RUSSIA | STRATEGY AUGUST 8, 2012
Equity Strategy Who Owns the Equity Market and
Why It Matters
Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion. Jack Welsh At a glance █ Ownership structure matters for valuations. Companies dominated by strategic foreign investors generally have the best net margins and the highest Companies controlled by foreign strategic shareholders (like E.ON dividend payouts. Companies with the highest minority investor content are Russia) generally have better margins more often near the bottom of the table in terms of valuation, while than others, while state controlled state controlled companies still have a much lower dividend payout than others. companies still have plenty of scope to █ Operating environment influences financial metrics. When we look at the raise dividend payouts. companies’ operating environment, private, regulated companies that have to Private companies in state regulated compete against state corporations appear to be the most profitable in terms industries, such as NOVATEK, of net margin, have the highest dividend payout and low leverage in terms of generally have very high net margins. net debt/EBITDA, but moderate P/E and P/BV.
█ Relative freedom implies higher valuation at expense of lower Companies operating with a high degree of relative freedom often profitability. We also look at companies under the category of “relative have lower EPS growth but are more freedom”, which combines the industry characteristics and restraints with the highly rated by investors. equity ownership structures. Here we find that the greater the freedom a company enjoys, the lower its net profitability but, in general, they have a The state currently owns a 30% stake high dividend payout. Greater freedom also implies lower EPS growth but in the equity market, valued at higher P/E and P/BV ratios. $223 bln, which is down from $441 bln in mid 2008 ($80 bln of the █ Russian equity market owned primarily by state and minority investors. difference can be accounted for by the The total value of the Russian equity market is currently $749 bln, or 40% of expansion of Russia’s risk premium). the expected value of GDP in 2012. The free float is currently 27%, while the state’s equity stake is today at 30% and worth $223 bln. At the market’s peak in May 2008, the value of the state’s holding was $441 bln.
The authors would like to gratefully █ Recent years marked by unrealized IPO plans. In mid 2008, a total of acknowledge the assistance of close to $50 bln worth of equity issuance was planned from state and private Anastasia Lapotko in the preparation enterprises. The total amount actually listed was less than $5 bln in both 2009 of this report. and 2010, while in 2011 the total came close to $10 bln. Only $322 mln has been raised YTD via two IPOs (RusPetro and EPAM Systems), and $520 mln via the recent Globaltrans SPO.
█ Privatization program about to regain missed figures. The state’s “fast track” privatization list has a current value just above $12 bln, while the full five year program would yield circa $81 bln if sold at current valuations Chris Weafer +7 (495) 933 9886 and under the terms previously proposed. If all of the planned equity issues [email protected] from the state, via the privatization program and from other expected IPOs Ovanes Oganisyan +7 (495) 933 9868 [email protected] and SPOs, were to take place over the next five to six years, then the state’s
Iskander Abdullaev +7 (495) 787 2346 equity stake in the market would be cut to roughly 20%, while the free float
[email protected] would be boosted closer to 40%.
In accordance with US SEC Regulation AC, important US regulatory disclosures and analyst certification can be found at http://www.troika.ru/eng/research/disclosure.wbp. [email protected], www.troika.ru
AUGUST 8, 2012 EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS
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2 TROIKA DIALOG EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS AUGUST 8, 2012
Contents
Who Owns Russian Equities?...... 4
Ownership categories...... 5
Summary Tables – By Category ...... 6
Ownership Sector Breakdown ...... 8
Ownership structure on the sector level...... 8
Does Ownership Matter? ...... 10
Does the Operating Environment Matter?...... 11
Does Relative Freedom of Companies/Industries Matter? ...... 12
Privatization Program...... 13
TROIKA DIALOG 3 AUGUST 8, 2012 EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS
Who Owns Russian Equities?
█ The state is the main equity player. The government is the biggest owner of Russian equities with a 30% stake, valued at $223 bln, though its ownership is highly concentrated in a few names and mostly in the energy and banking sectors. Oligarchs (see below for our definition of who is classified as an oligarch and who is a businessman) own 15%, while businessmen have a 14% stake in the market. The free float owned by both institutional and private investors is calculated at 27% and currently worth an estimated $205 bln.
