Regional Mutual Funds Analyses of Support Securities Market In Rostov, Tatarstan and Northwest January 1997- March 1998 Regions
for the
u.s. Agency for International Development
Contract # EPE-0005-1-00-5040-00, Task Order # 1
Task Manager: November 1998 Ms Olga Stankova
The Pragma Corporation 116 East Broad Street Falls Church VA 22046 tel (703) 237-9303 fax (703) 237 9326 pragmal@lx netcom com ANALYSIS OF THE SECURITIES MARKET OF THE ROSTOV REGION
Prepared by Grechma Elena ApnlS, 1998
General mformatlOn
The exammed regIon mcludes 11 terntones
Kabardmo-Balkana RepublIc Karachalevo-Cherkesskaya RepublIc Adygela RepublIc Dagestan RepublIc IngushetIa RepublIc Kalmykia RepublIc Severnaya Osetla RepublIc Chechma RepublIc Krasnodar terntory Stavropol terntory Rostov regIon
The level of development of the secuntIes market of a specIfic terntory IS to a great extent detenmned by the overall state of economy The unhomogeneous development of terntones m the regIOn IS explamed by a number of factors
EconomIc and geograplucal SItuatIOn favors the development of terntones of central European part (Rostov regIOn, Stavropol terntory) and coastal terntones WIth strong portal mfrastructure (Krasnodar terntory), but complIcates the SItuatIOn m penpheral terntones (KalmykIa, Severnaya Osetla, Dagestan, IngushetIa)
The clImate and natural condItIOns of the South-Western part of RUSSIa are favorable for hfe and economIC actIVIty
Terntones WIth large populatIOn base and bIg mternal market capaCIty are m advantageous POSItIon for further self-development (Krasnodar temtory, Rostov regIOn) NatIOnal conflIcts have tremendous negatIve Impact and undermme the economy (Chechma, Severnaya Osetla)
Issuers '\ I The followmg terntones have most developed economy and the bIggest number of corporatIons
Rostov regIOn There are 37 companIes WIth charter capItal above 1 b1n rubles and 13 compames above 10 b1n rubles
1/ Most developed mdustrles Compames TelecommumcatIOns JSC "RostovelektrosvIaz" JSC "Rostov Cellular CommumcatIOns" Food "Tuapsmsky" brewery, "Kamensky" meet factory AViatIOn "Rosvertol" (hehcopters)
-- "T!lO!lT'll"/V' A k1 Dla.J.Jf!- Heavy machmery-bUlldmg - ....s ...... u. v 5'<>'5rnn"l lUQ.vUU ...", n'" v r 1 Steel foundry "Yuzhstalconstruktsla" Energy "Rostovenergo"
Krasnodar terntory There are 30 compames wIth charter capItal above 1 bIn rubles, 16 companIes - above 10 bIn rubles
Most developed mdustrIes Compames TransportatIOn "Port-Kavkaz", ''NovorossYIsk Sea CommercIal Port", NovorossYIsk Sea Steamslnp Lme, "SOChi Sea CommercIal Port" Food "Moloko", "Chemomorskaya Kefal", "Krymsky Wme Factory", "Kubankhleboprodukt", "Krasnodar Tobacco Factory" TelecommumcatIOns "Kubanelektrosvlaz" 011 and gas "Rosmeft-Krasnodameftegaz" Energy "Kubanenergo"
Stavropol terntory
8 compames WIth charter capItal above 10 bin rubles, 3 ofwhtch are lIsted on RTS-2
Most developed mdustrIes Compames TelecommurucatIons "Stavtelesot", "StavropolelektrosVlaz" 011 and gas "Rosrueft-StavropoIneftegaz", "s tavropolnefteprodukt" Energy "Stavropolenergo", "Stavropolskaya hydropower plant"
II The followmg terntones are less developed
Kabardmo-Balkarskaya RepublIc
1 company WIth charter capItal above 10 bin rubles
Most developed mdustrIes Compames
Heavy machtnery-bU1ldmg - rISC "Kabbalkselkhoztechmka" Metal processmg "Non-ferrous Metals Processmg Plant" TelecommumcatIOns "Stavtelesot", "StavropoielektrosVlaz" Karachaevo-Cherkesskaya RepublIc
1 company wIth charter capItal above 10 bIn rubles
Most developed mdustrles Como.. ames TelecommumcatIons "Karachaevo-CherkesskelektrosvIaz"
III Weakly developed temtones
Kalmylaa RepublIc Severnaya OsetIa RepublIc Dagestan RepublIc Adygeia RepublIc IngushetIa RepublIc Chechma RepublIc
These temtones do not have enterpnses wIth charter capItal above 1 bIn rubles
Blue chips and second-tter shares (see Attachment 1)
There are 4 companIes In the regIOn, quoted on RTS
Company name RTS IIstmg date Types of SeCUrItIes Rostov RegIOn Elektrosviaz August 11, 1997 (sInce common stock, 01 29 97 - on RTS-2) preferred shares Kubanenergo March 3, 1997 (sInce common stock 12 1597 - on RTS-2) Kubanelektrosviaz August 11, 1997 (sInce common stock, 01 1697 - on RTS-2) preferred shares RostovskOle AO EnergetIkI August 11, 1997 (sInce common stock, 12 18 96 - on RTS-2) preferred shares
There also are 5 companIes, quoted on RTS-2
Company name RTS-2lIstmg date Types of SeCUrItIes Stavropolenergo May 30, 1997 common stock, preferred shares Rosrueft-StavropoIneftegaz October 13, 1997 common stock, preferred shares Karachaevo-CherkesskelektrosVlaz October 13, 1997 common stock, preferred shares Rostselmash Decemberl5, 1996 common stock Stavropol Hydropower Plant December 8, 1997 common stock The most attractIve enterpnses are located m the Rostov regIon, Krasnodar temtory, Stavropol temtory, Karachaevo-Cherkesskaya RepublIc and represent the followmg mdustnes energy, 011 and gas and telecommurucatIOns There are several enterpnses worth to be mentIOned although theIr shares are not quoted on RTS
1 JSC "Krasnodarneftegaz" 2 JSC ''Novorosslysk Sea CommercIal Port" 3 JSC ''Novorosslysk Sea SteamshIp Lme"
