed its international borrowing plans this month: the company VP Leonid Fedun informed that oil producer is going to issue eurobonds worth USD500 mln this year. Last year Fedun said in an interview that the oil company would be better off waiting for a full investment grade rating, which he believed it was on the threshold of receiving, before issuing a Eurobond.

21.02.2005 - Cbonds Lukoil to issue eurobonds worth USD500 mln in 2005

Lukoil is going to issue eurobonds worth USD500 mln this year, the company VP Leonid Fedun informed. The company will attract funds to finance state minefields purchasing.

22 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Domestic Debt Market

New Changes to Federal Law on Security Market Approved by Duma

Russian Duma has approved changes to the Federal Law on Securities Markets. The new amendments abolished the obligatory requirement of a financial consultant signature on an issuer’s prospectus. In addition, MICEX is required to inform (not seek approval from) the Financial Service on Securities Markets about the inclusion of new issues to quoting lists.

These changes are to come in force in a month’s time, and definitely will allow to decrease the costs of bond issuance for companies (especially it’s urgent to the relatively small -sized issues) and to shorten the time frame before the start of secondary trading. The latter consequence will make the yield of the issues less dependable from the market performance between the launch and secondary trading and, therefore, more predictable.

CBR To Lower Reserve Requirements For Non-Residents’

According to Central Bank’s Order No. 1540-U published this month, new reserve requirements for securities operations will come into force on February 19th. The requirements will be revised in the following ways:

* for the government bonds investments, the reserve requirement for nonresidents will be lowered to 15% for 365 days (earlier this limit was at 20%). * in acquiring corporate bonds and Russian securities, non-residents must hold 2% of the sum in reserve for 365 days (earlier - 3%).

This decision will have a positive effect on the Russian domestic debt market, as it will raise the attraction of investing in Russia’s domestic bonds for non-residents. Moreover, the funds not tied up by reserve requirements could be reinvested in the bonds (most likely in Moscow City bonds and blue chips on the corporate bond market) and increase the market liquidity.

GKO-OFZ market

02.02.2005 - Interfax Avg weighted OFZ-PD 25058 yield an annual 6.84% at auction

The average weighted price for federal loan bond series OFZ-PD 25058 (circulation period 1,183 days) offered at auction Wednesday was 98.9303% of face value, corresponding to annual yield of 6.84%. The Central Bank reported that 3.854 billion rubles (face value) worth of the bonds were sold of an 8 billion-ruble (face value) offer, against demand worth 4.988 billion rubles (face value).

The auction raised 3.813 billion rubles, demand at market value was 4.915 billion rubles. The cut-off price was set at 98.2222% of face value, corresponding to an annual yield of 7.10%.

04.02.2005 - Interfax Avg weighted OFZ-PD 25057 yield an annual 7.7% at auction

The average weighted price for federal loan bond series OFZ-PD 25057 (maturing on January 20, 2010) offered at auction on Friday was 99.6399% of face value, corresponding to annual yield of 7.7%. The Central Bank reported that 2.945 billion rubles (face value) worth of the bonds were sold of a 3 billion-ruble (face value) offer. The cut-off price was set at 99.5220% of face value.

10.02.2005 - Interfax Avg weighted OBR 04001 yield an annual 4.32% at auction

23 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

The average weighted price for Central Bank OBR bond series 04001 (redeemable July 15, 2005) offered at auction Wednesday was 98.2109% of face value, corresponding to annual yield of 4.32%. The Central Bank reported that 1.513 billion rubles (face value) worth of the bonds were sold of a 3 billion-ruble (face value) offer. The cut-off price was set at 98.196% of face value.

16.02.2005 - Interfax Avg weighted OFZ-AD 46017 yield an annual 8.21% at auction

The average weighted price for federal loan bond series OFZ-AD 46017 (maturing after 4,186 days) offered at auction Wednesday was 98.4721 % of face value, corresponding to annual yield of 8.21%. The Central Bank reported that 6.205 billion rubles (face value) worth of the bonds were sold of a 10 billion-ruble (face value) offer. The cut-off price was set at 97.9501% of face value.

17.02.2005 - Interfax Avg weighted OBR 04001 yield an annual 4.14% at auction

The average weighted price for Central Bank OBR bond series 04001 (mandatory redemption on July 15) offered at auction Wednesday was 98.3615% of face value, corresponding to annual yield of 4.14%. The Central Bank reported that 1.266 billion rubles (face value) worth of the bonds were sold of a 3 billion-ruble (face value) offer. The cut-off price was set at 98.3444% of face value.

25.02.2005 - Interfax Avg weighted OBR 04001 yield an annual 3.86% at auction

The average weighted price for Central Bank OBR bond series 04001 (redeemable July 15, 2005) offered at auction Wednesday was 98.5429 % of face value, corresponding to annual yield of 3.86%. The Central Bank reported that 1.070 billion rubles (face value) worth of the bonds were sold of a 3 billion-ruble (face value) offer. The cut-off price was set at 98.5250% of face value, corresponding to an annual yield of 3.90%. The auction raised 1.055 billion rubles. Market value demand was 3.300 billion rubles.

Municipal bond market

Early Feb Moscow City tapped the domestic debt market for the first time this year, having an investment grade rating from all the three major agencies The capital offered two bonds – Moscow-42 due in 2007, and Moscow-41 due in 2010. For the deals review please see bulletin #02; the short summaries of the placements are listed below:

02.02.2005 - Cbonds 42-series bonds of the City of Moscow placed at weighted average price of accepted bids – 7.2% p.a.

42-series domestic municipal bonds of the City of Moscow (registration # RU25042MOS) were auctioned at MICEX on February 2, 2005. The issue consisted of 3 million bonds worth RUR1,000 at par each.

The auction saw 235 bids in total amount of RUR15,733,698,641 (14 507,936 bonds), including AI

The ceiling price offered by bidders (excluding AI) – 106.88% of par The ceiling price offered by bidders (including AI) – RUR1,091 Cut-off price (excluding AI) – 106.77% of par Cut-off price (including AI) – RUR1,089.90 (one thousand eight hundred rubles ninety kopeks) Weighted average price of all accepted bids (excluding AI) – 106.854% of par Weighted average price of all accepted bids (including AI) – RUR1,090.74 (One thousand ninety rubles seventy fours kopeks) Cut-off yield – 7.24% p.a. Weighted average yield – 7.20% p.a. 3 million bonds worth RUR3,272,222,000 (including AI) were placed.

03.02.2005 - Cbonds Weighted average yield on the 41-series domestic municipal bonds of the city of Moscow equalled 7.83%

24 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

The State Date Committee of the City of Moscow informed that the weighted average yield on the 41-series domestic municipal bonds of the city of Moscow (registration # RU27041MOS) equaled 7.83% at the MICEX auction on February 2, 2005.

The auction attracted 200 bids in total amount of RUR12,120,678,070. The ceiling price offered by bidder (excluding AI) equaled 108.31% of par. Cut-off price (excluding AI) – 107.20% pf par. Weighted average price of all accepted bids (excluding AI) -107.442%. Cut-off yield – 7.88% p.a. Weighted average price – 7.83% p.a.

Corporate bond market

The main event on the domestic debt market in February was new Gazprom’s bond issue placement. In fact, the gas monopoly has opened the season in the primary market making a kind of nearest-term benchmark for it.

On Feb. 16th Gazprom placed RUR5 bln, 5-year bonds at par with an 8.22% semi-annual coupon. The auction saw 99 bids in total amount of RUR10.3 bln. The first coupon rate was set at 8.22% p.a. 77 bids were accepted, one of them partially.

Previously the company planned to launch the bond on February 8th. However, this date has not been approved, as FSFM has not registered the MICEX listing changes, which makes placement of new Russian domestic issues impossible. As reported earlier, the proceeds were used to finance the capital reconstruction of existing facilities, implementation of new projects, refinancing of some of the company’s credits, and its credit portfolio optimization.

Renaissance Capital and Rosbank were the issue arrangers. Soyuz Bank, Web-Invest Bank, NOMOS-bank, Raiffeisenbank, and ABN AMRO are the underwriters.

In general, the results of the Gazprom issue placement came in line with the recent Moscow City domestic bond placements (see our bulletin #02 for 2005) with a one exception – gas giant preferred amount to yield. The issue offered by Gazprom maturity (Feb 10th, 2010) is closer to 41st series Moscow bond one (Jul 30th, 2010). Amidst ruble strengthening and FRS rate hike anticipation, market non-resident prefer to concentrate on the shorter issues on Russian domestic debt market forcing Russian players to buy long-term bonds. Whereas Moscow City preferred to place by the yield and fixed the cut price close to the low range of the yield forecasted by the experts and analytics, Rosbank, one of the Gazprom issue arrangers, released a report saying that the coupon of the Gazprom’s bond issue would equal 8.09-8.33% p.a., making signals to the market that the issuer is ready to give a premium to place the entire amount of the bond.

According to our opinion, in spite of high bank liquidity the tendency of giving a premium to the market will persist among the issuers in the nearest term. The ball is on the investors’ side…

16.02.2005 - Reuters Russia Gazprom places RUR5 bln bond at 8.22 pct

Russia's Gazprom, the world's largest natural gas producer, sold a 5 billion rouble ($178.6 million) five-year bond with an annual yield of 8.22 percent, one of the lead managers said on Wednesday.

FSFM registered three RUR5 bln bond issues of Gazprom (series A4, A5, and A6) on August 19, 2004. The issues differ only in maturity. Each of the issues includes 5 mln bonds

25 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005 worth RUR1,000 at par each. In 2004, Gazprom placed A5 bonds on MICEX. The yield to redemption amounted to 7.72% p.a.

On March 1, 2005 one of the leaders of Russian banking retail market, Russian Standard Bank, conducted the bond placement of its fourth series to the total value of RUR3 bln on MICEX. The bond was placed at par giving the yield at 8.99% p.a. The 3-year issue assumes a put option in one year.