Value of owners’ stakes, $ bln State 223 Free float 205 Oligarchs 109 Businessmen 106 Foreign strategic investors 39 Other 67 Source: Companies, Troika estimates
█ All categories suffering since 2008. At the peak of the market, in May 2008, the state’s holding was 34%, worth $441 bln, while free float was 30% and worth $380 bln. In the intervening period, the value of the state’s holdings has lost $218 bln, while oligarchs lost $52 bln and the free float fell by $175 bln.
█ The state lost an extra $80 bln due to the expansion of Russia risk. If the Russian equity market had fallen in line with the decline of the MSCI EM Index over that period, then the current value of the stock market would be roughly $1 trln, and the state’s equity holding would be worth $310 bln (taking the average) or about $80 bln more than its current value. That is almost equal to the total the state wants to raise from privatizations over the next five to six years.
█ Reasons for expansion of Russia risk. We believe that a combination of the following reasons is responsible for Russia’s underperformance relative to the MSCI EM Index since mid 2008.
Oil price weakness and the fact that the government did not use the 10y period of high oil revenues to materially advance the reform agenda.
The debt crisis of late 2008, which was caused by companies not raising enough equity financing during the boom years and instead relying on cheap forex debt in order for core shareholders/oligarchs to retain maximum ownership.
The political transition and the subsequent street protests have created a perception of instability.
Ownership structure of the Russian market
9% State
30% Oligarch
27% Businessmen
Foreign strategic investors
Free float 15% 5% 14% Other
Source: Troika estimates
4 TROIKA DIALOG EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS AUGUST 8, 2012
█ Equity valuations to GDP. The current value of the equity market ($749 bln) is equal to some 40% of the expected value of GDP for 2012. That is roughly in line with similar ratios for other large emerging markets.
Stock market as % of GDP Turkey 33% China 37% Russia 40% Brazil 44% UK 125% Source: Bloomberg
Ownership categories
█ Category definitions. We consider the current ownership structure of Russia listed companies, and define the following types of owners: state, oligarchs, businessmen, foreign strategic investors, minority investors (free float) and others (which may include Russian or foreign funds). Ownership is defined by holding a stake that is greater than or equal to 25%. Whenever there are multiple types of holders having 25% or more, the one with the largest stake is considered the owner.
█ Who is an oligarch? The classic definition of an oligarch is a person with a considerable amount of wealth and close political connections. It was very easy to see who was in that category in Russia during the 1990s and early in the first Putin administration. Since then, the line between who can still be called an oligarch and who is now a core shareholder/businessman is less obvious. For this exercise, we separate the core shareholders between the two categories based on how investors currently perceive the difference.
█ Businessmen. Businessmen are essentially those in the Forbes 200 list who are not oligarchs.
█ Strategic investors. Foreign strategic investors are foreign companies from the same industry as the Russian firm in which they hold a stake.
█ Others where the classification is unclear. Other holders include treasury shares, unclassified holders and shareholders that do not fit within the other categories, are not specifically state owned and cannot in any way be classified as free float.
TROIKA DIALOG 5 AUGUST 8, 2012 EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS
Summary Tables – By Category
Companies may appear in two separate categories if two distinct shareholders each own 25% or greater of the equity.