Market capltaizzatlon o/the regIOn
Accordmg to Skate data, there are 7 companIes m the regIOn, mcluded m the LIst of 220 largest comparues by market capItalIzatIOn
Company name Market Number In the List capItalIzatIOn as of 1231 97 (min $) Kubanenergo 23230 52 Rostovenergo 19452 58 Rostovelektrosviaz 191 16 60 Novorosslysk Sea SteamshIp Lme 14094 74 Stavropoielektrosviaz 101 81 98 Novorosslysk Sea CommercIal Port 7298 118 Karachaevo-Cherkesskelektrosviaz 1452 212 Total CapitalIzatIOn 95453
Market capItalIzatIOn ofcompames quoted on RTS and RTS-2 (based on RTS data) Company name Market capitalIzatIOn as of 04 0698 (rbls) Stavropolskaya Hydropower plant 336,236,670,000 Kubanenergo 216,309,571,200 Kubanelektrosviaz 134,260,717,846 ElektrosVlaz ofRostov RegIOn 14,911,040,000 Karachaevo-Cherkesskelektrosviaz 7,746,072,500 Rostovskoe AO EnergetIkl 2,325,320,184 Stavropolenergo 1,015,852,699 Rosrueft-S tavropolneftegaz 189,389,600 Rostselmash 86,497,020 Total CapItalIzatIOn 713,081,131,049
ProfessIOnal Participants Of The Market
Accordmg to the FCSM Act # 25 from August 18, 1997 "About Approval of RegulatIOn on Procedure of Licensmg for DIfferent Types of ProfeSSIOnal ActIVIty on the SecuntIes market of RUSSIa" Mmfin lIcenses should be replaced by new FCSM lIcenses before October 1, 1997 accordmg to the above RegulatIOn I As of begmrung of Apnl 1998 there were 68 financIal mstItutIons hcensed by the FCSM for professIOnal activIty In the secuntIes market m Rostov regIOn (see Attachment 2) Types of actiVIties
51 compames - for secuntIes brokerage activIty WIth excludmg operatIOns WIth money ofmdividuals, State, sub-federal and mumcipal secunties
44 compames - for secuntIes dealmg actiVIty, excludmg operatIOns WIth State, sub federal and mumcipal secuntIes
6 compames - for secuntIes brokerage activIty WIth money of mdividuals excludmg operations WIth State, sub-federal and mumcipal secuntIes
21 compames - for brokerage actIvIty WIth State, sub-federal and murucipal secuntIes
20 compames - for dealmg activIty WIth State, sub-federal and mumcipal secuntIes
10 compames - for register-keepmg activIty for nommal secuntIes holders
5 compames - for deposItory-trustee actIVIty on the secuntIes market
Some comparues have several lIcenses for professIOnal activIty on the secuntIes market
There are no compames m the regIon, lIcensed for seCUrItIes management, deposItory-safekeepmg, market place and clearmg actIvItIes ThIs mdicates that these areas are msufficlently developed m the regIOn
TerrItory Number If Number of Number of Mmfin Mmfin FCSM lIcensed lIcensed lIcensed mstItutIons, not InstItutIons mstItutIOns lIcensed by FCSM Rostov regton 121 21 100 Krasnodar temtory 111 15 96 Adygeya RepublIc 24 12 12 Kalmyla.a RepublIc 50 18 32 Kabardmo-Balkarskaya Rep 6 1 5 RSO-Alarua 7 1 6 Dagestan RepublIc 14 0 14 Karachaevo-Cherkessk Rep 2 0 2 Chechma Repubhc 0 21 21 IngushetIa Repubhc 0 Total 362 68 294 The data above shows that most of Investment InstltutIOns In the regIOn WIll have to go through the FCSM lIcensIng procedure to be able to contmue workIng on the secuntles market
There are 9 compames - members of South-RussIan Office of NAUFOR among professIOnal partIcIpants In the regIOn
# Company name CIty I Bolshoy Prospect Rostov-On-Don 2 Donskoy Nauchny Tsentr Rostov-On-Don 3 1ms Rostov-On-Don 4 Contrast Rostov-On-Don 5 Marf Rostov-On-Don 6 Pnazovsky Secuntles Center Taganrog 7 Rostov RegIonal Investment Company Rostov-On-Don 8 Rostov Trust Company Rostov-On-Don 9 TItan Invest Rostov-On-Don
One company IS NAUFOR AssocIated Member
I 1 I RosYugInvest I Rostov-On-Don
All of them are located In Rostov or Rostov regIon
There are 8 compames - constant trade members on RTS
RTS Code Name CIty RTS Status DNCER Donskoy Nauchny Tsentr Rostov-on-Don Morutor IKVDR Bolshoy Prospect Rostov-on-Don Morutor INISR Fmancial Center INIS Rostov-on-Don Morutor KONTR Contrast Rostov-on-Don Morutor MARFR MarfLtd Rostov-on-Don Morutor MEDVR Medveditsa Stock House Rostov-on-Don Morutor ROTCR Rostov Trust Company Rostov-on-Don Morutor TIANR TItan Invest Rostov-on-Don Morutor
PenSIOn Funds
There currently are only 4 pnvate pensIOn funds In the regIOn, thIs market sector IS stIll III Its growth stage (see-Attachment 3)
Insurance compames
The Insurance Industry IS relatIvely developed In the regIOn As of the begmrung of Apnl there are 32 Insurance comparnes provIdIng full specter of Insurance servIces lIfe, property and lIabIlIty Insurance (see Attachment 4) Collectlve Investments
There are no companIes In the regIon lIcensed for management of UIF assets But there IS a "Promradtekhbank" bank SUbSIdIary, whIch IS an agent of the Moscow based UIF management company "KUIF", sellIng umts of the "PIOneer FIrst" open end UIF The actIvIty of thIs agent In the regIOn IS hardly perceptIble, lookIng rather clandestIne The officIal "PIOneer FIrst" WebSIte does not contaIn any reference to thIS company Placement and redemptIOn of uruts IS practIcally absent
AVaIlable InformatIon
