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Presented by: VTB Bank, Custody

December 07, 2017 Issue No. 2017/47

Market News

MOEX’s new index calculation methodology effective from November 27 On December 1, 2017 it was stated that Exchange (MOEX) had updated its index calculation methodology, which came in force on November 27, and revised the list of index components and free float ratios, which are to be effective from December 22. The MOEX representative mentioned in the statement that key changes under the new methodology to the MOEX Index (formerly known as the MICEX Index) and the RTS Index are a move to a floating number of component stocks as well as increased liquidity requirements for stocks. From December 22 the indices will comprise 45 (versus the current 50) component stocks. Under the new methodology to calculate indices, the Blue Chip Index may now include only one security type of an issuer. For further details, please see the stock exchange’s statement on its official Web

Baker McKenzie sees Russian IPO activity rising in 2018-2019 As released on December 6, 2017 Global Chair of International law firm Baker McKenzie Paul Rawlinson had said in an interview that the company expects the volume of initial public offerings (IPOs) by Russian companies to increase to USD 2 bln from US 500 mln in 2018-2019. He mentioned that after 2018-2019 the world economy may become turbulent. The company also sees prospects in the segment of merger and acquisition deals. The Global Transactions Forecast, developed jointly by Baker McKenzie and Oxford Economics, says M&A activity in Russia will rise to USD32 bln in 2018-2019 from USD 25 bln. Rawlinson said that this is not much, but is a good signal. In his opinion significant improvement in direct foreign investment in Russia in January-June 2017 in spite of the Western sanctions is another positive sign for the market. Russia is a large market with many consumers, its inflation is largely under control. Baker McKenzie expects economic conditions of the country to improve. Rawlinson added that this will not be explosive growth, but this is still a good factor compared with the previous years.

Russia’s Finance Ministry places RUB 25 bln OFZ bonds On December 6, 2017 Russian Finance Ministry stated that it had fully placed RUB 25 bln worth of OFZ government bonds of two series at an auction on December 6. At the first auction, the ministry placed 15 billion rubles worth of OFZ 25083 government bonds maturing in December 2021. The cut-off yield stood at 7.44% annually and the weighted average yield amounted to 7.42% annually. Demand for the bonds stood at 33.155 billion rubles. At the second auction, the ministry placed RUB 10 bln worth of OFZ 26221 government bonds maturing in March 2033. The cut-off yield stood at 7.85% annually and the weighted average yield amounted to 7.84% annually. Demand for the bonds totaled RUB 28.126 bln.

Company News

MegaFon holders elect CFO Vermishyan as executive director by 2021 On December 1, 2017 it was stated that the shareholders of Russian mobile operator MegaFon had elected Chief Financial Officer Gevork Vermishyan as the executive director for the period until an annual general meeting in 2020. MegaFon CEO Sergei Soldatenkov said that in this position Vermishyan will be responsible for managing operations, directing implementation of the company’s strategy, overseeing the company’s governing bodies, and supervising subsidiaries and associated entities. Vermishyan himself mentioned that

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in light of the importance of the state’s digital agenda, as the CEO he will be focusing on solutions for digitalization of the economy, as well as managing the structural development of the company, its relationships with the business-to-government clients and shareholders, and specific key projects. Alexander Barunin, previously the head of planning, management reporting, and financial control, was appointed as the acting CFO.

OMV closes deal to buy 25% in Yuzhno-Russkoye field On December 1, 2017 it was released that Austria’s OMV had closed a deal to buy a 24.99% stake in the Yuzhno-Russkoye oil and gas condensate field in Russia’s West Siberia for EUR 1.719 bln from Uniper. OMV’s CEO Rainer Seele said that stake of OMV in the Yuzhno-Russkoye adds 100,000 barrels of oil equivalent per day to OMV’s production. This boosts OMV’s total production to more than 430,000 barrels of oil equivalent per day. The transaction takes retroactive economic effect as of January 1, 2017 and was largely funded out of proceeds generated from disposals and OMV’s strong cash flow. The deposit’s total reserves are estimated at 1 tln cubic meters of gas. The deposit is being developed by Severneftegazpom, which is 40% owned by Russian gas giant Gazprom. Germany’s Wintershall Holding GmbH holds 35% in the company.