The auction saw 67 bids worth RUR4,427,100,000 at par, with yield ranging between 8% and 10% p.a. 30 bids were met, 3 mln of bonds were sold. The issue was placed in full amount. The issue was placed with a wide range of investors, including both Russian and foreign banks, insurance companies, and investment funds. The bond saw healthy appetite of non-residents that also resulted in successful placement – over 50% of the issue was bought by international investors, according to the JP Morgan data. In fact Russian Standard managed to place the biggest issue by the amount ever made by the bank on the domestic market.

Gazprombank arranged the issue. JP Morgan acted as an international marketing consultant. ABN Amro bank, Aton, Petrokommerts Bank, Dresdner Bank, Eurasia Bank, and Renaissance Capital were the issue underwriters.

02.03.2005 - Cbonds Russian Standard Bank issue placed in full amount

Russian Standard Bank announced it placed a domestic bond issue on MICEX on March 1, 2005. The yield was set at the auction at 8.99% p.a.

The issuer informed that it planed to use the raised funds for financing of the bank’s core operations, with main emphasis on the regional development and credit card project realization.

On March 3, 2005 North-West Telecom fully placed its 3-series domestic issue on MICEX. The issue worth RUR3 bln was successfully placed within one trading day amidst high investor demand. The issue was placed on MICEX.

The first coupon rate was set at tender at 9.25% p.a., well below the floor range predicted by the leading investment banks. The bids at the auction totaled RUR7.4 bln, or 2.5 times the amount of offering. 38 bids were accepted. Coupons 2-12 are equal to the first one. Therefore, the effective yield to buy-back (on the date of 12 coupon redemption) amounted to 9.57% p.a.

The bond matures in 6 years with a 3-year buy-back option.

The issue will be paid off in installments based on the following schedule: 30% of par – on the 1820 day from launch, 30% of par – on the 2002 day from launch, and 40% of par – on the 2184 day from launch.

Standard & Poor's assigned the issue ruBBB+ rating on the national scale.

Web-Invest Bank acts as the issue arranger, with Sviaz-Bank as co-arranger. Vneshtorgbank, Gazprombank, Promsviazbank, Soyuz Bank, Bank of Moscow, All- Russian Bank for Regions Development, Eurofinance-Mosnarbank, CentroCredit Bank,

26 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Raiffeisenbank Austria, International Moscow Bank, Russian International Bank, ING Bank (Eurasia), Industrial Construction bank, NOMOS bank, URALSIB, and REGION are the issue co-underwriters.

04.03.2005 - Cbonds North-West Telecom domestic bond issue fully placed

North-West Telecom fully placed its 3-series issue on March 3, 2005. The issue worth RUR3 bln was successfully placed within one trading day amidst high investor demand.

The issue was placed on MICEX. The first coupon rate was set at tender at 9.25% p.a., well below the floor range predicted by the leading investment banks. Coupons 2-12 are equal to the first one. Therefore, the effective yield to buy-back (on the date of 12 coupon redemption) amounted to 9.57% p.a.

The issue proceeds will be forwarded on short-term debt refinancing, improvement of the company’s liabilities structure, and investment program financing.

Issues to come

GKO-OFZ

The Russian Finance Ministry plans to place RUR16 bln in March, 2005. Alexander Chumachenko, deputy head of the ministry’s debt department, told reporters last Tuesday that the auction schedule will be as follows:

Date: Maturity: Size: March 2, 2005 2008 RUR6bln March 16, 2005 2020 RUR10bln.

Chumachenko said 3-year bond coupon rate will amount to 6.2-6.3% p.a., 15-year - receding coupon from 10% to 6.5% p.a.

Municipal (issues with outstanding volume more than RUR1bln (USD 30 mln) are reviewed)

Moscow City Plans To Borrow RUR8.5 bln in March and RUR35.3 bln in 2005; 15- year Issue Is On Agenda

The Moscow City government will continue placing its bonds no sooner in the middle of March, as was reported by Sergey Pakhomov, Chairman of the State Debt Committee of the City of Moscow. “We are definitely not going to do anything until the middle of March”, - he said, noting, that the auctions schedule will depend on the budget needs of the City. “If there is excess liquidity in the budget, we could make some corrections in our activities”.

Pakhomov noted that the City will stick to its practice of auctioning two issues on one day. The next auctions after March will be held either in late May, or early June. According to Pakhomov, the expected size of borrowings in March equals RUR15 bln, and around RUR8 bln in May-June.

Pakhomov also informed that Moscow government is getting ready to submit the terms of bond issue with maximum maturity of 15 years to the Russian Finance Ministry. “We are submitting the documents to the Finance Ministry. The bond maturity is being extended to 15 years… We expect to place them in autumn in amount of at least RUR10 mln”, - he said.

27 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Pakhomov noted that issuance of this paper will be possible only under condition of strong investor appetite for Moscow bonds. Currently, 10-year bonds are the longest. In 2005, the City of Moscow intends to issue bonds with maturity of 2 to 10 years.

10.02.2005 - Cbonds Moscow plans to place the next bond issue in mid-March; issue ceiling – RUR8 bln

The City of Moscow plans to place the next bond issue in mid-March. The announcement came from Sergey Pakhomov, head of the State Debt Committee of the City of Moscow.

According to him, “at the moment the issue size is still not clear, as currently there is a cash overage in the budget, and in these conditions we can not raise another RUR10 bln”. The issue size will be determined closer to the date of placement.

At the same time, Pakhomov noted the bond issuance in the first quarter had been planned in amount of RUR15 bln, of which 6.5 bln had already been placed. Therefore, the ceiling amount of issuance in March may equal up to RUR8 bln. Pakhomov said it is likely to be a double auction, i.e. “two issues from the City portfolio will be offered at the same time”. He added that, most likely it would be 41-series bonds; however the City portfolio contains issues 42, 43, 36, and 39 as well. The amount of unplaced bonds equals RUR22 bln.

10.02.2005 - Cbonds The City of Moscow will raise RUR45 bln in 2005, according to its borrowing program

The City of Moscow will raise RUR45 bln in the framework of its borrowing program for 2005. This information was provided in the materials presented as the press-conference “Budget and Borrowing Program of the City of Moscow”.

The borrowing includes domestic boded loans worth RUR35.3 bln, domestic credits worth RUR8.6 bln, budgetary loans worth RUR0.89 bln, and external debt worth 3.8mln euro. These borrowings are meant to finance the budget deficit in amount of 25.4 bln and refinance the City debt due in 2005.

The debt volume of Moscow , as of January 1st, 2006, will make up RUR130 bln, as compared with 103 bln roubles for January 1st, 2005, as the head of the Moscow state borrowing Committee Sergey Pahomov projected at press-conference. The debt volume is as follows: 60 percent of government internal bonds, 23 percent - foreign borrowings. The share of foreign borrowings in the total volume of national debt will decrease from 30 percent to 25 percent during 2005, as Pahomov said.

Corporates (issues with outstanding volume more than RUR1bln (USD 30 mln) are reviewed; see table #9 for the full coverage)

The BoD of Sibirtelecom arrived at a decision to place two bonded loans in total amount of RUR5 bln. The first issue due in 3 years worth RUR3 bln will consist of 3 million bonds worth RUR1,000 each. The second issue worth RUR2 bln will have a 5-year maturity (each bond worth RUR1,000 as well).

The first and the second issue will carry 6 and 10 coupons respectively. The issue prospectus is expected to be approved by the BoD on February 22; after that the paperwork will be submitted to FSFM.

The company plans to finish placing the first issue (worth RUR3 bln) by the end of the first half of 2005, and the second issue – by the end of 2005.

11.02.2005 - Cbonds Sibirtelecom will increase its debt by RUR5 bln

In February, the BoD of Sibirtelecom will consider the question of bond issuance in amount of RUR5 bln, the company's management announced. The issue terms and placement date have not been set yet.

28 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

In the last two years Sibirtelecom has placed two bonded loans worth RUR3.5 bln. The company uses the placement proceeds for improvement of its telecommunication capacities, equipment modernization, and development of services.

AvtoVAZ intends to launch 3-series issue worth RUR5 bln in the nearest future. 5 million bonds worth RUR1,000 each will be placed on MICEX. The bonds will have a 5-year tenor. The information is based on the company’s report.

08.02.2005 - Cbonds AVTOVAZ to issue domestic bonds worth RUR5 bln

The BoD of AVTOVAZ arrived at a decision to launch 3-series bonds, the company announced. The total issue size – RUR5 bln. The bonds will be placed at par for the period of 4 years.

Currently the company’s 2-series bonds are circulating on the market. They were placed on February 18, 2004 (in amount of RUR3 bln, tenor – 4.5 years, coupon rate – 11.78% p.a.). The company’s management said more than once that borrowing is required in order to finance implementation of its “breakthrough strategy”, meant to facilitate the firm’s financial recovery (its had serious problems with short-term debt up until 2002), and technical modernization.

In recent years AvtoVAZ has been actively borrowing, and not just on the bond market, - it launched a promissory note program in 2002 (although, it has been suspended), and last fall it issued CLN worth USD150 mln. Besides, AvtoVAZ may tap the eurobond market in foreseeable future.

Siberian Coal Energy Company (SUEK) considers the possibility of the bond loan issue up to an aggregate of 3 billion roubles with a maturity of 3-5 years in 2005. Public borrowings are attracted with the purpose of diversification of credit portfolio on the one hand and to form credit history in the segment of loan bonds on the other hand.

15.02.2005 - Cbonds SUEK considers placing a domestic bond issue in 2005 worth up to RUR3 bln due in 3-5 years

The Siberian Coal Energy Company (SUEK) considers possibility of placing a domestic bond issue in 2005 worth up to RUR3 bln due in 3-5 years, as reported to AK&M agency by a company source. The final decision on this matter will be made later with regards to the market conditions, he said.