Companies with largest Companies with largest Companies with largest Companies with large state ownership** oligarch ownership ownership by businessmen foreign strategic investor Equity position* Equity position* Equity position* ownership
Gazprom Neft 96% Power Machines 96% O'Key 86% Equity position* Mosenergo 85% MMK 87% Rusagro 82% E.ON Russia 82% Federal Grid Company 83% NLMK 85% PhosAgro 79% Enel OGK 5 56% OGK 3 82% Acron 84% Global Ports 75% TNK BP Holding 47% Transneft 78% UC RUSAL 80% Protek 74% Mail.ru Group 39% Rosneft 76% Severstal 79% Raspadskaya 74% CTC Media 38% OGK 1 75% Polyus Gold 79% M.Video 71% VimpelCom Ltd 36% VTB 75% Bashneft 76% Siberian Cement 70% TGK 1 26% MRSK Holding 64% TMK 75% Dixy Group 68% * as of close on July 27 OGK 2 63% GAZ Group 73% IRC 66% Source: Company, Troika estimates RusHydro 60% Norilsk Nickel 69% AFI Development 64% Sberbank 60% Sistema 64% HMS Group 63% InterRAO UES 60% RBC 57% IBS Group 62% Aeroflot 55% MTS 51% LSR Group 62% Rostelecom 53% Mechel 51% Rosinter 61% Gazprom 53% X5 Retail Group 48% Bank of St Petersburg 60% TGK 1 52% TNK BP Holding 47% Cherkizovo Group 60% Uranium One 51% TGK 7 44% Sollers 58% TransContainer 50% ENRC 44% Chelyabinsk Zinc 58% NCSP Group 50% PIK Group 38% Pharmacy Chain 36.6 57% TGK 7 32% Evraz 35% Pharmstandard 54% Tatneft 32% VimpelCom Ltd 31% Vozrozhdenie Bank 54% Enel OGK 5 26% Mostotrest 26% Veropharm 52% * as of close on July 27 NOVATEK 25% Globaltrans 50% ** state equity holding includes stock held by CTC Media 25% Magnit 49% VEB NCSP Group 25% NOMOS Bank 48% Source: Company information, Troika FESCO 25% Eurasia Drilling Company 48% estimates * as of close on July 27 Etalon Group 47% Source: Company, Troika estimates Tatneft 46% Highland Gold Mining 46% Synergy Group 45% Alliance Oil Company 44% Evraz 40% Uralkali 38% LUKoil 38% Mail.ru Group 37% NOVATEK 29% ENRC 26% * as of close on July 27 Source: Company, Troika estimates
6 TROIKA DIALOG EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS AUGUST 8, 2012
Stocks ranked by free float Free Float* Free Float* Free Float* Free Float*
Petropavlovsk 85% Rosinter 39% Siberian Cement 30% ENRC 19% Razgulay Group 53% RusHydro 39% Eurasia Drilling Company 30% Mail.ru Group 18% Alliance Oil Company 53% IBS Group 38% M.Video 29% Severstal 18% Magnit 51% Cherkizovo Group 38% Etalon Group 28% Rusagro 18% Globaltrans 50% Synergy Group 38% Rostelecom 28% E.ON Russia 18% HMS Group 37% Yandex 27% Enel OGK 5 17% Uranium One 49% CTC Media 37% Surgutneftegaz 27% Federal Grid Company 17% Veropharm 48% OGK 2 37% Aeroflot 26% Raspadskaya 16% LUKoil 47% AFI Development 36% Bank of St Petersburg 26% Acron 16% Pharmstandard 47% MRSK Holding 36% Global Ports 25% Mosenergo 15% Polymetal 46% Uralkali 36% NCSP Group 25% VimpelCom Ltd 14% MTS 45% Mechel 35% TransContainer 25% O'Key 14% PIK Group 44% Mostotrest 35% Evraz 25% OGK 3 14% Sollers 42% Highland Gold Mining 34% NOMOS Bank 25% NLMK 13% Chelyabinsk Zinc 42% Vozrozhdenie Bank 34% OGK 1 25% InterRAO UES 13% Pharmacy Chain 36.6 41% LSR Group 33% TMK 25% MMK 11% Sberbank 40% Dixy Group 33% VTB 25% GAZ Group 11% Gazprom 40% X5 Retail Group 32% Sistema 24% PhosAgro 11% RBC 32% TGK 7 23% Bashneft 10% Norilsk Nickel 31% TGK 1 23% IRC 23% Polyus Gold 9% Tatneft 22% Rosneft 8% Transneft 22% UC RUSAL 8% NOVATEK 22% FESCO 6% Protek 20% Power Machines 5% TNK BP Holding 5% Gazprom Neft 4% * as of close on July 27 Source: Company, Troika estimates
TROIKA DIALOG 7 AUGUST 8, 2012 EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS
Ownership Sector Breakdown
Ownership structure on the sector level Oil and gas sector ownership Observing the sector breakdown reveals some additional patterns in ownership structure. 13% State
Oligarch The state’s stake is predominant in companies from the oil 35% and gas (36%), utilities (58%) and financials (61%) sectors, Businessmen while it has the lowest presence in TMT (8%), metals and 26% Foreign strategic investors mining (3%) and real estate (2%). Manufacturing, consumer goods, chemicals and construction have no state presence in Free float their ownership structures. 7% 9% 10% Other
The overall stake of minority shareholders (free float) is Source: Troika estimates remarkably large in almost all sectors, being the greatest in the consumer sector (41%) and the lowest in metals and Utilities sector ownership mining (21%) and manufacturing (18%). 3% State Oligarchs own significant stakes in manufacturing (58%) 23% Oligarch and metals and mining (55%), and hold a share slightly over 20% in chemicals, transport and construction. Businessmen
Businessmen own a major stake in consumer (58%), real 57% Foreign strategic investors 13% estate (51%) and chemicals (43%), while they are almost Free float 0% or not present in financials (only 2%) and utilities. 4% Other Foreign strategic investors are most present in utilities Source: Troika estimates (13%), TMT (12%) and oil and gas (7%).