Name of the fund Open-end Umt Investment Fund "PIOneer FIrst" Management company ClSC "PIOneer FIrst" Investment Fund Management Company Agent "Promradtekhbank" Agent address Rostov-On-Don, 70, Pushkmskaya st Workmg days Monday - Fnday Workmg hours 9 a m - 3 p m (lunch tIme 1 p m - 2 pm) Contact person Rusotsky G , SecuntIes speCIalIst Telephone (8632) 69-62-90
VIF management companIes do not VIew thIs regIOn as attractIve to establIsh an agent network, consequently, collectIve Investment vehIcles are stIll neglected by local mvestors
Mumclpal and Sub-federal Issues
As of the begmmng of Apnl 9 temtones out of 11 (except Adygeya and Chechma republIcs) came out to market WIth bond Issues (see Attachment 5) All Issues are adImtted to be trade at MICEX WIthout InclUSIOn m the OffiCIal RegIster
Latest events on the mumcipal finance market of the regIOn
1) Placement of I-st tranche of Rostov RegIOnal Bond Loan In accordance WIth the deCISIOn of the Oblast LegIslatIve Assembly from September 26 "About Issuance of Rostov RegIOnal AdmImstratIOn Coupon Bonds l-AA Senes for ImplementatIOn of the Investment Project "1997-2000 Rostov RegIOn GazificatIon"
2) Placement of regIOnal telephone network development bond loan Issuer Rostov regIOnal admimstratIOn Number of bonds - 500,000, face value - 100,000 rubles, matunty - 5 years, Investor base - mdividuais and mstItutlOns Issue manager - JSC CB ''Tsentr-Invest''
ConclUSIOns The analYSIS shows that the secuntles market of the Rostov regIOn IS still developmg The Industry IS m deep cnSIS because Investments are very lllmted There are no mechamsm m place to attract foreIgn funds Into the secuntles market
Three temtones dIstIngUIsh themselves on the overall background - Rostov regIOn, Krasnodar and Stavropol Temtones Almost all the secuntles market actiVIty, largest Issuers and most InstItutIOnal Investors m the regIOn are concentrated m Rostov-On Don CIty and Rostov regIon Thanks to favorable geographIcal locatIOn (thIs espeCially relates to Rostov regIon, Krasnodar and Stavropol temtones), the regIon has good perspectives In the future Nevertheless, In order to achIeve success In tms development, a key Issue of attraction of Investments Into the regIOnal economy needs to be resolved Summary translatIOn
Economic situatIOn and development of the secuntIes market of Tatarstan republIc and nelghbonng republIcs. Mary El, MordovIa and ChuvashIa
Tatarstan, Mary EI, MordovIa and Chuvashla repubhcs are located m the Volga economIC regIOn The regIOn IS sItuated In fact between mdustnally developed Urals, Samara regIOn and Bashkortostan on one sIde and the center of the European part of RUSSIa (IncludIng NIZru Novgorod regIOn, Moscow and Moscow regIOn) Such comfortable geographIcal and transportatIOn locatIOn, as well as reach natural and labor resources, powerful Industry and stable agnculture allow tms regIOn to play and Important role In the post-SOVIet economIc enVIronment The mdustnal potentIal and the level of development of the secuntIes market of the Tatarstan republIc IS the hIghest among other repubbcs withm the regIOn Consequently, the present report, whIle stIll covers other repubbc, IS mamly concentrated on market partICIpants m Tatarstan republIc
Tatarstan republIc IS one of the largest by Industnal potentIal m RUSSIa By GDP Tatarstan IS number 12 among other sub-federal entItIes (share m the grand total - 2,65%) Chuvasma, MordovIa and Mary El republIcs all together are below 1%
In the Investment PotentIal Ratmg LIst developed by the "Expert" agency Tatarstan republIc occupIes 12-th pOSItIon, whereas ChuvashIa, MordovIa and Mary El are number 42,59 and 71 respectIvely The same agency puts Tatarstan on the 4-th place m the RIsk Ratmg LISt, leavmg Mary El on the 22-d, Chuvashia and MordovIa - number 48 and 55 respectIvely
All three republIcs have specIal legIslatIOn regulatmg foreIgn mvestments process
Issuers
Most developed Industnes In Tatarstan are macmnery-bU11dmg, chemIcal, 011 and gas mdustnes, 011 extractIon, electncIty, food mdustry, textIle, wood and tImber processmg and constructIOn matenals
Largest Industnal enterpnses
Company name LocatIOn JSC "KAMAZ" Naberezhnye Chelny JSC "Nlzhnekamsk-NeftekhIm" Nlzhnekamsk JSC "Tatmeft" Almettevsk ''NIzhnekamsksmna'' NIzhnekamsk "Tatneftekrummvest- Ho Idmg" Kazan Zelenodolsky ShIp-yard Zelenodolsk Tatmebel Kazan Kazan OptIcs and Mechamcs plant Kazan Tatenergo JSC "Zana" ConfectIOnery" "MelIta" Kazan "Kazankompressonnash" Kazan Clustopolsky Watch Factory Clnstopol
Most hqUld shares of local enterpnses
Mary El repubhc JSC "Martelecom" JSC "Maryenergo" JSC "MarbIOfann"
MordoVla
JSC "SvIazmfonn" JSC "LIsma-SIS-EVS" JSC "Saranskkabel" JSC "LIsma-SELZ" JSC "Mordovenergo"
Chuvashla
PublIc enterpnse "AVZ "Cheboksarsky" PublIc enterpnse "Yadnnsky Spmts Plant" JSC "AKKOND" JSC "Chuvashenergo"
R TS traded shares
JSC "Tatmeft" JSC "Kamaz"
RTS-2 traded shares
JSC "Kazan Telephone Network" JSC "Kazansky HelIcopter Plant"
RTS-2 lIsted shares
JSC "Svlazmfonn ofChuvashla" JSC "Svlazmfonn ofMordoVla"
Shares, unlIsted from RTS-2
JSC "Kazanorgsyntez" JSC ''NIzhnekamskshma'' JSC ''NIzhnekamskneftekhIm''
Accordmg to Skate-Press, there are 4 enterpnses, mcluded m the Top LIst of 224 compames by market cap1talIzatIOn