According to the source, the issuance would be aimed at credit portfolio diversification on one hand, and on the other – “creation of SUEK credit history in the segment of bonded loans, which would be perceived by the market as positively, as its credit history in the segment of bank credits”.

SUEK's 2-series bonds are currently circulating on the market in amount of RUR1 bln. Its debut issue worth RUR600 mln was placed on October 29, 2002 and paid off on October 28, 2004.

At present the bonds of the second issue for gross proceeds of RUR1 bln of SUEK are in circulation. The primary issue at the rate of RUR600 mln placed on October 29, 2002 at the Moscow Interbank Foreign Currency Exchange was redeemed on October 28, 2004.

Impexbank plans to issue a 2-series issue in the first half of 2005. The issue is expected to amount of RUR1 bln, announced Pavel Lisenko, the bank's CEO. According to him, the bonds will have a 2-year tenor. The other issue terms have not been finalized yet.

08.02.2005 - Cbonds

29 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

IMPEXBANK to launch 2-series domestic bonds worth RUR1 bln in March

IMPEXBANK plans to launch the 2-series bond issue in March, the bank announced. The issue was registered on June 26 2004, state registration #40202291В. Total issue size – RUR1 bln.

The bonds will be placed on MICEX through public offering. The 1st coupon rate will be determined at tender on the launch date. The 2nd coupon rate will equal the 1st one. Coupons 3-6 will be set by the issuer. Bonds tenor – 3 years. Financial advisor – Interfin Trade.

Impexbank paid off the first 2-year issue in December of 2004 in amount of RUR300 mln.

United Metallurgical Company (UMC) intends to float 3-year bonds to the value of RUR3 bln in May-June of 2005, as the president of the Company Anatoly Sedyh informed. The head of UMC underlined that in the immediate future company is not about to attract loans or to place Eurobonds. The UMC has enough own funds at its disposal to finance company projects.

17.02.2005 - Cbonds OMK wants to increase revenue to USD2 bln in 2005; plans domestic bonds worth RUR3 bln.

The United Metallurgical Company (OMK), one of the largest pipe manufacturers in Russia, expects an increase in profits to USD1.8-2 bln in 2005 from around USD1.5 bln in 2004, as reported to Reuters by the company representative. …

The source also said the company intends to place ruble bonds worth RUR3 bln in May-June 2004. The issue proceeds will be used to refinance outstanding loans, and finance current manufacturing projects. The decision on bond issuance was approved at the shareholders meeting in January.

30 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Ratings

Essential ratings actions on Russia’s issuers: Feb 2005

Issuer Rating Change National Scale Rating Change from to from to Municipal City of Moscow (S&P) • long-term foreign currency issuer credit BB+ BBB- • senior unsecured debt ratings BB+ BBB- outlook-stable City of Saint Petersburg (Fitch) assigned AA (rus) outlook-positive Lipetsk Oblast (Fitch) A+(rus) AA-(rus) outlook-stable Vologda Oblast (S&P) • long-term foreign currency issuer credit rating B B+ ruA- ruA outlook-stable Kaluga Oblast (S&P) • long-term foreign currency issuer credit rating B+ affirmed ruA+ ruA outlook revised to negative from stable Corporate Bank ZENIT (Fitch) • long-term rating B- affirmed • short-term rating B affirmed • individual rating D affirmed • support rating 5 affirmed outlook-stable Rostelecom (S&P) • long-term corporate credit rating B B+ outlook-stable Vimpelcom (Moody's) • senior implied rating Ba3 affirmed • unsecured issuer rating B1 affirmed outlook-stable Southern Telecommunications Co. (STC) (S&P) • long-term corporate credit rating B- CCC+ ruBBB- ruBB outlook-negative Mastercroft Ltd. (Fitch) • senior unsecured rating B affirmed • short-term rating B affirmed outlook revised to positive from stable Severstal (S&P) • long-term corporate credit rating B+ affirmed outlook-stable Severstal (Fitch) placed on • short-term rating B affirmed A(rus) Rating • senior unsecured rating B+ remains on Watch Rating Negative. Watch Negative MMK (Fitch) • senior unsecured foreign currency rating BB- affirmed outlook-stable Severstal (Moody's) • senior implied ratings B1 affirmed • senior unsecured issuer rating B2 affirmed outlook-stable

31 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Issuer Rating Change National Scale Rating Change from to from to Moscow Bank for Reconstruction and Development (Fitch) • long-term rating B- B BBB-(rus) BB+(rus) • short-term rating B affirmed • individual rating D/E affirmed • support rating 5 4 outlook-stable Sistema (Fitch) • senior unsecured foreign currency ratings B B+ • senior unsecured local currency ratings B B+ outlook-stable Centertelecom (Fitch) assigned BB(rus) outlook-stable

32 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Issues Issuer Rating Change National Scale Rating Change from to from to Russia International Card Finance S.A. USD 75 million Class 2004 9.75% Structured Receivables assigned (P)Ba3 Notes due 2009 (Moody's) Eurasia Capital S.A. USD 150 mln 9.125% LPNs due 2008 (Moody's) assigned Ba3 Alfa MTN Markets Limited's USD150 mln 7.75% issue of MTNs due February 2007 (Fitch) • long-term rating assigned B+ VimpelCom LPNs USD300 mln 8.0% due February 2010 (S&P) • senior unsecured debt rating assigned BB- VimpelCom (Moody's) • USD250 mln 10.45% senior unsecured loan affirmed B1 participation notes due 2005 • USD450 mln 10% senior unsecured loan affirmed B1 participation notes due 2009 • USD300 mln 8.375% senior unsecured loan affirmed B1 participation notes due 2011 • USD300 mln 8.0% senior unsecured loan assigned (P)B1 participation notes due February 2010 Rosneft USD 150 mln eurobond (Moody's) outlook-positive Baa3 affirmed Russia International Card Finance S.A. USD 75 million Class 2004 9.75% Structured Receivables affirmed B+ Notes due 2009 (Fitch) VTB Capital S.A. USD750 mln issue of 6.315% LPNs due February 2015 (Fitch) • long-term rating assigned BB+ UBS (Luxembourg) S.A.’s (Sberbank) USD1 bln 6.23% LPN issue due February 2015 (Fitch) • long-term rating assigned BB+ EvrazSecurities S.A. notes (Fitch) • senior unsecured rating B affirmed Severstal USD 700 mln LPNs (Moody's) • senior unsecured rating B2 affirmed North-West Telecom's proposed Russian ruble RUR3 bln ($107 mln) senior unsecured notes issue (S&P) • long-term Russia national scale senior unsecured assigned ruBBB+ Dresdner Bank Aktiengesellschaft's (MBRD upcoming LPNs issue (Fitch) • long-term rating assigned B USD350 mln Sistema Finance S.A. eurobond due 2008 (Fitch) B B+ USD350 mln Sistema Finance S.A. eurobond due 2011 (Fitch) B B+ Centertelecom domestic bond issues of RUR600 assigned BB(rus) mln RUR2 bln and RUR5,622,595,000 maturing in 2005, 2006 and 2009, respectively (Fitch)

Municipals

01.02.2005 - Cbonds S&P Raises Moscow City Rtg to 'BBB-'; Outlook Stable

Standard & Poor's Ratings Services today raised its long-term foreign currency issuer credit and senior unsecured debt ratings on the Russian capital City of Moscow to 'BBB-' from 'BB+'. The outlook is stable. 33 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

With this rating action, Standard & Poor’s assigns its first ever investment-grade rating to a Russian subnational government.

"The rating action is based on the improving overall Russian fiscal environment and follows the rating upgrade on the Russian Federation," said Standard & Poor's credit analyst Elena Okorotchenko. The ratings on Russia (foreign currency BBB-/Stable/A-3, local currency BBB/Stable/A-3) were raised to investment-grade, reflecting recent, crucial improvements in the government's debt level and external liquidity (see "Research Update: Russian Federation Long-Term FC Rating Raised To Investment Grade 'BBB-'; Outlook Stable," published on Jan. 31, 2005, on RatingsDirect, Standard & Poor's Web-based credit research and analysis system, at www.ratingsdirect.com).

"The rating upgrade on Moscow also takes into account the city's growing economy and revenues, modest debt, and strong financial performance in 2004 that is likely to continue in the medium term," said Ms. Okorotchenko.

Moscow's above-average wealth and improving financial management also continue to support the rating. Nevertheless, the ratings are constrained by uncertainties regarding intergovernmental reforms, foreign currency risk exposure, and relatively high contingent liabilities.

The stable outlook reflects Standard & Poor's expectation that the city's strong tax base will support the city’s prudent policies of moderate debt levels and reduction in foreign currency exposure, and will offset the potentially negative effects of further equalization.

17.02.2005 - Cbonds Fitch assigns Saint Petersburg National rating of “AA (rus)” with a Positive Outlook.

Fitch Ratings, the international rating agency, has today assigned the City of Saint Petersburg ("St.Petersburg") a National rating of “AA (rus)” with a Positive Outlook.

The rating reflects the city's enhanced revenue generating capacity as well as its diversified and dynamic local economy, sound budgetary performance and low, albeit increasing, debt level. The performance of the local economy plays a key role in the city's creditworthiness, as budget revenue is by and large made up of taxes. In 2000- 2004 St Petersburg's economy grew rapidly, and for the last two years has been outperforming the Russian average.

The rating also takes into account the evolving institutional framework, primarily ongoing social benefits reform, which may put additional pressure on the city's operating balance. In addition, the city is facing the need to increase capital expenditure to replace the highly depreciated assets of its utility and transport companies.

With a population of some five million inhabitants, St. Petersburg is the second largest city in Russia by this measure and is one of the largest ports in the Baltic Sea.