Two groups of industries appear to have similar ownership TMT sector ownership structure patterns: metals and mining and manufacturing; 8% 8% State and oil and gas and utilities (though utilities have greater state ownership). 17% Oligarch
Financials and consumer have peculiar ownership structures, 28% Businessmen the former being heavily dominated by the state and the Foreign strategic investors latter by businessmen. Both have significant free float of Free float nearly 40%. 27% 12% Other
Source: Troika estimates
8 TROIKA DIALOG EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS AUGUST 8, 2012
Metals and mining sector ownership Manufacturing sector ownership
9% 3% State 3% 0% State 18% Oligarch Oligarch
21% 0% Businessmen Businessmen
Foreign strategic investors Foreign strategic investors 55% 58% 0% 21%
12% Free float Free float
Other Other
Source: Troika estimates Source: Troika estimates
Chemicals sector ownership Financials sector ownership
4%0% State 1% State 22% Oligarch Oligarch 36% 31% Businessmen Businessmen
Foreign strategic investors Foreign strategic investors 61% 0% 0% Free float 2% Free float 0% 43% Other Other
Source: Troika estimates Source: Troika estimates
Consumer sector ownership Transport sector ownership
0% 1% 0% State 9% State 21% Oligarch Oligarch
40% Businessmen 26% Businessmen
59% Foreign strategic investors Foreign strategic investors 23% Free float 0% Free float 0% Other 21% Other
Source: Troika estimates Source: Troika estimates
Real estate sector ownership Construction sector ownership
0% 6% 2% 8% State State 21% 21% Oligarch Oligarch
34% Businessmen Businessmen
Foreign strategic investors Foreign strategic investors 24% 50% Free float Free float 0% 34% Other 0% Other
Source: Troika estimates Source: Troika estimates
TROIKA DIALOG 9 AUGUST 8, 2012 EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS
Does Ownership Matter?
Here we consider trends for companies with various ownership structures in 2006 14.
The most profitable companies are those owned by strategic foreign investors (in terms of net margin). Moreover, they pay the largest dividends and have very low leverage (in terms of net debt/EBITDA).
Companies owned by minority shareholders and businessmen have the highest P/E and P/BV. However, they appear to be the most indebted, along with oligarch owned firms.
In turn, oligarch owned companies have quite low relative profitability but pay higher than average dividends. However, their P/E and P/BV are among the lowest on average.
State owned corporations have moderate profitability and low dividend payouts. P/E and P/BV are relatively low for them on the whole. However, they have relatively low leverage.
Net debt/EBITDA Net margin EPS growth 5 25% 100% 4 20% 80% 3 15% 60% 2 1 10% 40% 0 5% 20% 1 0% 0% 2 3 5% 20% 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014
State State State Oligarch Oligarch Oligarch Businessmen Businessmen Businessmen Foreign strategic investors Foreign strategic investors Foreign strategic investors Minority shareholders Minority shareholders Minority shareholders Source: Troika estimates Source: Troika estimates Source: Troika estimates
Dividend payout P/E P/BV 35% 20 5 30% 16 4 25% 20% 12 3
15% 8 2 10% 4 1 5% 0% 0 0 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014
State State State Oligarch Oligarch Oligarch Businessmen Businessmen Businessmen Foreign strategic investors Foreign strategic investors Foreign strategic investors Minority shareholders Minority shareholders Minority shareholders Source: Troika estimates Source: Troika estimates Source: Troika estimates
10 TROIKA DIALOG EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS AUGUST 8, 2012
Does the Operating Environment Matter?
We also define companies based on their operating environment and ownership structure.
█ State owned.
█ Regulated.
█ In competition with state company in the same industry.
█ Completely free.
█ Private, regulated, competes with state company
The latter type of companies seems to be the most profitable and has the greatest dividend payouts. They also have rather low leverage.