Company name Skate-Press ratmg Market CapitalIzatIOn as number of 1231 1997 (mIn USD) Tatmeft 11 3,159 1 KAMAZ 53 22813 Kazanorgsyntez 128 6962 Kazan Telephone Network 166 3925
(see Attachment 1 for addItIonal data on largest Issuers m the regIOn)
MUnICipal and Sub-federal Debt
Tatarstan republIc 1S the second largest borrower among temtones of RUSSIa after St -Petersburg by total volume of debt outstandmg - as of February 27, 1998 the total volume ofRKOs outstandmg was equal to 1 115 bIn rubles by face value
On January 28, 1998 the Mmfin regIstered prospectuses of the two latest Issues of RKOs (RepublIcan Short-term Bond) for the total amount of 560 bIn new rubles RKO IS a dISCOunt bond 1ssued m a book-entry form Matunttes 6 (260 mIn rubles) and 12 months (the other 300 mIn) The Issuer IS The Mmistry of Fmance of Tatarstan, the deposItory - Volzhsko-Kamskaya Trust Company IPO took place on Volzhsko-Kamskaya Stock Exchange m February 26, 1998 6-month Issue was sold for the total of 30 645 mIn new rubles, wmch constItutes 68 1% from announced placement volume (45 mIn rubles) The mtentIOn IS to place one senes of each Issue per month to fully place both Issues by the begmnmg of the thIrd quarter
The secondary market on Volzhsko-Kamskaya Stock Exchange has been recently showmg growth trends -It grew 40 % m February as compared to January
The lIqUidIty ofRKOs traded on MICEX IS stIll low the transactIOn volume m February, 1998 was only 1 5 mIn rubles There currently are 131 RKO Issues traded on Volzhsko-Kamskaya Stock Exchange WIth the total volume equal to 450 mIn rubles
Accordmg to the Tatarstan republIcan Budgetary Law for 1998 the upper lImIt for mternal debt IS set up at 1 7 bin rubles, the upper lImIt for external debt - 26 bIn rubles The total amount of debt represents 356 % of total budgetary mcome MaXImum amounts for Issuance m 1998 are set up by face value m rubles (1 3 bIn rubles) and by face value m foreIgn currency (eqUivalent to 25 bIn rubles) Debt servICIng reserves In the republIcan budget are equal to 555 mIn rubles, or 459 % of budgetary Incomes There currently are 26 RKO dealers
# Dealer Address, Tel number 1 CJSC "Center for modem financIal 26a, Ershova st , Kazan technologIes" tel 76-93-78 2 ICB "Tatfondbank" 56, Levobulachnaya st, Kazan tel 36-91-10 3 IB "Ipoteka-Invest" 58, Vosstanla st, Kazan tel 42-49-60 4 Tatpromstroybank 5, Pravobulachnaya st, Kazan tel 32-59-95 5 Tatagroprombank 16, Safiullma st , tel 68-41-66 6 RussIan CredIt Bank 26/9, Smolensky blvd, Moscow tel 248-08-11 7 CB "Zarechye" 2, Borby st , Kazan -- tel 49-99-16 8 Tatekobank 47, Br Kasimovykh st , Kazan tel 34-11-21 9 Tatarstan Savmgs Bank 44, Butlerova st , Kazan tel 64-61-00 10 CB "Intekhbank" 24, Komsomolskaya st , Kazan tel 64-46-00 11 CB "Energobank" 4311 0, K Marks st , Kazan tel 38-88-11 12 "AK Bars" bank 1, Dekabnstov st , Kazan tel 57-83-95 13 CJSC "IK Titamc" 2, Chmkova st , Kazan tel 57-52-73 14 JSC "IFC Flammgo" 35, SchmIdt st , Kazan tel 38-65-74 15 CJSC "Acropohs Secuntles House" 11, Komleva st , Kazan tel 36-18-24 16 "Zelenodolsky Secuntles Center, 3, Yubileynaia st , Zelenodolsk Ltd" 17 CJSC "IK Yutex" 32, Nekrasova st , Kazan tel 36-77-65 18 JSC "Fmanslst Secuntles House 4, Butlerova st , Kazan tel 75-65-91 19 Tatmvestbank 55, Vlshnevskogo st, Kazan tel 38-03-39 20 Mezhkombank 51, Krasnoselskaya st , Kazan tel 43-88-43 21 IFC "Fmansovy Dom" 30a, Butlerova st, Kazan tel 36-27-24 22 CJSC "Aktay" 32, Dzerzhmskogo st, Kazan tel 38-41-63 23 CJSC "Uruversum Trust" 34, Sevastopolsky prosp , Moscow tel 958-17-72 24 IKFmbrok 19, Entuziastov st, Cheboksary 25 CJSC "MVS-Fmance" 31, Dekabnstov st , Kazan 26 "Kamsky Industnal Bank" 88a, Prospect Mira, Naberezhnye Chelny
Volzhsko-Kamskaya Stock Exchange IS actmg as market place for RKOs The deposItory IS Volzhsko-Kamskaya Trust Company The debt servlcmg and trade organIzatIOn agent to the Mmlstry of Fmance IS the Communal Enterpnse "Secuntles OperatIOn Office (26a, Ershova st, Kazan, tel 76-95-16) All operatIOns WIth RKOs are done through authonzed dealers (see table above) As opposed to GKO market, there IS no market-makmg reqUIrements to dealers
Trade results for RKOs are avaIlable on the Internet, for mstance, on CB "Intekhbank" web SIte The codes for RKO Issues (see Attachment 2) are generated as follows
21022 MFTS 22012 MFTS 24002MFTS
The first dIgIt mdicates the type of secunty (2 for RKOs) The second mdicates the matunty of the Issue (1 for three months, 2 for 6 and 4 for 12) The last three dIgItS mdIcate the number of Issues withm Its class MFT means MiruStry of Fmance, Tatarstan
The mvestor's earrungs are taxed at a lowered rate - 15%
By weIghted average YIeld RKOs are 1998' leaders among other sub-federal bonds The weIghted average YIeld of the 9-th senes of the second Issue of 12 month RKOs dunng the auctIOn on Apn19 was fixed at 42341 % p a
In 1997 the MiruStry of Fmance of Tatarstan Issued 2 senes (A and B) of ItS short-term coupon bonds m nommal book-entry form