German watchdog clears Statoil to acquire stake in SevKomNeftegaz As disclosed on December 1, 2017 Germany’s federal antimonopoly office had cleared Statoil to acquire a 33.33% stake in SevKomNeftegaz to cooperate with oil major in development of the Severno- Komsomolsky oil and gas condensate field in Russia’s northernmost Yamalo-Nenets Autonomous District . In May 2013 Rosneft and Statoil signed an agreement to cooperate in production of hard to recover reserves at the field. Rosneft’s subsidiary RN-Purneftegaz is the project’s operator.

Antitrust clears KAMAZ to buy 49% in AutoVAZ’ biggest supplier On December 1, 2017 Russia’s Federal Antimonopoly Service stated that it had cleared truck maker Kamaz to acquire a 49% stake in Tolyatti-based United Car Technologies, one of the biggest suppliers of car producer AvtoVAZ. KAMAZ spokesperson confirmed that the company is interested in the deal and said it may be closed in 2018. In June 2016, AvtoVAZ CEO Nicolas Maure said that United Car Technologies is unlikely to change its shareholding structure soon.

Government allows Rostec to sell 26% minus one share in Kalashnikov On December 4, 2017 it was released that Russian Prime Minister Dmitry Medvedev had signed a document allowing state industrial corporation Rostec to sell a 26% minus one share stake in arms producer Kalashnikov. At present, Rostec holds 51% in Kalashnikov, and 49% is held by private investors. As a result of the deal, the government will keep a 25% plus one share stake in the company.

Novy Svet plant’s privatization price at RUB 1.5 bln On December 5, 2017 the Crimean Minister of Property and Land Relations Anna Anyukhina told reporters that the starting price for privatization of sparkle wine facility Novy Svet will amount to about RUB 1.5 bln and there are interested investors An auction to sell the plant is to take place on December 20. In September the Crimean State Council decided to privatize the plant. The Novy Svet winery, also known as Novyi Svit, was founded in 1878 by Prince Lev Golitsyn, and it was one of the first wineries in Russia. The plant was nationalized in 2014.

Novatek buys 2 smaller gas companies from AR Oil&Gas On December 5, 2017 it was stated that Russian independent gas producer Novatek had acquired gas companies Yuzhno-Khadyryakhinskoye and Eurotek from AR Oil&Gas, a joint venture of Independent Petroleum Company of businessman Eduard Khudainatov and Spain’s Repsol. On December 4, the Federal Antimonopoly Service approved a request of a Novatek unit to acquire 100% in Yuzhno-Khadyryakhinskoye, which was spun off from Eurotek previously in 2017, from AR Oil&Gas - a joint venture of Neftegazholding (affiliate of Independent Petroleum Company) and Repsol S.A. The company’s CEO Leonid Mikhelson said that they continue active work on increasing the production amount in the zone of the Unified Gas Supply System, which is one of the strategic priorities for Novatek. Yuzhno-Khadyryakhinskoye owns a license for exploration and development of hydrocarbons within the Yuzhno-Khadyryakhinsky site located close to the infrastructure of Novatek’s field Severo-Khancheiskoye. The combined resource potential of the site stood at 228 mln barrels of oil equivalent as of the end of 2016. The combined resource potential of the Syskonsynyinsky site owned by Eurotek amounted to 48 mln barrels of oil equivalent as of the end of 2016.

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Private pension fund Safmar sells 9.29% stake in M.Video On December 6, 2017 it was stated that private pension fund Safmar had fully sold its 9.29% stake in electronic goods retailer M.Video on December 4, 2017. The shares were sold on the open market. M.Video shares were earlier bought in small stakes on the stock exchange by the fund’s managing companies in line with its short-term strategy to boost the yield through the trade of growing assets. A spokesperson for pension fund Safmar mentioned that the sell-off allowed the company to earn money for the funds’ clients. M.Video and private pension fund Safmar are parts of financial group Safmar uniting assets of the Gutseriyev family. The group owns 57.68% of M.Video though Cyprus-based Mianello Ltd. Another 5.78% of the retailer is held by private pension fund Doveriye, also part of the group, according to M.Video’s financial report for July-September. A 9.35% stake in M.Video belongs to private pension fund Future of businessman Boris Mints.

Agricultura Bank’s shareholder approves RUB 20 bln of new shares On December 6, 2017 it was released that Russia’s Federal State Property Management Agency acting on behalf of the state, the only shareholder of Russian Agricultural Bank, had approved a RUB 20 bln issue of common shares to boost the bank’s capital to RUB 384.848 bln. The shares will be sold privately to the Federal State Property Management Agency.

