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Presented by: VTB Bank, Custody

July 11, 2019 Issue No. 2019/25

Company News

Orient Express Bank appoints former Uniastrum executive as acting chairman On July 04, 2019 it was stated that the board of directors of Russia’s Orient Express Bank had appointed Vyacheslav Arutyunyan, a former executive of Uniastrum Bank, as the acting chairman of the bank’s management board. The directors also appointed Konstantin Rogov as the CEO of the bank. Arutyunyan should build full-scale cooperation with corporate borrowers to restore the quality of the bank’s loan portfolio and ensure repayment of loans, while Rogov would focus on financial control and optimization of risk- weighted assets to reduce capital intensity of the bank’s books, the bank said quoting Chairwoman of the Board of Directors Svetlana Trukhanovich. In February, the Basmanny District Court of arrested businessman Michael Calvey, founder of Baring Vostok, and five other defendants for two months over alleged RUB 2.5 bln embezzlement from Orient Express Bank. In April, Calvey was released under house arrest, and it was prolonged until July 14. Investigators believe that Calvey, his partner Phillippe Delpal, and several other unidentified managers convinced shareholders of Orient Express Bank to vote for a compensation agreement to receive a 59.9% in International Financial Technology Group instead of money. The shares were valued at RUB 3 bln under the deal, while their real value amounted to RUB 600,000. On May 17, the Arbitration Court of the Amur Region ordered Evison Holdings Limited, which represents interests of fund Baring Vostok, to fulfill a 2016 call option and to sell the 9.99% stake in Orient Express Bank to Avetisyan’s Finvision Holdings. Following the option, Baring’s stake in the bank shrank to 41.63%, while Avetisyan’s stake rose to 42.01%.

CEO Otkritie FC Bank to sell 15–25% of shares until middle of 2021 On July 04, 2019 Russia's CEO of Otkritie Financial Corporation (FC) Bank Mikhail Zadornov told reporters about plans to sell 15–25% of the bank’s shares on the open market until the middle of 2021. Zadornov said that he is sure that a financial asset with such a return on equity (ROE) will be interesting for buyers, and they will be able to sell 15%, or 20%, or 25% of Otkritie's shares to a wide range of investors in the middle of 2021. The bank wants to occupy 4–5% market shares in different banking segments, and expects ROE of 18% and net profit of RUB 68 bln until 2020, the CEO added. On July 02, the central bank said that its board of directors had decided to end the bailout of Otkritie FC Bank, and that the regulator's stake in the bank will be partially sold in 2021.

Rostelecom may issue 20% of new shares to pay for On July 05, 2019 business daily Kommersant reported that Russian state-controlled telecom operator would issue some 20% of new shares to pay for consolidation of 45%-owned mobile operator T2 RTK Holding, working as Tele2, along with quasi-treasury shares and cash. A source close to Rostelecom told the daily that an ordinary share costs slightly over RUB 90 and a preferred share has a 16% discount, or RUB 75.61. An unnamed government official said the government had received a draft decree on state control over Rostelecom if it consolidates 100% of T2 RTK Holding. According to the source Rostelecom’s board of directors will meet after it has been signed in the next few days to consider parameters of the deal and arrange a date for an extraordinary meeting of the company’s holders. The remaining 55% of T2 RTK Holding belong to Tele2 Russia Holding AB, in which VTB has 50%, Alexei Mordashov’s Invintel B.V. has 40%, and Yury Kovalchuk’s Bank Rossiya has 10%.

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Sistema to collect bids for RUB 10 bln of 10-year bonds on July 18 On July 05, 2019 it was disclosed that Russian multi-industry holding planned to collect bids for RUB 10 bln of 10-year exchange bonds on July 18. The first coupon guidance is set at 9.7–9.9% annually, which corresponds to a 9.94–10.15% annual yield to a 4-year buyback offer. The issue will carry semiannual coupons. The technical placement is preliminarily scheduled for July 29. Alfa-Bank, BCS Global Markets, VTB Capital, Gazprombank, , Otkritie Financial Corporation (FC) Bank, Rosbank and investment company Solid are the organizers.

Raspadskaya buys back 2.9% of free float On July 05, 2019 it was stated that Russian coal producer Raspadskaya had bought back 20.413 mln shares, or 2.9% of the free float. The purchase was made in accordance of a decision of the board of directors dated April 25. According to an earlier statement, the price stood at RUB 141 per share.

VTB raises stake in PIK Group to 23.05% from 7.57% On July 05, 2019 Russia’s second largest lender VTB stated that it had raised its stake in developer PIK Group to 23.05 from 7.57%. The amount of the deal was not disclosed. In June 2017, PIK Group sold global depositary receipts (GDRs) equaling a 7.6% stake in the company to VTB for RUB 15 bln.

Organizer says demand for ’s RUB 25 bln bonds exceeds RUB 40 bln On July 08, 2019 Denis Shulakov, first vice president of Gazprombank, told reporters that total demand for Russian oil major Rosneft’s RUB 25 bln exchange bonds had exceeded RUB 40 bln. Initially, Rosneft planned to offer RUB 15 bln exchange bonds, with the first coupon rate guidance set at 8.1–8.25%, corresponding to a yield of 8.26–8.42% to a 5-year buyback offer. The coupon guidance was then lowered to the final rate of 7.95%, while the placement’s volume was raised to RUB 25 bln. The technical placement of the bonds is preliminarily scheduled for July 15. Russian Regional Development Bank, VTB Capital, Gazprombank and Sberbank CIB were the organizers.