Serzes A State regzstratzon # MC!> 11-3-00162 State regIstratIOn date June 6, 1997 RegIstratIon authorzty The Mznlstry ofFznance RF Date ofbegznnzng ofIPO June 16 1997 Maturzty date December 10, 1998 Regzstered zssue volume (by face value) - 320 bin rubles Factual volume ofbonds placed (by face value) - 320 bin rubles Number ofsecurztles placed - 320,000, face value -1,000,000 rubles Maturzty 18 months
Serzes B
State registratzon # M
The YIeld on A and B senes secuntIes IS composed of coupon and the dIfference between the actual purchase pnce and secondary market sale or redemptIOn pnce The coupon IS fixed at 20 % per annum
The Issuer transfers respectIve amount of money for mterest or pnnclpal payment to the account of the paymg agent not later that 2 workmg days pnor to respectIve payment date
Dealers on these secunties are profeSSIOnal, partIcIpants of the market - members of the secuntIes sectIOn of MICEX or mdividuais The Paymg Agent IS CJSC "CredIt SWISS" (MOSCOW)
Telephone and houszng loans
IC "Elemte" was m charge of orgaruzatIOn, placement and secondary market support for a speCIal loan aImed at Improvmg the telecommumcatIOns system m Tatarstan republIc The company was founded by the Mimstry of TelecommumcatIOns of Tatarstan republIc m May, 1995 accordmg to the PreSIdential program "RUSSIan Popular Telephone" FIrst Issue of telephone bonds was placed m September, 1995 The volume of the first Issue was 15 bIn old rubles Then there were regIstered two telephone loans of Kazan Telephone Networks, the total number of secuntIes - 16,000, total volume - 24 bIn rubles These bonds, place withm the framework of the PreSIdentIal program "RUSSIan Popular Telephone" and supported by the PreSIdentIal decree were extremely successful bonds, that were supposed to be placed m three years, were bough out m 9 months These bonds are currently the most popular m Tatarstan republIc and hIghly demanded by both mdividuais and corporatIOns Dunng the penod of 1995-1997 the company "Elemte" attracted mto the telecommumcatIOns mdustry above US $ 15,000,000 worth ofmvestments "Elemte" has 13 sales offices throughout Tatarstan 2 m Naberezhnye Chelny, 5 m Kazan and 1 m each of 6 other cItIes "Elemte" IS the officIal finanCIal advIsor to Kazan Telephone Networks
See Attachment 3 for detaIls on bond Issues m Chuvasma, Mary EI and Mordovla republIcs
In January 1998 Moody's have rated mcommg Tatarstan Eurobond Issue at Ba2 for long-term foreIgn currency denommated debt The government plans to Issue 3-5 years eurobonds for the total amount of US $200-500 mIn Lead Managers of the Issue are ING Banngs and Alpha-Bank
Professwnal Participants ofthe Market
As of the begmnmg of Apnl there are 49 companIes m the regIOn, lIcensed by the FCSM Some of them have several lIcenses for dIfferent types of profeSSIOnal actIVItIes
License data on 21 comparues-professIOnal partICIpants can be found on the FCSM Web SIte (see Attachment 4) Data about own capItal of all 49 companIes, mcludmg those lIcensed m 1998, can be found m Attachment 5
Attachment 6 contams mformatIOn about 10 comparues, lIcensed by FCSM for reglster-keepmg actIVIty for nommal secuntIes holders
There are no companIes m the regIOn, lIcensed for cleanng and trade orgarnzatIOn actIVItIes
Volzhsko-Kamskaya Stock Exchange, although bemg the mam market place for RKO trades, IS not lIcensed by the FCSM The MIrnstry of Fmance of Tatarstan has recently prepared and submItted documents to the FCSM for regIstratIOn of Volzhsko-Kamskaya Stock Exchange
There are 13 comparues-member of the non-commercIal partnershIp RTS, 12 of whIch are m morntonng mode, and 1 m on-lIne dealmg mode
Collective Investments
There are no Urnt Investment Funds m Tatarstan republIc "Elemte" establIshed a management company JSC "Elemte-Garant" WIth umque type of actIVIty - trust management ofUIF, PPF and IF assets
Bankmg System
There currently are 28 banks, operatmg on the temtory of Tatarstan There are three mam concerns for the government • to block the capItal outflow from the republIc and to return exported capItal • to make Moscow banks' subsIruanes observe local "rules of the game" and to outbalance theIr mfluence on the local finanCIal market • to strengthen pOSItions of the pro-state super-bank "AK Bars"
Many Tatarstan enterpnses prefer to keep theIr funds (about 2 bIn rubles) m Moscow banks Tax aVOIdance through capItal dIspersIOn IS a common practice All the attempts of the local government to persuade local mdustnes to keep theIr funds m local banks were m vam The most hard IS the outflow of "Tatmeft" petro-dollars - It prefers to keep It m the Moscow "Zemt" bank, rather than m the local "Devon CredIt" DespIte lower credIt mterests m Tatarstan banks enterpnses get credIts from Moscow, because local banks are m lack of credIt resources
The only solutIOn IS to attract banks by more favorable condItIons of mvestmg In the local economy One of the steps--tS-the InItIatIve to lower the tax rate on the revenue, earned by banks from credIts to budget-financed enterpnses, penSIOn funds and illgh pnonty mdustnes, to 15 % The government assumes that the budget WIll probably lose some part of tax collectIOns, but hopes that tills WIll return about 4 bIn rubles from Moscow
Conc/USlOns