Russian Railways puts off auction on Krasny Put plant to December 26 On December 7, 2017 it was disclosed that Russian Railways had postponed an open auction to sell 100% minus one share of its Moscow-based railway transport components plant Krasny Put to December 26 from December 14. In November Russian Railways was reported to plan to sell the facility for at least RUB 585 mln. VTB 24 bank is the auction’s organizer. Bids will be collected until December 15. The price increment is RUB 3 mln.

Yandex’s ex-COO Shulgin heads online retailer Ozon group On December 7, 2017 it was stated that Alexander Shulgin, a former chief operating officer of Russian Internet giant Yandex, had become CEO of the group of companies Ozon, whose main unit is online retailer Ozon.ru, as the previous head Danny Perekalsky decided to quit. Yelena Ivashentseva, a senior partner at Baring Vostok, a shareholder of Ozon, said that Ozon closely worked with Alexander Shulgin in Yandex since 2010 and is happy to continue partnership in Ozon. Alexander with his management experience at Russia’s biggest Internet company is expected to help Ozon in the fulfilment of ambitious plans on the Russian e-commerce market. Shulgin said that Ozon has loyal clients, a reliable infrastructure, and an experienced team of e-commerce specialists. Prior to joining Ozon, Shulgin had worked at Yandex for six years, where he was financial director and coordinated an initial public offering on the NASDAQ floor in 2010 and had been chief operating officer since 2014.

Official says Sovcomflot privatization viable after 2018 On December 7, 2017 Deputy Transport Minister Viktor Olersky said at a forum that Privatization of Russian shipping company Sovcomflot is reasonable after 2018, but the final decision will be made by the government. The government previously planned to sell 25% minus one share in Sovcomflot in 2017.

Rosneft, Bashneft file RUB 131.6 bln suit against Sistema On December 7, 2017 oil major Rosneft stated on its web site that the company and its unit Bashneft had filed a new suit against multi-industry holding Sistema seeking to recover RUB 131.6 bln that Sistema received in dividends from Bashneft, Rosneft. The sum of the lawsuit corresponds to the amount of dividends withdrawn by the defendants from Bashneft in 2009 and 2014 in their favor, excluding the taxes paid. Rosneft said the claim stems from an earlier court decision to find Sistema an unfair shareholder illegally owning shares, bringing damage to Bashneft, and withdrawing its assets. In August, the Arbitration Court of Bashkortostan partially satisfied a RUB 170.6 bln suit filed by Rosneft, Bashneft and the republic of Bashkortostan, where Bashneft is located, to charge Sistema and its affiliate Sistema-Invest for the losses allegedly caused to Bashneft in 2014 during its reorganization. In 2014, Sistema was the core owner of Bashneft. Rosneft also said it attracted the Russian Direct Investment Fund (RDIF) as an intermediary for an amicable settlement of the dispute over Bashneft with Sistema, but it produced no result, as the defendant refused to hold dialogue. Sistema’s shares slumped 22.9% on the and lost 19% on the on reports about the lawsuit.

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Dividends/coupons

Official sees individual decisions on state firms’ dividends On December 6, 2017 Deputy Prime Minister Arkady Dvorkovich told reporters that the Russian government will make decisions on dividends of state companies individually, and their volume will not necessarily amount to 50% of net profit. Deputy Finance Minister Alexei Moiseyev said the ministry will not demand interim dividends from state banks in 2017.

Executive says Aeroflot ready to pay 50% of net profit in dividends On November 30, 2017 Deputy CEO for Commerce and Finance of Russian national flag carrier Aeroflot Shamil Kurmashov said in a conference call that the company is ready to pay 50% of its net profit in dividends and even more if there is a government ruling. Aeroflot paid no dividends for 2015 as the company received a net loss in the year, and paid RUB 17.48 per share, or a total of more than RUB 19.4 bln in dividends for 2016, which accounted for 50% of the airline’s net profit calculated under International financial Reporting Standards (IFRS). The government holds 51% in the company, and Aeroflot-Finance owns 4.5%, state industrial corporation Rostec has 3.26%, institutional investors hold about 35%, individuals own 6.1%, in the company, and the management of Aeroflot has a 0.1% stake.