17.02.2005 - Cbonds Fitch Upgrades National Rating Of Lipetsk Oblast From 'A+(Rus)' To 'AA-(Rus)'

Fitch Ratings, the international rating agency, has today upgraded Lipetsk Oblast’s (Oblast) National rating to 'AA- (rus)' with a Stable Outlook from 'A+(rus)'.

The upgrade reflects the continued strong growth of the regional economy and the positive effect it has had on Oblast's budgetary revenue, which primarily consists of tax revenue (2004: 90% of current revenue). Significant budget surpluses reported in the past few years have allowed the region, by end-2004, to reduce its direct debt to zero so that Oblast's present debt obligations are represented by guarantees only.

However, the rating also takes into account the Oblast's increased reliance on tax revenue as a main budgetary income source and on the region's largest taxpayer, Novolipetsk Steel Smelter, which exports a substantial portion of its produce. Additionally, the Oblast's expenditure will remain affected by the social benefits reform that is likely to lead to decreased flexibility for Oblast's budget and high proportion of social security related expenditure.

25.02.2005 - Cbonds S&P Ups Russian Vologda Oblast Rtg To 'B+'; Otlk Stbl

Standard & Poor's Ratings Services said yesterday it raised its long-term foreign currency issuer credit rating on the Russian Vologda Oblast to 'B+' from 'B'. At the same time, Standard & Poor's raised 'the Russia national scale rating on the Oblast to 'ruA' from 'ruA-'. The outlook is stable.

34 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

"The rating action reflects Vologda Oblast's improved liquidity and strengthened policy toward hedging volatility risks, in addition to its sound financial performance and low debt," said Standard & Poor's credit analyst Elena Ershova. "The ratings are constrained, meanwhile, by the strong concentration of the Oblast's economy and tax base, its low revenue flexibility and predictability, and high infrastructure needs."

28.02.2005 - Cbonds S&P Revises Kaluga Oblast Otlk To Neg; Afrms 'B+' Rtg

Standard & Poor's Rating Services said today it revised its outlook on the Russian Kaluga Oblast to negative from stable. The 'B+' long-term foreign currency issuer credit rating was affirmed. At the same time, the Russia national scale rating on the Oblast was lowered to 'ruA' from 'ruA+'.

"The rating actions reflect our concern that Kaluga Oblast's budget is coming under increasing pressure from growing social spending," said Standard & Poor's credit analyst Elena Ershova. "This pressure has already resulted in a reduction of the operating margin and may lead to further deterioration of the Oblast's financial performance, while other concerns include the lack of operational transparency, management sophistication, and administrative coordination."

The ratings on Kaluga Oblast are constrained its limited financial flexibility and relatively low level of wealth. The ratings are supported by the Oblast's low debt burden, its diversified economy, and its minimal involvement in the economy.

Corporates

01.02.2005 - Cbonds Fitch Affirms Russia’s Bank Zenit at ‘B-’

Fitch Ratings, the international rating agency, has today affirmed Russia-based OJSC Bank ZENIT's ("Zenit") ratings at Long-term 'B-' (B minus), Short-term 'B', Individual 'D' and Support '5'. The Outlook for the Long-term rating remains Stable.

The Long-term, Short-term and Individual ratings reflect Zenit’s weak performance, relatively heavy, albeit declining, reliance on related-party business and the high concentration of its loan book. However, they also take into account the bank’s adequate capitalisation, reasonable liquidity and, to date, good asset quality.

Fitch notes that Zenit’s Long-term rating is no longer constrained by the Long-term ‘B’ rating of its majority shareholder, Russian oil company OAO Tatneft, after the latter was removed from Negative Rating Watch on 18 January 2005. Furthermore, there are plans to dilute Tatneft’s stake to just over 25% by mid-2005 from the current 52% of voting shares through the sale of its shares to new shareholders. Nevertheless, at present the level of business between Zenit and Tatneft remains significant, with related parties (primarily Tatneft) accounting for around 30% of customer funding and 20% of revenues as at end-H104. Related-party lending, though, declined to 4% at end-H104 from 15% of the loan book at end-2002. Fitch will continue to monitor developments in Tatneft’s financial position, the level of its control over Zenit, and the volumes of business between the bank and Tatneft.

01.02.2005 - Cbonds S&P: Russia Rail Rtg Unchanged By Sov Upgrade

Standard & Poor's Ratings Services said today that the upgrade of the Russian Federation (foreign currency BBB- /Stable/A-3; local currency BBB/Stable/A-3) will have no immediate impact on the corporate credit rating on JSC Russian Railways (RZD; BB+/Stable/--). The Russian Federation was upgraded on Jan. 31, 2005 (see "Research Update: Russian Federation Long-Term FC Rating Raised To Investment Grade 'BBB-'; Outlook Stable", on RatingsDirect, Standard & Poor's Web-based credit analysis system).

The rating on RZD does not factor in direct financial government support and reflects its stand-alone credit quality, which benefits from supportive tariff regulation. Until now the government has mainly resorted to establishing cross-subsidizing mechanisms within RZD's regulated tariff system to cover losses within the company, instead of providing direct financial support. Consequently, the improvements in the government's debt level and external liquidity recognized by the recent sovereign upgrade do not translate into credit enhancement for RZD.

02.02.2005 - Cbonds Moody's assigned (P)Ba3 provisional rating to the further notes issued by Russia International Card Finance S.A.

35 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Approximately USD75,000,000 of debt securities affected

Moody's has assigned the following provisional rating to the debt issuance of Russia International Card Finance S.A: (P)Ba3 to the issuance of approximately USD 75 million Class 2004 9.75% Structured Receivables Notes due 2009. This further issuance will consolidate with, and form a single series with, the USD 225 million Class 2004 Notes issued on 3 November 2004.

The rating addresses the expected loss posed to investors by the legal final maturity. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal at par on or before the rated final legal maturity date. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

The proceeds from the sale of the notes will be used by the Issuer, a Luxembourg bankruptcy remote SPV, to make a secured loan to Rosbank. Rosbank, in turn, will grant in favour of the Issuer, a first priority security interest in the Receivables, which are its rights to present and future debit and credit card receivables due from VISA and MasterCard. Moody's issues provisional ratings in advance of the final sale of securities, and these ratings only represent Moody's preliminary opinion.

Upon a conclusive review of the transaction and associated documentation, Moody's will endeavour to assign a definitive rating to the bonds.

The definitive ratings may differ from the provisional ratings set forth in this report. Moody's will disseminate the assignment of definitive ratings through its Client Service Desk.

02.02.2005 - Cbonds Fitch Rates 2nd Issuance of Russia International Card Finance Notes Exp 'B+'

Fitch Ratings, the international rating agency, has yesterday assigned Russia International Card Finance S.A.'s further Class 2004 9.75% structured receivables fixed-rate notes for an issuance amount of between USD50million- 75m an expected 'B+' rating. At the same time, the agency has affirmed the 'B+' rating of the original USD225 million Class 2004 notes issued in November 2004. The rating will be made final on receipt of documents conforming to the information already received and satisfactory legal opinions.

The further Class 2004 will be consolidated with the original Class 2004 notes to form a single series of Class 2004 notes. In Fitch's opinion, the issuance of the further Class 2004 notes will not negatively affect the original Class 2004 noteholders.

The transaction securitises existing and future international credit card voucher receivables generated by JCS United Card Services ("UCS") through its merchant-acquiring business and due to JSCB Rosbank ("Rosbank") from Visa and MasterCard for settling the vouchers with the merchants.

The rating of the transaction is based on UCS and Rosbank's ability to generate future credit card receivables, which is measured by Fitch's going concern assessment of both entities. The rating addresses the timely payment of interest and ultimate payment of principal by the legal final maturity date of September 2010, and the likelihood that cash flows generated by the assigned receivables will be sufficient to make timely interest payments and ultimate principal repayments on the notes over the life of the transaction.

The transaction is structured as a loan from Russia International Card Finance SA, located in Luxembourg, to Rosbank. This loan is secured by an assignment of the receivables. Obligor notices and consents instruct VISA and MasterCard to deposit payments owed to Rosbank into a segregated offshore account.

03.02.2005 - Cbonds S&P Cuts Southern Telecoms To 'CCC+/ruBB'; Otlk Neg

Standard & Poor's Ratings Services said yesterday it lowered its long-term corporate credit rating on Russia-based regional incumbent telecommunications operator Southern Telecommunications Co. (OJSC) (STC) to 'CCC+' from 'B-', as a result of the company's significantly increased exposure to financial risk. The outlook is negative.

At the same time, Standard & Poor's lowered its Russia national scale and senior unsecured debt ratings on the company to 'ruBB' from 'ruBBB-'.

03.02.2005 - Cbonds

36 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

S&P Keeps Rosneft and Gazprom On CW Dev

Standard & Poor's Ratings Services said yesterday it is keeping its 'B' long-term corporate credit ratings on state- owned oil company OJSC Oil Company Rosneft (Rosneft) on CreditWatch with developing implications.

At the same time, Standard & Poor's stated that it is maintaining its 'BB-' long-term corporate credit and senior unsecured debt ratings on Russia-based gas company OAO Gazprom (Gazprom) and related entities on CreditWatch with developing implications.

Rosneft and Gazprom remain on CreditWatch following Rosneft's announcement that its $9.3 billion acquisition of a 76.8% stake in Yuganskneftegas (Yugansk; not rated), a former subsidiary of OAO NK Yukos (D/--/--), was financed by a $6 billion prepayment from China National Petroleum Corp. (CNPC; not rated) for crude oil to be supplied over the next five-six years (treated as secured debt by Standard & Poor's) and by loans from Russian banks (of undisclosed maturities).

The ratings on Rosneft were initially placed on CreditWatch on Dec. 24, 2004, following the company's announcement that it became the effective owner of a 76.8% stake in Yugansk. At the same time, the CreditWatch status of Gazprom--originally placed on CreditWatch on Nov. 30, 2004--was maintained, reflecting the Russian government's plan to acquire a direct controlling stake in Gazprom by contributing Rosneft.