Completely free companies, in contrast, are the least profitable and pay the lowest dividends. They have the highest P/E and P/BV, though their EPS growth is pretty average. Moreover, completely free companies are among the most indebted.
Companies that have to compete against state firms in the same industry have relatively large dividend payouts and EPS growth rates, while they are valued moderately in terms of P/E and P/BV.
Net debt/EBITDA Net margin EPS growth 5 20% 100% 4 16% 80% 3 60% 2 12% 40% 1 8% 20% 0 4% 1 0% 2 0% 20% 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014
State company State company State company Regulated company Regulated company Regulated company Competes with state company Competes with state company Competes with state company Completely free Completely free Completely free Private, regulated, competes with state company Private, regulated, competes with state company Private, regulated, competes with state company Source: troika estimates Source: Troika estimates Source: Troika estimates
Dividend payout P/E P/BV 25% 30 5
20% 25 4 20 15% 3 15 10% 2 10
5% 5 1
0% 0 0 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014
State company State company State company Regulated company Regulated company Regulated company Competes with state company Competes with state company Competes with state company Completely free Completely free Completely free Private, regulated, competes with state company Private, regulated, competes with state company Private, regulated, competes with state company Source: Troika estimates Source: Troika estimates Source: Troika estimates
TROIKA DIALOG 11 AUGUST 8, 2012 EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS
Does Relative Freedom of Companies/Industries Matter?
We look at the company breakdown according to relative freedom. Four types of companies are identified – totally free, quite free, somewhat free and not free – based on the following factors:
█ The extent to which the state enters the ownership structure.
█ Whether it has to compete against a state company.
█ Whether the company operates in a regulated environment.
█ Whether the company is a commodity producer.
Several general conclusions can be drawn by looking at the data. First, the greater freedom the company enjoys, the lower is its profitability and, generally, the higher its dividend payout.
Also, greater freedom implies lower EPS growth, but higher valuation in terms of P/BV and P/E.
A comparison of net debt/EBITDA for various company types does not reveal any particular trend.
Net debt/EBITDA Net margin EPS growth 4 20% 100% 80% 3 16% 60% 2 12% 40% 1 8% 20% 0 0% 4% 1 20% 2 0% 40% 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014
Totally free Quite free Totally free Quite free Totally free Quite free Somewhat free Not free Somewhat free Not free Somewhat free Not free
Source: Troika estimates Source: Troika estimates Source: troika estimates
Dividend payout P/E P/BV 30% 25 5
25% 20 4 20% 15 3 15% 10 2 10%
5% 5 1
0% 0 0 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014
Totally free Quite free Totally free Quite free Totally free Quite free Somewhat free Not free Somewhat free Not free Somewhat free Not free
Source: Troika estimates Source: Troika estimates Source: Troika estimates
12 TROIKA DIALOG EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS AUGUST 8, 2012
Privatization Program
█ State aims to sell close to $100 bln of equity over five to six years. Having raised R121 bln ($4 bln) in 2011, the privatization target this year is now R300 bln ($9 bln) via the sale of equity in existing listed stocks. The very ambitious longer term plan is to raise close to $100 bln over the next five years, which is consistent with the plan outlined by President Vladimir Putin during his election campaign. Realistically, this can only be achieved if investors see evidence of economic improvement and progress in the promised reform agenda.
█ Energy sector plans very likely to be reviewed. Privatization will proceed on a twin track with the energy sector, which is likely to see further state consolidation before equity sales are advanced. The priority over the next 12 18 months will be to sell “surplus” equity, i.e. rather than core equity, in already listed non energy sector stocks.
█ Revised plan not too dissimilar to previous version. The government is trying to breathe new life into the privatization program. This is expected, as both the president and prime minister have consistently highlighted the need for a faster sales timetable as one of the key priorities for the new cabinet. However, the revised program is not much more than the previous program separated into two timelines: basically, one list of stocks outside the energy sector that may be sold over the next 12 to 18 months, and stocks in the energy sector that may be sold over a 5y time line. This is consistent with Putin’s election promise to substantially remove the state from ownership of non strategic companies by 2016.