Protek holders approve dividends at RUB 5.67 per share for January-September On December 1, 2017 it was stated that shareholders of pharmaceutical holding Protek had approved paying dividends at RUB 5.67 per share, or a total of RUB 2.989 bln for January-September 2017. The company paid RUB 7.5 per share, or a total of RUB 3.954 bln in dividends for January-September 2016. Protek’s net profit rose 40% on the year to RUB 3.575 bln in January-June, as calculated under International Financial Reporting Standards (IFRS).

Bashneft shareholders approve January-September dividends at RUB 26.3 bln On December 5, 2017 it was disclosed that oil company Bashneft have had approved paying RUB 26.345 bln in dividends for January-September, or RUD 148.31 per common share and preferred share of the A type. In 2016, Bashneft paid dividends only on preferred shares at RUB 0.1 per share, or a total of RUB 2.98 mln. In 2015 the company paid RUB 29.132 bln in dividends, or RUB 164 per common or preferred share.

Tatneft does not see dividends below 50% of net profit On December 4, 2017 Vasily Mozgovoi, an aide to the s CEO for corporate finances of Russian oil company Tatneft stated that the company does not expect its dividend payment to fall below 50% of net profit. He mentioned that they set 50% as a goal, but do not rule out that it will be higher. Mozgovoi added that It would be comfortable for Tatneft to pay 75% of net profit in dividends for January-September. In early November the company’s board of directors recommended paying RUB 27.78 per share, or 75% of net profit under Russian Accounting Standards (RAS), in dividends for January-September.

Novorossiysk Grain Plant to pay RUB 6.8 per share in dividends for January-September On December 5, 2017 it was disclosed that shareholders of Novorossiysk Grain Plant have approved paying RUB 6.8 per common share, or a total of RUB 459.7 mln in dividends for January-September. The record date is December 15. The company paid RUB 9.46 per share, or a total of RUB 639.467 mln in dividends for January-September 2016. United Grain Company (UGC) owns a 51% stake in the plant and businessman Ziyavudin Magomedov owns 18.49% via Ivianto Services.

NCSP may pay USD 100-150 mln in 2017 dividends On December 5, 2017 acting CEO of Russia’s Novorossiysk Commercial Sea Port (NCSP) Sergei Kireyev said at a conference call that the company may pay USD 100-150 mln in dividends for 2017. He mentioned that the final figure had not been approved. In January-September, the company’s net profit fell 26.4% on the year to USD 359.354 mln, as calculated under International Financial Reporting Standards (IFRS). NCSP’s shareholders earlier approved paying RUB 0.779 per share, or a total of RUB 15 bln, in final dividends for 2016. Summa Group and oil pipeline monopoly Transneft own 50.1% in NCSP on a parity basis.

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Lukoil holders approve paying RUB 85 per share in January-September dividends On December 6, 2017 it was stated that shareholders of Russian oil major Lukoil had approved paying RUB 85 per share in dividends for January-September. The dividend payment will account for around 24% of the company’s net profit for the period calculated under International Financial Reporting Standards (IFRS). Lukoil paid RUB 75 per share in dividends for January-September 2016. For entire 2016 the company paid RUB 120 per share, or a total of RUB 102.067 bln in dividends. CEO Vagit Alekperov said in June he holds 24.8% in the company.

Eurobonds / DRs

Otkritie FC Bank writes off USD 500 mln subordinated Eurobonds On November 30, 2017 Russia’s OFCB Capital stated on the London Stock Exchange that Otkritie Financial Corporation (FC) Bank had written off USD 500 mln subordinated Eurobonds, issued by OFCB Capital and attracted in 2012 under old rules. The bank has written off subordinated bonds with a maturity in 2019, including interests accumulated from September 15. Otkritie FC Bank is undergoing a bailout launched by the central bank at the end of August.

Please be advised that the information presented in this newsletter is based on the following sources: National Settlement Depository (NSD); Clearstream Banking; Euroclear Bank; PRIME-TASS information agency; “Kommersant”, "Rossiyskaya Gazeta”, “Izvestiya, "Vedomosti”, “The Moscow Times“ newspapers, and others. For more information kindly contact: Anna Enfiandzhiants Evgenia Sakr Julia Dombrovskaya T +7 (495) 783 13 91 T +7 (495) 783 13 64 T +7 (495) 783 13 15 F +7 (495) 783 13 89 F +7 (495) 783 13 89 F +7 (495) 783 13 20 E [email protected] E [email protected] E [email protected]

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