Fitch rates PIK Group at BB-, outlook stable On July 08, 2019 international rating agency Fitch Ratings reported that it had assigned Russian real estate developer PIK Group Long-Term Issuer Default Ratings (IDR) of BB- with Stable Outlook. The rating reflects the group’s leading market position in Russia and a successful reduction of borrowed funds. Fitch said that although PIK is focused on the mass-market segment, which is considered more vulnerable during a crisis period, the group is exposed to the most lucrative residential market – Moscow and the Moscow Region. Fitch projects that the group’s revenue will increase 10% on average in 2019–2021.

RDIF, RCIF and Middle Eastern funds buy 28% in Alium pharma maker On July 09, 2019 the Russian Direct Investment Fund (RDIF) stated that a consortium of investors comprising the Russian Direct Investment Fund (RDIF), the Russia–China Investment Fund (RCIF), and large Middle Eastern funds had closed a RUB 4 bln acquisition of 28% in pharmaceutical holding Alium, from Sistema and VTB. VTB and Sistema, together with the management of Pharmaceutical Enterprise Obolenskoe, working under the OBL Pharm brand 95.15% in OBL Pharm in December. Sistema wanted to merge it with its Binnopharm to create a pharmaceutical holding. Alium would become one of Russia’s top 10 commercial pharmaceutical companies. the RDIF said quoting CEO Kirill Dmitriev that they had finished an important stage of creation of Alium holding, whose products will help satisfy market demand for modern efficient medical products. The fund and its partners plan to consider attractive investment projects in the pharmaceutical sector in the future. After the sale of the 28% to the consortium, Sistema’s direct stake in OBL Pharm amounts to 13%, while VTB Bank’s stake stands at 46%.

MTS issues RUB 10 bln 7-year exchange bonds, coupon at 7.9% On July 09, 2019 it was stated that Major Russian mobile operator MTS has issued RUB 10 bln 7-year exchange bonds with a coupon rate of 7.9% annually. The coupon period is 91 days. The technical placement on the is scheduled for July 17. MTS Bank acted as the lead arranger. The operator will use the funds to further optimize its debt portfolio and for general corporate purposes.

Gold producer Polymetal to offer 21 mln shares On July 09, 2019 Bloomberg news agency reported that Russian precious metals producer would offer 21 mln shares, or around 4.5% of its capital, to investors using an accelerated book building. Goldman Sachs is the organizer.

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En+ Group to list shares, delist GDRs on Moscow Exchange On July 09, 2019 it was stated that Russia’s En+ Group had finished registration in the Kaliningrad Region and plans to list its shares on the Moscow Exchange and delist global depositary receipts (GDRs) from the bourse. In 2018, Russia approved a package of laws allowing its citizens to re-register offshore companies, which they control, in special domestic administrative regions on Russky Island near Vladivostok and Oktyabrsky Island near Kaliningrad to minimize possible repercussions from foreign sanctions and acquire a status of an international firm.

Dividends/coupons Russian Railways to pay 74% of RAS net profit in 2018 dividends On July 08, 2019 Deputy Prime Minister Maxim Akimov, chairman of the board of directors of Russian Railways, told reporters that according to the government’s decision the company should pay 74% of its Russian Accounting Standards (RAS) net profit, or more than RUB 13 bln, in dividends for 2018, in addition to dividends on preferred shares. The net profit amounted to RUB 18 bln in 2018. Kommersant business daily reported in May that the draft government directive allowed the company to pay dividends with property instead of money, but the Finance Ministry opposed the decision as the Budget Code does not allow authorities to deem property as budget income.

Sources say Rostelecom may pay dividends for January–June On July 08, 2019 business daily Kommersant reported that Russian state-controlled telecom operator Rostelecom might switch to paying interim dividends for January–June unlike paying for three quarters and a whole year as it did in 2018, and the move would keep flexibility in the financial policy amid the coming consolidation of Tele2. A source close to the company told the daily that Rostelecom is studying a possible payment of dividends for January–June and the matter will be put on the agenda of a meeting of the board of directors, which will approve a deal on the purchase of the remaining 55% in mobile operator Tele2, the brand of T2 RTK Holding. The both matters could be put on the agenda of an extraordinary general meeting of shareholders. If the dividends are approved, holders could get the payment in September–November, the source said. The interim dividend may be at RUB 2.5 per share, and the same amount would be paid for the whole 2019 year, which would make RUB 13.9 bln in total, several sources said. Rostelecom paid its first interim dividends of RUB 2.5 per share for January–September 2018. The final dividends for 2018 of the same amount were approved by the holders on June 14. A spokesperson for Rostelecom said the company had switched to payment of interim dividends in 2018 and plans to stick to this approach in the future. Nikolai Lukashevich, senior director at Fitch Ratings in Russia and the CIS, said there is no crucial difference in periods of interim dividends, but it is more logical when a company pays them more evenly.

Please be advised that the information presented in this newsletter is based on the following sources: National Settlement Depository (NSD); Clearstream Banking; Euroclear Bank; PRIME-TASS information agency; “Kommersant”, "Rossiyskaya Gazeta”, “Izvestiya, "Vedomosti”, “The Moscow Times“ newspapers, and others.

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