█ Obvious differences of opinion within government. The specific details of the privatization program have yet to be fully disclosed, and while some may explain that as pragmatism, i.e. leaving scope to adapt the program to prevailing market conditions, others will see it as reflecting the fact that there are still major disagreements within the government over how the program should proceed. We should therefore view the first phase of the privatization program (i.e. the list of priority sales) as reasonably complete, and the second list (i.e. the five year program) as still only “indicative”.
█ Aiming for $9 bln this year. The economics minister said that the government aims to raise R300 bln (circa $9 bln) from the sale of state assets this year, up from the R121 bln raised in 2011. The program he outlined remains in draft form at this stage, but basically breaks down into two parts – those stocks on the priority list for sale in 2012 or 2013, and those for sale in a vaguer time frame up to 2016.
█ Short sale list ready to go. The fast track program, to be completed within 12 to 18 months, i.e. by end 2013, involves the long awaited sale of equity in Sberbank, a 25% stake in VTB, cutting the state’s equity position in Federal Grid Company to 75% and the disposal of a 25% equity stake in Sovcomflot. It was recently indicated that this block may be sold for $780 mln. The first deputy prime minister also said that he believes the state should divest all of its 50.9% stake in ALROSA in this time period. An equity stake sale in spring last year implied a value of $6 bln for the whole company, but there have been valuation indications as high as $12 bln in the interim. It has also been disclosed that the state has accepted Summa Group and Rusagro as potential bidders for a 49% stake in United Grain Company.
█ Listed equities in fast track program could bring in $12 bln. In total, and based on current market valuations of the listed equity, the priority phase of the privatization program may bring in just over $12 bln from the listed equities alone.
TROIKA DIALOG 13 AUGUST 8, 2012 EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS
Fast track sale list (12 18 months), $ bln Market value* State holding Initial sale** Value
Existing listed stocks Sberbank 60.90 57.60% 5.80% 3.50 VTB 16.60 85.50% 25.00% 4.20 Sovcomflot 3.10 100.00% 25.00% 0.80 ALROSA**** 6.00 50.90% 50.90% 3.10 Aeroflot 1.40 51.20% 26.00% 0.40 Federal Grid Company 9.20 79.10% 4.10% 0.40
Potential from existing listed priority sales 12.30 Not listed*** Apatit RosAgro Leasing 100.00% Russian Agriculture Bank 100.00% Russian Railways 100.00% 25.00% Sheremetyevo Airport 100.00% United Grain Company 100.00% 50.00% Murmansk Port 100.00% Arkhangelsk Port 100.00% Vanino Port 100.00% * as of close on July 26 ** the equity portion to be initially sold where disclosed *** or, where the listing does not show an accurate valuation **** based on the value implied by the last sale in early 2011 Source: Government, Troika
█ Ambitious longer term plan. The more substantial part of the privatization program involves a more significant reduction of equity in the state sector, including the full privatization of Rosneft, according to reports from the president’s office and the cabinet.
█ State unlikely to sell out of most important companies. Assuming, however, that the state retains a blocking strategic stake in companies such as Rosneft and Sberbank (i.e. rather than selling out completely, as has been indicated), and a 50% controlling stake in Gazprom, Transneft and the key utility companies, then the five year program for existing listed equities may yield over $80 bln, with extra coming from the sale of the state enterprises for which we currently do not have an indication of market value.