Based on the above, we can define the followmg OptImIstIC factors 10 the development of Tatarstan secuntles market
• extensIve expenence m tradmg GKO-type secuntIes • undoubted success of telephone bonds • first steps to the market of mternatIOnal borrowmg • promotIOn of shares of leadmg local enterpnses to domestic and mternatIOnal markets • favorable mvestment clImate (mcludmg mvestment regulatIOns), stImulatmg capItal mflow • thought-through mdustnal and credItlfmance polICIes for some mdustnes
PossIbIlIties and mfluence of local mvestment mstItutIOns are, m most cases, still mSlgmficant, and that IS where the secuntIes market of Tatarstan republIc leaves much to be deSIred
In general, based on the level of mdustnal development, avrulabilIty of qualIfied human resources, geographical pOSItion we can say that the Tatarstan republIc has good growth prospects for the near future ANALYSIS OF THE SECURITIES MARKET OF NORTH-WEST REGION
By North-West regIOn we understand temtones withm JunsdictIOn or under control of the North-West regIOnal FCSM office The analyzed regIon compnses the followmg temtones Arkhangelsk regIon, Vologda regIOn, Kahmndrad regIOn, Murmansk regIOn, Kareha repubhc, KomI repubhc, Lemngrad regIon, Nenetzky autonomous arroundisment, Novgorod regIon, the CIty of Samt-Petersburg, Pskov regIOn
In general the North-West regIOn IS mdustnally developed The geographIcal sItuation of the regIOn favors to ItS economIC development Temtones that are part of thIS regIon are mamly located m the European center of RUSSia and m prOXImIty to federal-level transportatIOn centers (St -Petersburg, Lemngrad regIon), some of the temtones are bordenng upon the Western frontIer of the RUSSIan FederatIOn and are sItuated on tranSIt transportatIOn Itmeranes to Europe (Lenmgrad and Kahmngrad regIOns, Kareha repubhc, partIally Novgorod and Pskov regIOns) There also are coastal temtones WIth well developed port mfrastructure (Murmansk, Kahmngrad and partIally Arkhangelsk regIOns) But there also are some penpheral regIOns With dIfficult access to federal transportatIOn network (Nenetzky autonomous arroundlsment)
Table 1 Industnal production volume (by "Skate")
RegIon BIn Rubles % ofRF total RUSSIan FederatIOn 1576 10000 Samt-Petersburg 002728 1 73 Lemngrad regIon 0012327 078 Novgorod region 0004655 030 Pskov regIOn 0002695 017
ProfessIOnal Partzclpants ofthe Market
The secuntles market of the North-West regIOn IS one of the most developed among other RUSSIan regIons The regIster of Inveshnent InstItutIOns of the Mmfin contams 4452 compames, workmg on the secuntIes market, 451 of whIch are located m the analyzed regIOn, mamly m St -Petersburg and Arkhangelsk regIOns and the KomI repubhc
The FCSM of RUSSia Issued the followmg hcenses to compames located m the North-West regIOn (see Attachment 1)
- 100 lIcenses for brokerage actlvity on operations With secuntles excludmg operatIOns With mdIVIduals' money - 30 hcenses for brokerage actIVIty WIth mdlvlduals' money - 85 lIcenses for dealmg actIVIty - 37 hcenses for deposItory actIvIty, from whIch for trustee function - 35, for safe keepmg functIOn - 1, combmed - 1 - 2 hcenses for organIzatIon of trade on the secuntles market, Issued to the CJSC "Samt Petersburg Currency Exchange" (SPCE) and to the stock exchange "Non-commercIal PartnershIp "Stock Exchange "Samt-Petersburg" (see Attachment 7) - 18 compames hcensed for regIster keepmg actIVIties of nommal secuntles holders (see Attachment 2) - 1 UIF assets management lIcense, Issued to the JSC "BaluyskOle FmansovOle Agentstvo"
There are a total of approXImately 100 companIes m the regIOn lIcensed for one of the types of professIOnal actIvIty on the secuntIes market, from WhICh 30 are allowed to work wIth mdIVIduals'money Many compames have multIple lIcenses for vanous types of professIOnal actIVIty
At the moment there are no companIes m the regIOn mvolved m c1eanng actIVIty or trust (fiducIary) management of secuntles
There are 49 companIes - members of the non-commercial partnershIp RTS, from whIch 31 partICIpate m trades as dealers and 18 m the momtonng mode (see Attachment 3)
The North-West office ofNAUFOR IS located m St -Petersburg, and there are 38 compames members m the regIOn (see Attachment 4)
CollectIve Investments
There currently IS only one company m the regIOn lIcensed by the FCSM for trust management of UIF assets - the management company "BaltIyskOle FmanSOVOle Agentstvo" (BFA) The company does not have any funds under management yet A number of other companIes plan to apply for thIS type of lIcense m the near future - "EnergokapItal", "Lenstrolmatenaly"
The only one UIF currently sellmg unItS m the regIOn IS PIOneer FIrst (management company - CJSC "KUIF") It's sellIng unItS through Its two agents - CB "Promradtekhbank" and "EnergokapItal" (see Attachment 8)
In Samt-Petersburg there used to be the Fund Of CollectIve Investments of the commercIal bank "Petroagroprombank" In January 1998 the Fund stopped all payments to Its partICIpants Based on the statement made by SBS-Agro group, that the "Petroagroprombank" IS part of, thIS IS due to the neceSSIty of certam measures for "samtatIOn" of the finanCIal condItIon of the bank, undertaken by the SBS-Agro group I collaboratIOn wIth the CB of RUSSIa The questIOn of payment of money due to mvestors was resolved m February Umts of the Fund Will be exchanged to SBS-Agro preferred shares m proportIOn wIth the eqUIvalent of the market value ofmvestments to the fund