"The CreditWatch status of Rosneft and Gazprom reflects Standard & Poor's concerns about potentially increased leverage (particularly short-term and secured debt) following the acquisition of Yugansk, as well as major uncertainties regarding the terms of the new financing and the details of the oil supply contract with CNPC," said Standard & Poor's credit analyst Elena Anankina.

Standard & Poor's is also concerned about the considerable tax claims faced by Yugansk and the litigation started by Yukos in the international courts, and it is unclear whether Rosneft and Gazprom would receive any material support from the government to offset the resulting increased financial risks. Standard & Poor's believes that the degree of government support will be largely determined by incentives and economic policy and is not, therefore, affected by the recent upgrade of the sovereign ratings on Russia to foreign currency BBB-/Stable/A-3, local currency BBB/Stable/A-3.

"The CreditWatch status also reflects uncertainties about the timing and terms of the merger of Rosneft and Gazprom," added Ms. Anankina.

04.02.2005 - Cbonds Moody's assigns Ba3 rating to Eurasia Capital S.A. LPNs

USD 150 Million of Debt Securities Affected.

Moody's has assigned a rating of Ba3 to the USD 150,000,000 9.125 per cent. Loan Participation Notes due 2008 ( the "Notes") issued by Eurasia Capital S.A. (the "SPV"). The Notes are used for the sole purpose of financing a fiduciary deposit with J.P. Morgan Bank Luxembourg S.A. pursuant to a Fiduciary Deposit Agreement. The deposit is applied by J.P. Morgan Bank Luxembourg S.A. for the sole purpose of making a loan (the "Loan") to Home Credit & Finance Bank Limited Liability Company, a bank established under the laws of the Russian Federation ("HCFB"). The Notes are term issuances, which are listed on the London Stock Exchange. The Ba3 rating of the Notes is based primarily on:

- The strength of the structure and the protection furnished to holders of the Notes by certain early amortization events. - The ability of HCFB, the ultimate obligor in respect of payments under the Notes, to make timely payments of interest and ultimate payment of principal on the Loan. - The effective segregation afforded by Luxembourg law of the SPV's rights to amounts due under the Fiduciary Deposit Agreement and in certain circumstances to repayments made under the Loan. - The charge over and assignment of certain rights and interests by the SPV and J.P. Morgan Bank Luxembourg S.A. made under a Trust Deed in favour of the Trustee for the benefit of Noteholders under English law. - Triggers linked to the performance of the loan and to the ability of J.P. Morgan Bank Luxembourg S.A. to act as fiduciary.

The proceeds of the Notes are deposited in a Fiduciary Deposit Account in Luxembourg established with J.P. Morgan Bank Luxembourg S.A. and used for the purpose of making the Loan to HCFB. The Notes are backed by the SPV's interests in and rights related to the Fiduciary Deposit Account. The SPV will only account to Noteholders for amounts equivalent to principal and interest (if any) received from J.P. Morgan Bank Luxembourg S.A. under the

37 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Fiduciary Deposit Agreement, and J.P. Morgan Bank Luxembourg S.A. in turn will only account to the SPV for amounts received from HCFB under the Loan.

The Notes are secured by a charge in favour of the Trustee for the benefit of the Noteholders over the SPV's rights to all payments of principal and interest together with any other amounts due to the SPV under the Fiduciary Deposit Agreement. Under the terms of the Fiduciary Deposit Agreement, upon the occurrence of an Event of Default or certain other events, J.P. Morgan Bank Luxembourg S.A. will assign all of its rights under the Loan agreement to the SPV, which will under the Trust Deed have assigned all such rights to the Trustee for the benefit of the Noteholders.

07.02.2005 - Cbonds Fitch Assigns Final ‘B+’ Rating To Alfa’s Eurobond

Fitch Ratings, the international rating agency, has today assigned Alfa MTN Markets Limited's USD150 million 7.75% issue of medium term notes due February 2007 a final Long-term 'B+' rating. The proceeds from the issue will be on-lent to Alfa Bank (rated Long-term foreign currency ‘B+’, Short-term ‘B’, Support ‘4’, Individual ‘D’) or ABH Financial Limited.

Alfa Bank is the 100%-owned principal subsidiary of ABH Financial Limited. Alfa Bank's principal activity is commercial and retail banking. It is also active in investment banking, trade finance, insurance and asset management. ABH Financial Limited also owns Alfa Capital Holdings Limited, which provides a wide range of investment banking services, such as corporate finance, securities (mainly equity) brokerage, asset management, private equity, research and proprietary trading.

07.02.2005 - Cbonds S&P Raises Rostelecom Rating To 'B+'; Outlook Stable

Standard & Poor's Ratings Services said today it raised its long-term corporate credit rating on Russia-based national long-distance telecommunications provider Rostelecom to 'B+' from 'B', as a result of the company's reduced financial-risk exposure and improved market position. The outlook is stable.

"Rostelecom has benefited from its improved financial position, thanks to declining debt and continuing growth of long-distance traffic, which has helped offset declining prices and has stabilized the company's performance," said Standard & Poor's credit analyst Lorenzo Sliusarev. "Furthermore, management's effective measures to control costs and protect market leadership have further enhanced the company's credit profile."

Rostelecom is expected to sustain its sound and improving capital structure and cash flow generation in the near to medium term. The company's credit-protection metrics are expected to remain strong for the rating category. Standard & Poor's notes, however, that the ongoing market liberalization and regulatory changes might lead to changes in the competitive environment. The actual impact on Rostelecom's position is subject to uncertainty, which somewhat offsets the company's continuing positive performance trend.

08.02.2005 - Reuters S&P Rates VimpelCom New Loan Participation Notes BB-

Standard & Poor's Ratings Services said today it assigned its 'BB-' senior unsecured debt rating to JSC Vimpel- Communications' (VimpelCom; BB-/Positive/--) proposed loan participation notes of up to $300 million to be issued by--but without recourse to-- UBS (Luxembourg) S.A., for the sole purpose of funding an intended loan of a similar amount to VimpelCom.

The proposed bond issue should assist VimpelCom to fund its significant investment program and increase its liquidity in anticipation of its maturing $250 million loan from JPMorgan AG. "The ratings on VimpelCom remain constrained by an aggressive investment policy, which aims to keep up with the rapid growth of the Russian mobile telecommunications market," said Standard & Poor's credit analyst Lorenzo Sliusarev.

Intense industry competition and increased uncertainty in the domestic regulatory and business environment are also constraining factors.

These risks are, however, moderated by the company's successful regional expansion of operations--despite management having to address various material regulatory issues in the recent past--and its demonstrated ability to improve financial performance in a dynamic and challenging environment.

38 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

"Despite speculation surrounding the company's near-term future brought about by recent tax claims against VimpelCom and financial claims against VimpelCom's Kazakh subsidiary, Standard & Poor's considers the probability of significant negative implications as a result of these claims as very low," added Mr. Sliusarev.

08.02.2005 - Cbonds Moody's affirmed VimpelCom’s ratings; assigned a (P)B1 rating to the company's notes

Approximately $1.3 Billion in Debt Securities Affected

Moody's has yesterday affirmed the ratings of Open Joint Stock Company Vimpel-Communication ("VimpelCom" or the "company"); the company's senior implied rating was affirmed at Ba3 and the ratings on the company's loan participation notes were affirmed as listed below. Concurrently, Moody's assigned a (P)B1 rating to the company's proposed $300.0 million in new loan participation notes. The ratings outlook is stable.

Ratings affected are as follows:

- Senior implied rating affirmed at Ba3 - Unsecured issuer rating affirmed at B1 - $250.0 million in 10.45% senior unsecured loan participation notes due 2005 affirmed at B1 - $450.0 million in 10% senior unsecured loan participation notes due 2009 affirmed at B1 - $300.0 million in 8.375% senior unsecured loan participation notes due 2011 at B1 - Up to $300.0 million in proposed new senior unsecured loan participation notes due 2010 at (P)B1

Net proceeds from the new notes offering will be used partly to repay indebtedness including, at maturity, a portion of the $250 million notes due in April 2005 and partly to continue development and expansion of the networks including possible acquisitions or investments in existing wireless operators within Russia and/or the CIS or by establishing new wireless operators or entering into local partnerships or joint ventures within Russia and/or the CIS.

The ratings continue to reflect the highly competitive operating environment, risks related to the company's rapid expansion both through internal and external growth, and country-related risk factors, in particular lack of regulatory and legal transparency which recently manifested itself in the postponement of the re-issuance of VimpelCom-Region's licences to VimpelCom after VimpelCom-Region merged with VimpelCom due to the absence of the relevant regulatory framework and the tax claims against the company in late 2004. The company is yet to finalise a similar merger process with KB-Impuls once the regulatory platform is in place. The rating agency, however, notes that the delays with licence issuance also affect other mobile operators in Russia and are not specific to the company. Moody's also notes the uncertainty associated with a possible resolution towards a recent "order to pay" in the amount of approximately $5.5 billion received by the company's subsidiary KaR-Tel from The Savings Deposit Insurance Fund, a Turkish state agency, although without any material impact on the ratings at present as the nature of the claim is still in question.

At the same time the ratings are supported by VimpelCom's strong market position (the nationwide market share increased from 30.6% as of 30 September 2003 to 33.7% as of 30 September 2004), continued operating cash flow generation, albeit largely used for material capital expenditure programme, and low debt levels relative to the company's operating cash flow. The rating relies on the expectation that the consolidated leverage will remain less then 2.0x debt to EBITDA going forward.

The assigned ratings assume that there will be no material variations to the draft legal documentation reviewed by Moody's, and assume that these agreements are legally valid, binding, and enforceable.