14 TROIKA DIALOG EQUITY STRATEGY – WHO OWNS THE EQUITY MARKET AND WHY IT MATTERS AUGUST 8, 2012
Five year privatization program, $ bln Market value* State holding Initial sale** Value
Sberbank 60.90 57.60% 32.60% 19.90 VTB 16.60 85.50% 85.50% 14.20 Sovcomflot 3.10 100.00% 100.00% 3.10 ALROSA**** 6.00 50.90% 50.90% 3.10 Aeroflot 1.40 51.20% 51.20% 0.70 Federal Grid Company 9.20 79.10% 29.10% 2.70 Rosneft 58.30 75.20% 50.20% 29.30 RusHydro 8.10 57.90% 32.90% 2.70 InterRAO UES 6.90 66.00% 41.00% 2.80 Transneft 10.80 – 25.00% 2.70
Potential from existing listed priority sales 81.10 Not listed*** Apatit Rosagroleasing 100.00% – RUSNANO 100.00% 25.00% Russian Agricultural Bank 100.00% – Russian Railways 100.00% 25.00% Sheremetyevo Airport 100.00% – United Grain Company 100.00% 49.00% Murmansk Port 100.00% – Arkhangelsk Port 100.00% – Vanino Port 100.00% – Zarubezhneft 100.00% – * as at close July 26 ** the equity portion to be initially sold where disclosed *** or, where the listing does not show an accurate valuation **** based on the value implied by the last sale in early 2011 Source: Government information, Troika
TROIKA DIALOG 15
Senior Management
Chairman of Board of Directors and CEO, Chief Economist, Troika Dialog Ruben Vardanian Managing Director Evgeny Gavrilenkov
Research Department +7 (495) 258 0511
Head of Research Paolo Zaniboni +7 (495) 787 2381
Head of Equity Research Andy Smith +7 (495) 787 2381 Real Estate Head of FI Research Alexander Kudrin +7 (495) 933 9847 Senior Analyst Julia Gordeyeva, CFA +7 (495) 933 9846
Strategy Transport Chief Strategist Chris Weafer +7 (495) 933 9886 Senior Analyst Mikhail Ganelin +7 (495) 933 9851 Strategist Ovanes Oganisyan +7 (495) 933 9868 Senior Analyst Igor Vasilyev +7 (495) 933 9842 Strategist/Quant Analyst Iskander Abdullaev +7 (495) 787 2346 Assistant Analyst Ivan Belyaev +7 (495) 933 9853
Oil and Gas Economy Senior Analyst Oleg Maximov +7 (495) 933 9830 Senior Economist Anton Stroutchenevski +7 (495) 933 9843 Senior Analyst Alex Fak +7 (495) 933 9829 Junior Economist Sergei Konygin +7 (495) 933 9848 Analyst Valery Nesterov +7 (495) 933 9832 Fixed Income Utilities Head of FI Research Alexander Kudrin +7 (495) 933 9847 Senior Analyst Alexander Kotikov +7 (495) 933 9841 Senior Analyst Alexey Bulgakov +7 (495) 933 9866 Assistant Analyst Andrey Trufanov +7 (495) 933 9831 Senior Analyst Dmitry Poliakov +7 (495) 258 0511 Analyst Sergey Goncharov +7 (495) 933 9854 Telecoms, Media and IT Assistant Analyst Nikolay Minko + 7 (495) 933 9857 Senior Analyst Anna Lepetukhina +7 (495) 933 9835 Assistant Analyst Yana Kuznetsova +7 (495) 933 9834 Ukraine Strategist Roman Zakharov +38 (044) 207 3780 Metals and Mining, Chemicals Economist Iryna Piontkivska Senior Analyst Mikhail Stiskin +7 (495) 933 9839 Senior Analyst Yevhen Hrebeniuk Analyst Irina Lapshina +7 (495) 933 9852 Senior Analyst Ivan Kharchuk Analyst Zaurbek Zhunisov +7 (727) 355 3360 Senior Analyst Sergey Nevmerzhitsky Analyst Anton Rumyantsev +7 (495) 933 9840 Senior Analyst Konstantin Fastovets Assistant Analyst Alexander Levinskiy +7 (495) 258 0511 Analyst Maria Repko Manufacturing, Small and Mid Cap Kazakhstan Senior Analyst Mikhail Ganelin +7 (495) 933 9851 Analyst Zaurbek Zhunisov +7 (727) 355 3360 Senior Analyst Igor Vasilyev +7 (495) 933 9842 Analyst Ainur Medeubayeva +7 (727) 355 3355 Assistant Analyst Ivan Belyaev +7 (495) 933 9853
Financials Senior Analyst Andrew Keeley +44 (20) 7936 0439 Analyst Ainur Medeubayeva +7 (727) 355 3355