There also IS The FIrst InstItute Of Independent AppraIsal And AudIt (PINO) workmg m the regIOn The InstItute IS lIcensed by the FCSM for speCIal audIt ofUIF real estate assets
Corporate securlUes market
The structure of mdustnes IS very dIverse m the regIOn The most perspectIve compames of the regIOns are Industry Company Name 011 and gas Kommieft, KomlTEK Energy Arkhenergo, Pechora Hydropower Plant Black metals Severstal Machmery bUlldmg IzhorskIe Zavody, KIrovsky plant, Krasny Kotelschlk, Lenmgradsky Metal Plant, LOMO, Elektrosiia TelecommumcatIOns VologdaelektrosVlaz, KarehaelektrosVlaz, KirovelektrosvIaz, LensVIaz, MurmanelektrosvIaz, St -Petersburg Telephone System (PTS), St -Petersburg MMT TImber processmg Arkhangelsk tImber factory, Knodopozhsky tImber factory, Kotlassky tImber factory, Senezhbumprom, Syktyvkarsky tImber factory RetaIl commerce BolshOI GostInny Dvor TransportatIOn Belomorsko-Onezhskoye steamshIp lme, Sea Port St - Petersburg, Murmansk sea steamshIp hne, Severo-Zapadnoye nver steamshIp lme Chemlcal "Apatlt" , "Lakokraska" , "Medpohmer", "Plastopohmer" , "Akron" Food Baltlka brewery, Khlebny Dom bakery
Table 2 RegIOnal Issuers lIsted on RTS
# Issuer Average prIce Date of the as of the end of last mput to March RTS (common stock), USD 1 JSC "Elektroslla" 59 11 0897 2 JSC "Izhorskie Zavody" 555 01 0995 3 JSC "Klrovsky Zavod" 5 5 11 08 97 4 JSC "Komlmeft" 59 01 0995 5 JSC "Kolenergo" 03 030397 6 JSC "Lenenergo" 04 01 0995 7 JSC "St -Petersburg Telephone System" 1 2 010995 8 JSC "Samson" 75 171197
The total market capltahzatIOn of North-West regIOn compames, lIsted on RTS IS equal to US$ 1,589073 mIn
Table 3 26 compames of the North-West regIon, hsted on RTS-2
# Issuer Average prIce Date of the last as of the end of mput to RTS-2 March (common stock), usn 1 JSC "Arkhenergo" 0075 300597 2 JSC "BaltIc Sea SteamshIp Lme" 3200 100297 3 JSC "ElektrosVlaz Vologodskoy OblastI" 3425 220797 4 JSC "Krrovelektrosvlaz" 225 220997 5 JSC ' KahnmgradelektrosVlaz" 7 50 150997 6 JSC "Karelsky Okatysh" No trades 11 0897 7 JSC "Klrovenergo" 8 545 15 1296 8 JSC "KomlTEK" 2 15 260597 9 JSC "Krasny Vyborzhets" 1 395 11 0897 10 JSC "Lemngradsky Metal Plant" 5 25 080897 11 JSC "LensVlaz" 2688 160197 12 JSC "LOMO" 3 25 11 0897 13 JSC "Munnanelektrosvlaz" 1 865 13 1097 14 JSC "Munnanskoye Sea SteamshIp Lme" 1025 11 0897 15 JSC "Petmol" 0835 060797 16 JSC "Pechorskaya Hydro Power Plant 03 050997 17 JSC "Pechorsky RIver Port 08 15 1296 18 JSC "Pskovenergo" 0143 180797 19 JSC "MIlk Factory 5-ROSKA" 5 00 11 0897 20 JSC "Sea Port St -Petersburg" 30000 100297 21 JSC "Russkle Samotsvety" 2700 050997 22 JSC "Bank "Samt-Petersburg" 1 00 100297 23 JSC "St -Petersburg MMT" 1 075 17 11 97 24 JSC "St -Petersburg WIre" 1 30 241197 25 JSC "KomisvIaz" 45000 031197 26 JSC "Severo-Zapadnoye River SteamshIp Lme" 1225 11 0897
Based on 1997' results the St -Petersburg TImes Index (SPT-Index) outperformed the average all-Russian mdices for approxImately 10%
Table 4 The lIst of compames, mcluded m SPT-Index as of December 31, 1997
# Issuer Market capItalIzatIOn, mIn USD (by Skate) 1 Baltlka brewery 57866 2 Lenenergo 55572 3 Petersburg Telephone Network (PTS) 52565 4 Lenmgradsky Metal Plant 14525 5 St -Petersburg MMT 11050 6 Lensvlaz 9447 7 Elektrosila 8832 8 Izhorskye Zavody 8465 9 Klrovsky Zavod 5704 10 Russkle Samotsvety 3972 11 Novgorodenergo 3480 12 Pskovenergo 1968 13 Severo-Zapadnoye RIver SteamshIp Lme 1925 14 LOMO 1500 15 Krasny Vyborzhets 859 16 BaltIC Sea SteamshIp Lme 381
TOTAL 2,38112
North-West reglOn market IS one of the bIggest among RUSSIan reglOns by market capitalIzatlOn As of December 31, Its market capItalizatIon IS equal to $ 2,381 mIn
Table 5 Companson of North-West regIon With other reglOns of RUSSIa by market capltahzatlOn # Name Market capitalIzatIOn Number of Issuers Included SIZe, mIn usn In Index calculatIOn 1 RTS Index 71,030 63 2 RTS-2 Index 27,566 163 3 MT-Index (Moscow TImes) 67,027 50 4 SPT-Index 2,381 16 5 ASP-Paclfic (Far-East) 1,101 19
There IS a number of enterpnses m the regIOn, mc1uded m the 11st of largest unprofitable pnvate compames
Table 6
Company name Losses In 1997, mIn usn (by Skate) Kommleft (5051) Lenenergo (4655) Severo-Zapadnoye RIver SteamshIp Lme (1656) Murmansk Sea SteamshIp Lme (1585) Izhorskle Zavody (11 51) Krrovsky Zavod (409) Krasny Vyborzhets (374) LOMO (338) Pskovenergo) (2 18)
Please see Attachment 9 for detaIled analYSIS of largest regIOnal Issuers
MUnlclpal and Sub-federal debt
AdmmlstratIOns of most temtones mcluded m the North-West regIOn proceeded WIth debt Issuance (Arkhangelsk, Novgorod, Kalmmgrad, Lemngrad and Pskov regIOns, KomI Repub11c)
One of the major players on thIS market IS the CIty of St -Petersburg m the person of the FmanClal CommIttee of the MunICIpal AdmlmstratIOn The Issuer has the status of sub federal entIty (as opposed to munIcIpalIty)