08.02.2005 - Cbonds Fitch Affirms MMK’s Rating and Outlook

Fitch Ratings, the international rating gency has today affirmed Russia-based Magnitogorsk Metal and Steel Works (“MMK”) Senior Unsecured foreign currency rating of ‘BB-‘(BB minus). The Outlook for the rating remains Stable. This follows an assessment of additional information received from the company’s management, which satisfied the uncertainties outlined in the agency’s comment issued on 23 December 2004.

In particular, the agency understands that MMK’s management is neither directly nor indirectly related to the investor base represented by UFG’s 100%-owned entities UFGIS Trading Ltd and UFGIS Structured Holding Ltd, respectively. In addition, the transfer of ownership of Mechel’s and government stakes in MMK of 15% and 18%, respectively had no impact on the net debt position of the company. The legal environment in Russia provides UFG, with its 33% stake, an ability to block the decision-making process at MMK in some circumstances. However, Fitch

39 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005 understands that such events would be limited to share issues or IPOs while in practice the new shareholders have stated their support for management’s strategy.

Fitch understands that upon completion of MMK’s privatisation, which was effective with the sale of the remaining government stake on 22 December 2004, the shareholding structure will be reorganised, thus allowing for greater transparency. The agency will closely monitor progress going forward.

10.02.2005 - Cbonds Moody's affirmed Rosneft rating following the details of its Yuganskneftegaz

Approximately USD 150 million of public debt affected

Moody's Investors Service has yesterday affirmed the Ba3 issuer rating of OJSC Oil Company Rosneft ("Rosneft") following the emergence of details of its acquisition of Yuganskneftegaz from Yukos. The developing outlook remains unchanged. Moody's also affirmed the Baa3 rating on Rosneft's USD 150 million Eurobond with a positive outlook, reflecting the rating of the Russian sovereign.

Moody's stated that the USD9.35 billion acquisition of Yuganskneftegaz had put considerable strain on Rosneft's financial profile, given that the transaction was largely purchased by taking on new debt from domestic Russian banks. This is further exacerbated by additional obligations acquired via Yuganskneftegaz, including some USD1.4 billion in potential guarantee obligations to former Yukos creditors and up to USD5.2 billion in back-dated tax claims associated with the former Yukos subsidiary. Moody's ratings assume that Rosneft will be able to negotiate a restructuring of these tax obligations with the tax authorities to minimise their impact on Rosneft's financial position.

Moody's also notes that Rosneft's merger with Gazprom (rated Baa3, positive) has been delayed as a result of the acquisition. Details as to whether Rosneft will continue to be merged with Gazprom, and whether any such transaction will include Yuganskneftegaz, are likely to emerge over the course of February and are likely to depend on the outcome of a Houston court hearing scheduled for February 16.

While the above mentioned factors attach some uncertainty to Rosneft's ratings, Moody's also notes that the purchase of Yuganskneftegaz has transformed Rosneft into a significantly enlarged group with growing strategic importance to the Russian state, now making it the second-largest Russian oil company by production and reserves. Rosneft's ability to attract rapid funding of the Yuganskneftegaz transaction through a network of undisclosed domestic Russian banks also endorses Moody's view that Rosneft is benefiting from its state ownership and should continue to be able to access domestic funds for short and medium term liquidity.

The developing outlook of Rosneft's Ba3 issuer rating reflects ongoing uncertainty surrounding the future of Rosneft as a legal entity, given that the merger with Gazprom is due to go ahead. It also reflects uncertainty related to Yuganskneftegaz, which may be separated from Rosneft in any future merger, particularly in the event that the Houston court ruling remains in place. The Baa3 rating and positive outlook on Rosneft's debt rating continues to mirror Russia's sovereign rating, given Moody's view that the bonds will be refinanced by Gazprom in the event of a merger. Regardless, Moody's believes that Rosneft's enlarged position and its 100% state-ownership provide a similar credit risk profile to bondholders.

OJSC Oil Company Rosneft, headquartered in Moscow, is a major integrated Russian oil and gas company. It is 100% state-owned. In 2003 Rosneft produced 19.6 million tons of oil and 7.0 billion cubic metres of gas. Through its acquisition of Yuganskneftegaz, Rosneft has added approximately 11.2 billion barrels of proven reserves to its existing 2.9 billion barrels.

10.02.2005 - Cbonds Fitch Rates 2nd issuance of Russia International Card Finance Notes 'B+'

Fitch Ratings, the international rating agency, has today assigned Russia International Card Finance S.A.’s further USD75 million Class 2004 9.75% structured receivables fixed-rate notes a final 'B+' rating. At the same time, the agency has affirmed the ‘B+’ rating of the original USD225 million Class 2004 notes issued in November 2004.

The latest Class 2004 will be consolidated with the original Class 2004 notes to form a single series of Class 2004 notes. In Fitch’s opinion, the issuance of the latest Class 2004 notes will not negatively affect the original Class 2004 noteholders.

40 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

The transaction securitises existing and future international credit card voucher receivables generated by JCS United Card Services (“UCS”) through its merchant-acquiring business and due to JSCB Rosbank (“Rosbank”) from Visa and MasterCard for settling the vouchers with the merchants.

The rating of the transaction is based on UCS and Rosbank's ability to generate future credit card receivables, which is measured by Fitch's going concern assessment of both entities. The rating addresses the timely payment of interest and ultimate payment of principal by the legal final maturity date of September 2010, and the likelihood that cash flows generated by the assigned receivables will be sufficient to make timely interest payments and ultimate principal repayments on the notes over the life of the transaction.

The transaction is structured as a loan from Russia International Card Finance SA, located in Luxembourg, to Rosbank. This loan is secured by an assignment of the receivables. Obligor notices and consents instruct VISA and MasterCard to deposit payments owed to Rosbank into a segregated offshore account.

10.02.2005 - Reuters Fitch Revises Outlook on Mastercroft To Positive and Affirms Rating at ‘B’

Fitch Ratings, the international rating agency, has today revised the Outlook for Cyprus-registered Mastercroft Ltd. to Positive from Stable. At the same time the agency affirmed the Senior Unsecured 'B' and Short-term ‘B’ ratings. The agency also affirms the senior unsecured rating of 'B' for notes issued by Mastercroft’s 100% owned EvrazSecurities S.A. Mastercroft is one of Russia’s largest steel producers and the 12th largest in the world. It holds a leading domestic market position in long steel products and a monopoly position in railway transport steel products; its main customers are the railway, construction and pipe-producing industries.

The rating action reflects the company’s successful strengthening of its financial performance in 2004 based on 1H04 consolidated and FY04 non-consolidated results compared to FY03, together with generation of synergies from its three operating mills and consolidation of its mining operations, thus maintaining its competitive position as a low-cost steel manufacturer among international peers.

Fitch notes that in the first half of financial year 2004 alone Mastercroft generated revenues of USD2.8 billion, near to the level of FY03 overall. The agency therefore expects consolidated revenues to more than double in FY04. This is consistent with the combined revenue of the three steel mills, which totaled USD4.9bn at FYE04 compared to USD2.4bn in FY03. While the positive market momentum in the steel industry worldwide was the main driver of the improved financial performance, Mastercroft also demonstrated its ability to generate synergies from its three operating mills, which only three years ago were on the verge of bankruptcy. This is evident in a complementary product mix, especially in high-margin semi-finished (e.g. slabs) and finished steel products (e.g. rails), which underpinned consolidated profit in 1H04, and which was reflected in an EBITDA margin of 34% in 1H04 (FY03: 27%).

The agency views as positive Mastercroft’s consolidation of mining assets within the group, thus underpinning its low cost international advantage. In 2004 the company had an excess supply of coking coal and controlled roughly 70% of its iron ore needs, well ahead of 2003 levels. The increased control of raw materials was a result of both new acquisitions and consolidating certain mining operations with those of Mastercroft’s main shareholder.

Fitch continues to monitor any progress towards addressing corporate governance concerns mainly associated to the legal complexity of the company’s structure, which remains privately owned. The affirmation of the ratings also reflects Fitch’s concern about related-party transactions. In 1H04, the gross debt almost doubled to USD1.5bn compared to USD843m at FYE03. Almost half of the additional debt is associated to the issuance of USD300m unsecured notes with coupon 10.875%, while the rest were mainly short-term trade financing with affiliates some of which were due to be repaid at FYE04. While not unusual for holding companies, the magnitude of the related party transactions in 2004 led to an increase in short-term debt to 67% in 1H04 compared to 37% at FYE03. However, comfort is gained from low net leverage of 0.7x (FYE03: 0.8x) and unutilized credit lines which stood at USD320m as of 31 July 2004.

11.02.2005 - Cbonds S&P Affirms Severstal B+ Rtgs On Planned Acquisition

Standard & Poor's Ratings Services said today it affirmed its 'B+' long-term corporate credit rating on Russia- based steelmaker OAO Severstal, after the company announced its plan to acquire a 62% stake in Italy-based steel company Lucchini SpA by means of a €430 million ($550 million) capital contribution (subject to regulatory approval). The outlook is stable.

41 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

"The affirmation reflects Standard & Poor's expectation that Severstal's financial metrics will remain in line with the ratings after the planned acquisition," said Standard & Poor's credit analyst Elena Anankina.

14.02.2005 - Cbonds Fitch Puts Severstal National Rating On Negative Watch, Lucchini Acquisition Impact Limited

On February 11, 2005 Fitch Ratings, the international rating agency, placed the Russia-based steel manufacturer OAO Severstal's (Severstal) National senior unsecured rating 'A(rus)' on Rating Watch Negative. At the same time, the agency affirmed Severstal's 'B' Short-term rating. The Senior Unsecured rating of 'B+' remains on Rating Watch Negative.

The agency also commented that the acquisition of Italy-based Lucchini SpA ("Lucchini") would have limited financial impact on Severstal. Severstal plans together with its affiliated companies to purchase a 62% stake in the Italy-based steel manufacturer via a EUR450 million capital increase by Lucchini, to which Severstal and its affiliated companies will subscribe EUR430m and the Lucchini family EUR20m.