Consumer Senior Analyst Mikhail Krasnoperov +7 (495) 933 9838 Analyst Georgy Tarakanov +7 (495) 933 9858 Assistant Analyst Artur Galimov +7 (495) 933 9833 Assistant Analyst Maria Sukhanova +7 (495) 933 9856
Head Office, Moscow Krasnoyarsk Volgograd 4, Romanov Pereulok 26, Prospekt Mira 11, ul. Mira Moscow 125009, Russia Krasnoyarsk, 660049, Russia Volgograd, 400131, Russia Phone +7 (495) 258 0500 Phone +7 (3912) 91 8100; fax +7 (3912) 918 102 Phone +7 (8442) 96 8211; fax +7 (8442) 335 198 Fax +7 (495) 258 0547 Research +7 (495) 258 0511 Naberezhnye Chelny Voronezh Equity Sales +7 (495) 258 0550 52/16 (3/01), Prospekt Mira 43, ul. Plekhanovskaya Fixed Income Sales +7 (495) 258 0510 Naberezhnye Chelny, 423810, Russia Voronezh, 394000, Russia Trading +7 (495) 258 0525 Phone +7 (8552) 39 5100; fax +7 (8552) 395 103 Phone +7 (4732) 35 5647; fax +7 (4732) 619 961 Options Trading +7 (495) 258 0555 Structured Products +7 (495) 258 0572 Nizhni Novgorod Yaroslavl Treasury Products +7 (495) 258 0530 “Lobachevski Plaza” Business Center 22, ul. Trefoleva 10/16, ul. Alekseevskaya , 6 etazh Yaroslavl, 150000, Russia Nizhni Novgorod, 603006, Russia Phone +7 (4852) 67 0407; fax +7 (4852) 670 406 Phone +7 (831) 220 1949 St Petersburg Novosibirsk Troika Dialog USA “Petrovski Fort” Business Center 1, Prospekt Dimitrova Carnegie Hall Tower 4, let. A, Finlyandski prospect Novosibirsk, 630004, Russia 152 West 57th Street, 44th floor St. Petersburg, 194153, Russia Phone +7 (383) 210 5502; fax +7 (383) 210 5503 New York, NY 10019 Phone +7 (812) 332 3300; fax +7 (812) 332 6657 Phone +1 (212) 300 9600; fax +1 (212) 300 9601 Chelyabinsk Perm Troika Dialog UK Office 507, Business Center “Arkaim Plaza” 58, ul. Lenina 85 Fleet Street, 4th floor 38, ul. Karla Marksa Perm, 614000, Russia London, EC4Y 1AE Chelyabinsk, 454091, Russia Phone +7 (342) 218 6146; fax +7 (342) 218 6149 Phone +44 (20) 7583 3257; fax +44 (20) 7822 0779 Phone +7 (351) 778 6120; fax +7 (351) 778 6121 Ekaterinburg Rostov on Don Troika Dialog Ukraine Office 504 505, Business Center “Palladium”, 5th floor 206, ul. Krasnoarmeyskaya 6, Rylskyi Pereulok, 6th floor 10, ul. Khokhryakova Rostov on Don, Russia Kyiv 01025, Ukraine Ekaterinburg, 620014, Russia Phone/fax +7 (863) 268 8899 Phone +380 (44) 207 3780; fax +380 (44) 207 3784 Phone +7 (343) 310 7000; fax +7 (343) 379 2164 Irkutsk Samara Troika Dialog Kazakhstan 19, ul. Lenina 204, ul. Molodogvardeiskaya Block B, Business Center “Hermes”, 5th floor Irkutsk, 664003, Russia Samara, 443001, Russia 101, ul. Tole Bi, Phone/fax +7 (3952) 563 636 Phone +7 (846) 378 0000; fax +7 (846) 273 3328 Almaty, Kazakhstan Phone +7 (727) 355 3355; fax +7 (727) 355 3356 Kazan Tyumen Troika Dialog Group, Cyprus “Suvar Plaza” Office Center 2/9A, ul. 8 Marta, 2 etazh 57 Digeni Akrita Ave 6, ul. Spartakovskaya Tyumen, 625000, Russia Zachariades Building, Office 301 Kazan, 420107, Russia Phone +7 (3452) 39 5450; fax +7 (3452) 395 451 Nicosia CY 1070 Phone/fax +7 (843) 526 5522 Phone +357 (22) 87 5380; fax +357 (22) 875 393 Khabarovsk Ufa “Khabarovsk City” Business Center 100/1, ul. Dostoevskogo 22a, ul. Postysheva Ufa, 450077, Russia Khabarovsk, 680030, Russia Phone +7 (347) 279 8880; fax +7 (347) 279 8881 Phone +7 (4212) 415 162; fax +7 (4212) 415 165 Krasnodar Vladivostok 41, ul. Krasnaya 6, ul. Mordovtseva Krasnodar, 350000, Russia Vladivostok, 690091, Russia Phone/fax +7 (861) 210 6061 Phone +7 (423) 249 9925; fax +7 (423) 249 9926
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