As of the end of March the market value of St -Petersburg bonds (GGKO) outstandmg was equal to 3 634 bin rubles Among them there are about 10% of coupon bonds
The face value ofGGKO bond IS 100,000 old rubles Issuance form - nommal book entry on DEPO accounts WIth centralIzed custody of the Global certIficate and regIstratIOn of ownershIp tItles by an authonzed depOSItory (CSJC "Samt-Petersburg Cleanng-Deposltory Center") There are no lImItatIOns for purchase, 1 e the buyer can be both an mstltutIOn and an mdlV1dual Bonds are sold through a dealer network The placement IS done through auctIOns and secondary market trades Bonds not placed through IPO auctIOn are sold by the Issuer at the secondary market
'i FmancIal settlements for bonds transactIOns are held by a non-bankmg credIt organIzatIOn CSJC "Samt-Petersburg Ciearmg-Depository Center", lIcensed by the Central Bank of RUSSIa (lIcense number N2 3306-K Issued on February 06, 1997) for bankmg operatIOns
Vanous tranches offer dIfferent type of mcome - coupon or dISCOunt The dISCOunt IS calculated as the dIfference between the redemptIOn pnce and the actual purchase pnce The coupon IS set Up as a percentage of the face value Both types of mcome are paId by bankmg transfer
GGKOs are collaterahzed by
• St -Petersburg budgetary earnmgs from VAT on goods and servIces, produced on the temtory of the RUSSIan FederatIOn • DedIcated lme m St -Petersburg budget - Debt ServIcmg Expenses • CredIts, granted by commercIal banks based on credIt lme agreements
The redemptIOn can be done m two ways 1) Pnor to maturIty - at the secondary market pnce or pnce establIshed by the specIal auctIOn 2) On the establIshed maturIty date - at the face value
The Lerungrad regIOn IS also an actlve player on sub-federal debt market The total volume of domestIc debt outstandmg as of October, 1997 IS equal to 600,000,000 new rubles The regIonal admirustrahon-plans to place several Issues WIth dIfferent matuntles 6, 12 and 24 months The General Agent of the Issue IS JSC "Promyshlenno-StrOltelny Bank" (St -Petersburg) The regIstrar functIOns are performed by the CJSC "St -Petersburg Central RegIstrar Company", settlements are held by CJSC "St -Petersburg Settlements Center" The deposItory of the Issue IS CJSC "Depository-Cleanng Company" There are 15 dealers of the Issue, among whIch - "Incombank SPb", BaltONEKSIMbank", "Menatep SPb", Bank "RussIan CredIt" Market-makers for the sub-federal debt are "Incombank", "RUSSIan CredIt" and "BaltONEKSIMbank" On January 22, 1998 6-months state nommal bonds (LGO) were placed on St -Petersburg Currency Exchange Total amount - 30 mIn new rubles
Table 7 Secondary market trade volumes for St -Petersburg and Lerungrad regIOn bonds m January, 1998
Issuer Bond Trade % of total Marketplace type volume, mIn volume of bonds rubles (new) outstandmg CIty of St -Petersburg DISCOunt 5103 17 SPbCEX, S -P SE Coupon 234 7 SPbCEX, S -P SE Total 5336 16 Lenmgrad regIOn DISCOunt 20 7 SPbCEX Table 8 The lIst of Sub-federal entItles located m the North-West regIOn, the debt of whIch are traded on MICEX (as of January 30, 1998)
# Sub-federal entity (Issuer) 1 Kalmmgrad regIOn 2 Lemngrad regIOn 3 Novgorod regIOn 4 Pskov regIOn 5 Kareha RepublIc 6 KomI republIc 7 Vologda regIOn
Agrobonds
The table above shows agncultural bonds Issues of temtones mcluded m the North West regIOn All bonds are fixed coupon type
Table 9
Issuer Date of first Total volume of bonds placement outstandmg, min rubles (new) Novgorod regIOn July 19,1997 3362 Vologda regIOn November 14, 1997 8202 Lenmgrad regIOn Apnl 08, 1997 2435 Arkhangelsk regIOn December 22, 1997 5227 KomI RepublIc October 15, 1997 3353 Kareha RepublIc June 30, 1997 2500 Pskov regIOn August 13, 1997 6259 Kahnmgrad regIOn September 07, 1997 1804
The analYSIS of placement results of vanous Issuers of RUSSIa shows that the Issue volumes of the North-West regIOn are relatIvely small 100% placed IS the Ka1mmgrad regIOn Issue
Eurobonds
On June 13, 1997 the admlillstratIOn of the CIty Samt-Petersburg Issued US$ 300 mIn worth of Eurobonds
Table 10 Issue parameters
Matunty 5 years Coupon 95% Coupon payments SemIannual Sales commISSIon 05%
7 Management fee 05% Issue pnce 99536% Total cost of capItal 988% Market YIeld 92 Ratmg S&P BB- meA BB+ Lead Manager Salomon Brothers
The Lerungrad regIon also plans to Issue eurobonds at the begmrnng of 1998 IBCA rated Lerungrad reglOn as BB+
The KomI republIc plans to place a US$ 150 mIn eurobond loan In the first half of 1998 Moody's rated It at Ba2, IBCA - at BB+
ConclusIOn The seCurItIes market of the North-West reglOn has bIg potential for further steady growth - the reglOnal economy actively develops, often offenng more mterestmg and competitive cost condItions for Investments as compared to Moscow BeSIdes, the reglOn (namely, St -Petersburg, Lernngrad, Novgorod and Kahrnngrad reglOns) have strong positlOns In machmery-bUIldmg, food mdustry and telecommurucatlOns Each of these Industnes has good perspectives, whIch IS an addItIonal factor that would favor further growth already tills year