14.02.2005 - Cbonds Moody's affirmed Severstal's ratings

Approximately USD 700 million of Debt Affected.

On February 11, 2005 Moody's Investors Service has affirmed the senior implied ratings of OAO Severstal ("Severstal" or the group) at B1 following the announcement that Severstal has reached an agreement to acquire a 62% stake in Lucchini S.p.A. ("Lucchini") for a EUR 430 million consideration used to subscribe to Lucchini's contemplated capital increase. The outlook for the ratings remains stable.

Ratings affected by today's action include:

The senior implied rating of OAO Severstal affirmed at B1 The senior unsecured issuer rating for OAO Severstal affirmed at B2 The senior unsecured rating on the USD 700 million loan participation notes of OAO Severstal affirmed at B2

Moody's rating affirmation reflects the following: i) the fact that Severstal will benefit from a broader geographical, product portfolio and customer diversification as Lucchini is the second largest steel manufacturing group in Italy producing mainly engineering steel long products whilst Severstal is mainly a flat steel producer with a significant share of revenues generated within its domestic Russian market. ii) the increase in tonnage for the group and its ability to benefit from economies of scale with the group's output increasing to about 16.5 million tons pro-forma for the acquisition (year-end 2004). iii) the group's strong profitability improvement during 2004 reflected by an EBITDA margin of 37% vs. 31.3% in 2003 and its low leverage at year-end 2004 of about 0.2x. This performance is mitigated by significant cash outflows related to capex, dividend payments and working capital during 2004. iv) the improvement in Lucchini's financial profile as a result of the application of the 450 million cash inflow contributed by Severstal and the Lucchini family towards the reduction in Lucchini's debt burden to about Euro 800 million on a net debt basis.

However, Moody's cautions that Severstal is acquiring a highly indebted company with Euro 800 million in net debt (pro forma for the capital increase) and Euro 280 million in EBITDA for 2004, a very strong year for steel companies. This is likely to lead to a dilution of the group's operating margins. The rating agency also cautions that whilst the integration of the Rouge Industries' acquisition completed earlier in 2004 has been progressing well, acquisitions such as Lucchini, which has been through a sizeable capex programme and has also completed a financial restructuring, always carry significant integration risks. …

The stable outlook reflects our expectation of sustained strong demand for Russian steel with the assumption that Russian real domestic GDP growth will continue to remain in line or above the 5-6% rate experienced in the last few years.

15.02.2005 - Cbonds Fitch Assigns Final ‘BB+’ Rating to Vneshtorgbank's Sub Debt Issue

42 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Fitch Ratings, the international rating agency, has today assigned VTB Capital S.A.’s USD750 million issue of 6.315% loan participation notes due February 2015 a final Long-term 'BB+’ rating.

Proceeds from the notes have been used to finance a subordinated loan to Russia's JSC Vneshtorgbank ("VTB"). VTB is rated Long-term ‘BBB-’ (BBB minus), Short-term ‘F3’, Individual ‘C/D’, and Support ‘2’.

Details of the notes can be found in the statement issued on 25 January, available from the agency's website at www.fitchratings.com.

VTB was founded in 1990 and is Russia's second largest bank by equity and assets (consolidated assets of USD14 billion at end-Q304).

Fitch Assigns Final ‘BB+’ Rating to Sberbank's Sub Debt Issue

Fitch Ratings, the international rating agency, has today assigned UBS (Luxembourg) S.A.’s USD1 billion issue of 6.23% loan participation notes due February 2015 a final Long-term 'BB+’ rating. Proceeds from the notes have been used to finance a subordinated loan to Russia's Sberbank. Sberbank is rated Long-term ‘BBB-’ (BBB minus), Short-term ‘F3’, Individual ‘C/D’, and Support ‘2’.

17.02.2005 - Cbonds Fitch Upgrades Sistema's Long-term Ratings to ‘B+’; Outlook Stable

Fitch Ratings, the international rating agency, has today upgraded Sistema Joint Stock Financial Corp's (“Sistema”) Senior Unsecured foreign and local currency ratings to ‘B+’ from ‘B’. Following the upgrade the Outlook is Stable. Details of the affected Eurobonds issued by Sistema Finance and Sistema Capital are listed below.

Sistema is a Russian publicly listed, diversified industrial holding company, majority owned by its management that has controlling interests in fixed and mobile telecommunications, insurance, banking, real estate and certain other industries, primarily in Russia.

The upgrades reflect Sistema’s improved ability to upstream cash through dividends from its key subsidiary, MTS, the leading mobile operator in Russia and CIS. After Deutsche Telekom reduced its stake in MTS to below 25% at end-2004, Sistema acquired a right to unilaterally terminate its shareholder agreement with DT at any time, which, amongst other aspects, regulated dividend payments. Fitch notes the importance of this right in that dividends from MTS are Sistema’s major source of consolidated cash flow. Fitch also notes however that, as at the date of this report, this agreement has not yet been terminated. As MTS's leverage has been decreasing and its cash generating ability has been strengthening, it is expected to be in a position to upstream cash to shareholders without a negative impact on its stand alone credit quality, so potentially offering Sistema improved financial flexibility.

An upgrade of Sistema's ratings also takes into account the improving financial performance that has surpassed the agency’s expectations. The company's operating income before depreciation and amortisation (“OIBDA”) margin rose to 44.7% for the first nine months of 2004, largely driven by the performance of MTS. Fitch notes that Sistema has consolidated some of its operating assets during the past year, most notably its alternative telecom businesses, and improved its strategic focus to seven key industries: telecoms, insurance, technology, media, banking, retail and real estate. These actions have had a positive impact on its credit rating profile.

Sistema's major subsidiaries have improved their free cash flow positions and are now much closer to being positive; they are no longer expected to require substantial cash contributions from Sistema. Fitch cautions, however, that while the company’s newly adopted seven-industry strategy is seen as having a positive impact on the ratings, future diversifications outside its traditional business lines may expose it to new operating and financial risks, which would be of concern. Another positive factor is the decreasing proportion of secured debt on Sistema's balance sheet. Such debt declined to 19.8% at end-2003 from 33.8% at end-2002 and is likely to have further declined at end-2004 as major funding initiatives have recently been on a non-secured basis. Sistema has effectively replaced its short-term debt with two Eurobond issues of USD350 million each, maturing in 2008 and 2011, with one of the bonds puttable in 2007. Thus, short-term refinancing risks have tangibly subsided during the past year.

However, Sistema's lenders have no direct claims on cash flows of its operating subsidiaries, and thus structural subordination remains a significant credit constraining factor. While Sistema’s near-term liquidity position has been enhanced by the recent IPO, Fitch believes this new capital is likely to be reinvested in existing and potentially new business lines and not be directed towards debt reduction, and as such is considered rating neutral.

43 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

Although the recent London Stock Exchange (LSE) listing is expected to improve transparency at Sistema, corporate governance concerns continue to be a significant credit constraining factor in Russia. Mr. Evtushenkov remains the controlling shareholder in the company and able to exercise substantial influence over its operational and financial policy as evidenced by his recent decision to become the CEO.

Affected Eurobond issues:

USD350m Eurobond issued by Sistema Finance S.A. maturing in 2008 and guaranteed by Sistema, upgraded to 'B+' from 'B'. Although this bond is secured with shares of MTS, Sistema's operating subsidiary, the credit profiles of Sistema and MTS are closely interrelated and thus a pledge of shares does not provide a credit enhancement.

USD350m Eurobond issued by Sistema Capital maturing in 2011 and guaranteed by Sistema upgraded to 'B+' from 'B-' on the back of an upgrade of Sistema issuer's rating and decreasing proportion of secured debt on the group's balance sheet. These two Eurobonds are rated on a par with Sistema's Senior Unsecured issuer rating.

17.02.2005 - Cbonds Fitch Upgrades Moscow Bank for Reconstruction and Development to ‘B’

Fitch Ratings, the international rating agency, has today upgraded Moscow Bank for Reconstruction and Development’s ("MBRD") Long-term rating to 'B' from 'B-' (B minus), Support rating to ‘4’ from ‘5’ and National Long-Term rating to ’BBB-(rus)’ (BBB minus(rus)) from ‘BB+’(rus). The bank's other ratings are affirmed at Short- term 'B' and Individual 'D/E’.

Separately, Fitch has also today assigned Dresdner Bank Aktiengesellschaft's (“Dresdner”) upcoming issue of limited recourse loan participation notes, to be used solely to finance a loan to MBRD, an expected Long-term 'B' rating (see separate announcement on www.fitchratings.com).

The upgrades follow today’s upgrade of Sistema Joint Stock Financial Corp. (Sistema) (see separate statement on www.fitchratings.com). MBRD's Long-term and Support ratings are driven by the potential for support from Sistema, its majority shareholder (c.96%). As such, the upgrade reflects Fitch's view of the improved capacity of Sistema to support the bank, if required. MBRD provides a range of banking services to both Sistema and to parties closely connected with it.

MBRD's Individual rating reflects very high concentration levels within the bank’s loan book (top 20 borrowers accounted for 69% at end-Q304) and customer funding base, notably with affiliates and business partners of the Sistema group of companies (61% of loan book at end-Q304), potentially modest capitalisation in light of these concentrations and weak profitability. However, it also reflects the bank’s reasonable liquidity.

MBRD’s weak profitability in both 9M04 and FY03 (returns on average equity of 2.9% and 4.1%, respectively) reflects the bank’s modest net interest margin due to a relatively high proportion of low-earning liquid assets. It also reflects high loan loss provisions due to loan growth and a sizeable cost base, partly due to increasing expenditure on retail banking infrastructure. Performance in 9M04 was also affected by weaker securities trading income and lower translation gains.

Gross loans grew by a rapid 42% during 9M04, having increased by 73% in FY03. Despite no asset quality problems to date, loan loss reserve (LLR) coverage of gross loans (6.1% at end-Q304) is potentially low, given the relatively low quality of many borrowers, although the portfolio is mostly collateralised.

MBRD’s customer funding base grew by 170% in FY03, partly due to significant growth in balances from Sistema at year-end, but decreased by 14% during 9M04, as the balances of third parties fell as a result of the bank’s pricing policy. The funding base is relatively short term, highly concentrated and prone to fluctuations. Liquidity has tightened but is still reasonable, though reliance on interbank funding has increased.

MBRD’s total capital ratio was a solid 21% at end-Q304. However, the bank’s capitalisation is potentially modest in the light of very high loan concentration levels and the bank’s ambitious expansion strategy. In 2005, a new share issue equal to 21% of end-Q304 equity is planned. This will be purchased by Sistema, although negotiations are ongoing to subsequently sell a minority stake in the bank to a foreign investor.

MBRD was founded in 1993 and at end-Q304 ranked among the 50 largest Russian banks by total assets. Its parent, Sistema, a financial industrial holding group, has subsidiaries in many sectors of the economy, although its primary area of focus is telecommunications. At end-Q304, Sistema’s total assets were c.USD8 billion. MBRD’s strategy is to develop into a universal bank with an increased focus on retail banking, including by accessing the customer

44 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005 bases of Sistema’s telecommunications and insurance businesses. However, at end-Q304 retail accounted for 1% of loans and 12% of customer funding.

17.02.2005 - Cbonds Fitch Assigns Expected ‘B’ Rating to MBRD’s Eurobond

Fitch Ratings, the international rating agency, has today assigned Dresdner Bank Aktiengesellschaft's (“Dresdner”) upcoming issue of limited recourse loan participation notes an expected Long-term 'B' rating.

The notes are to be used solely for financing a loan to Russia’s Moscow Bank for Reconstruction and Development ("MBRD"). Dresdner will only pay noteholders amounts (principal and interest), if any, received from MBRD under the loan agreement.

The rating is contingent upon receipt of final documentation conforming materially to information already received and the final rating will be confirmed at that time.

MBRD is rated Long-Term ‘B’, Short-Term ‘B’, Individual ‘D/E’, Support ‘4’ and National Long-Term Rating ‘BBB-‘(rus). The bank’s Long-Term, Support and National Long-Term Ratings were upgraded today (see separate announcement on www.fitchratings.com).

The loan agreement between Dresdner and MBRD contains a cross default clause and a covenant that Dresdner’s claims under the loan agreement will rank at least pari passu with the claims of other unsecured creditors, save those preferred by relevant (bankruptcy, liquidation etc.) laws. Other covenants limit mergers and disposals by MBRD and its subsidiaries and transactions between the bank and its affiliates. MBRD has also covenanted to maintain a Total Capital Ratio of no less than 10% or 12% (dependant on the bank’s credit ratings), and to keep exposure to any single non-related borrower to no more than 20% of net assets.

The loan agreement contains a negative pledge clause, which allows for a degree of securitisation by MBRD. Were such securitisation to be undertaken, Fitch comments that the nature and extent of any over-collateralisation would be assessed by the agency for any potential impact on unsecured creditors.

Noteholders will benefit from a put option should Sistema cease to own or control 50% plus one share of the voting share capital of MBRD or no longer have the right to appoint or remove a majority of the bank’s Supervisory Board.

MBRD was founded in 1993 and at end-3Q04 ranked among the 50 largest Russian banks by total assets. Its parent, Sistema, a financial industrial holding group, has subsidiaries in many sectors of the economy, although its primary area of focus is telecommunications.

18.02.2005 - Cbonds Fitch Changes Bank Menatep St. Petersburg’s Outlook to Positive

Fitch Ratings, the international rating agency, has yesterday changed the Outlook for Bank Menatep St. Petersburg’s (“MSPB’s”) Long-term ‘CCC+’ rating to Positive from Negative. The bank's Short-term, Individual and Support ratings have been affirmed at 'C', 'D/E' and '5' respectively.

The change in the Outlook reflects the relative success with which the bank has survived the disruption to its business, resulting from its historic links with Group Menatep and Yukos and the recent changes in the bank’s ownership. Fitch notes that the worst of this disruption now appears to be over and customer attrition levels have fallen. MSPB’s liquidity, while still vulnerable, has stabilised, as management has boosted cash and interbank assets on the balance sheet. Profitability continues to be reasonable, despite the fall in interest-earning assets and the decline in business with Group Menatep companies.

21.02.2005 - Cbonds Fitch assigned Centertelecom BB(rus) National Long-term rating; Outlook - Stable

Fitch Ratings, the international rating agency, has today assigned OAO Centertelecom a National Long-term rating of ‘BB(rus)’ with a Stable Outlook. At the same time, the agency also assigned a National Long-term rating of ’BB(rus)’ to Centertelecom's domestic bond issues of RUB600 million, RUB2 billion and RUB5,622,595,000 maturing in 2005, 2006 and 2009, respectively. Centertelecom’s (“CTel”) Senior Unsecured foreign currency rating of 'B-' (B minus) with a Negative Outlook and Short-term foreign currency rating of 'B' were assigned by Fitch on 8 December 2004.

45 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

The rating reflects both the dominant influence of the company’s majority shareholder, Svyazinvest, on its strategic decision-making processes and CTel’s position as the market leader in fixed-line communications within its territory of operations in the Central Federal District of Russia. As an incumbent telecom provider, the company operates Public Switch Telephone Network in the Moscow region and benefits from such key strategic advantages as wide territorial coverage of its network and a massive customer base inherited from its predecessors that were, until the early 1990s, the exclusive telecom services providers. However, CTel’s market share has been gradually declining, particularly in the most profitable segments of corporate and VIP clients. Overall, CTel faces tangible execution risks for its mid-term business plan implementation.

Fitch further comments that the ‘BB(rus)’ National rating also takes into account that CTel is more heavily leveraged than its domestic peers, with an expected net debt/EBITDA of 3.5x at end-2004. With EBITDA margin likely to deteriorate in 2004 on the back of tariff increase delays on local services and intensifying competition in the long-distance segment, Net Debt/EBITDA ratio is projected to have risen at end-2004. Although the company's financial position has improved after its issuance of a RUB5.6bn bond in August 2004, it remains weak, with short- term debt accounting for 33.9% of the total (by Russian accounting standards) at end-September 2004.

21.02.2005 - Cbonds S&P: North-West Telecom's Proposed RUR3 Billion Notes Issue Assigned 'ruBBB+' National Scale Rating

Standard & Poor's Ratings Services said today it assigned its 'ruBBB+' long-term Russia national scale senior unsecured debt rating to telecommunications operator JSC North-West Telecom's (NWT; B-/Positive/--) proposed Russian ruble (RUR) 3 billion ($107 million) senior unsecured notes issue.

The notes contain one put option exercisable in 2008 and will be repaid in three semiannual installments in 2010- 2011. The proceeds from the issue will be spent on capital expenditures and refinancing.

The ratings on NWT continue to reflect the company's incumbent position in the fixed-line telecoms market in the north-west of Russia, which is being challenged by growing competition from alternative operators, and the company's unbalanced--although improving--structure of regulated tariffs for local and long-distance telephony services.

In 2004, NWT continued moderate investments into network modernization, paired with affordable increases in total debt. Total debt to EBITDA is likely to remain below 2x in 2004-2005. Importantly, two smaller neighboring local fixed-line incumbents were successfully integrated into NWT. The merger was driven by JSC Svyazinvest, NWT's state-controlled parent, and results in about 20% of additional revenue, and marginal improvements in financial and operating metrics for the group. In addition, NWT repaid its previously unsettled liability to the Russian government (about RUR675 million at Dec. 31, 2003) pertaining to equipment delivery contracts with the company and foreign suppliers in 1995-1997.

22.02.2005 - Cbonds S&P Affrms Rostelecom Corp. Governance Score At CGS-6

On Feb. 21, 2005 Standard & Poor's Governance Services said it affirmed its corporate governance score (CGS) on Russian national long-distance telecommunications supplier OJSC Rostelecom at 'CGS-6' on the global scale. At the same time, the Russia national scale CGS on the company was lowered to 'CGS-6.0' from 'CGS-6.4'.

Rostelecom operates in a regulated industry and is majority owned by JSC Svyazinvest, a state-controlled holding company. The company's governance practices and structures are positively influenced by its listing on the New York Stock Exchange (NYSE) and position as one of the most valuable assets in the Svyazinvest group.

"Although there may be potential conflicts of interest associated with the influence of Svyazinvest, Rostelecom has been less affected than other subsidiaries, and the holding company has historically been mindful of minority shareholder interests when exercising its influence over Rostelecom," said Standard & Poor's governance specialist Oleg Chvyrkov.

"Furthermore, U.S. regulatory requirements relating to Rostelecom's listing on the NYSE mitigate those governance risks associated with Svyazinvest's influence on the company," Dr. Chvyrkov added.

The overall CGS on Rostelecom is the result of four component scores on global and Russia national scales of 1 (low) to 10 (high). The global and Russia national scale scores reflect the company's:

-- Ownership structure and external influences 5/5.3 (lowered from 5+/5.8)

46 prepared by Igor Sazonov [email protected] Russia’s fixed income monthly №03, 2005

-- Shareholder rights and stakeholder relations 7+/7.5 (unchanged) -- Transparency, disclosure, and audit 6+/6.9 (raised from 6+/6.8) -- Board structure and effectiveness 5+/5.7 (raised from 5+/5.5)

Note: The detailed information on any issue mentioned in the bulleting could be found on the Cbonds.info bond issues database (http://www.cbonds.info/emissions/index.phtml).

47 prepared by Igor Sazonov [email protected]