Chairman’s welcome

Stuart Adams FPL EMEA Regional Manager

THE RUSSIAN INVESTMENT STORY

Speakers:

Rachel Ziemba, Director of Central and Eastern Europe, Middle East and Africa (CEEMEA)

and global macroeconomics, Roubini Global Economics (Chair)

Kevin Dougherty, Founder, KDGF Asset Management

Johan Elmquist, Portfolio Manager/Founder, Tundra Fonder AB

Tom Mundy, Chief Strategist, Otkritie Capital

Presentation MICEX-RTS Ekaterina Anthony

Global Business Director

MICEX-RTS UPDATE

INVESTOR PRESENTATION

May 2012 London

6

Leading Russian capital marketplace 1

6

Russia - unique investment opportunity

Top 3 Economy by

GDP growth rate

among top 10

Largest Economies (4,3% in 2011) High Growth

Economy and

Strong Domestic

Market

Strong Internal

Demand Macroeconomic

Strength

9-th Largest Economy in

the World

2011 GDP US$1,8 tn.

The lowest

Government Debt to

GDP among Top 10

Largest Economies at

only 7% in 2011

Pension Funds

Savings size of

US$90 bln. by 2013

(US$47 bln. US in

2011)

Sochi Olympics in

2014 and World Cup

in 2018

Privatization

program of

US$32 bln. In

2012-2014

Increase in GDP per

capita from US$ 2K

in 2001 to US$ 13K

in 2011

Decreasing

Inflation (8,8% in 2010,

6,1% in 2011)

4 7

Russia has critical mass to have a developed and independent Financial Market

Source: Ministry of Economic Development of the Russian Federation, FCSM,

Federal State Statistics Service Thomson Reuters

159

93

39

MICEX-RTS WSE Wiener Borse Hellenic Exchange

2457

1394 1225

877 852

Shanghai SE BM&FBOVESPA Bombay SE MICEX-RTS Johannesburg SE

8

Leading growth markets platform

MICEX is the largest stock exchange in

CEE/CIS region by capitalization of traded

companies

significantly ahead of all other players

accumulating ~70% of liquidity in CEE and

CIS region

MICEX-RTS is on par with the biggest

exchanges of the rest of BRICS countries by

capitalization of traded companies

in the past 6 years equity market

capitalization has been growing at a CAGR

of 33%

MICEX-RTS trading turnover in 2011 totaled

US$1tn in equities and fixed income turnover*

Scalable platform covering all asset classes

Source: World Federation of Exchanges (Jan 2012)

* REPO transactions not included

BRICS exchanges by equity market capitalization (Jan 2012, US$bn)

Key CEE exchanges’ market capitalization (Jan 2012, US$bn)

877

Comments

8 Source: World Federation of Exchanges (Jan 2012)

* MICEX-RTS Data, REPO transactions not included

Vertically integrated exchange in rapidly

growing economy (real GDP growth 4,2% in 2011) 2

Leading platform for multi-asset trading of

Russian instruments: stocks, bonds, repos, FX

and derivatives

Operates its own clearing, settlement, and

depository infrastructure creating efficiencies

for pre to post trading services

MICEX-RTS is Top 5 by Fixed Income and Top

10 by Cash equities trading turnover in Europe3

Tailwinds by Russian economy

Strength Share in trading of Russian instruments (2011) 1

OTC Other

Equities 49,1% 29,1% 21%

FX (RUB/USD) 21,3% 78,7% n/a

REPO

Market 100% n/a n/a

Derivatives 93,4% n/a 6,6%

Fixed

Income (corporate

bonds)

89,2% 10,8% n/a

9 Note: (1) MICEX-RTS research

(2) The Economy Ministry of Russia

(3) WFE

Note: (1) NPI stands for New Product Introduction

(2) CCP stands for Central Counter Party

Cash Equities FX Repo Fixed Income Derivatives

Trading Volume

in 2011 $670bn $2,944 $3,869bn $380bn $1,938bn

Listing/NPI1 IPOs

Trading T+3

Clearing Introduce CCP2 Introduce CCP2 Introduce CCP2

Settlement

Central Depository

Law has come into

force

Data

dissemination &

Information

solutions

• Launch pre-trade pricing, data and risk analytics solution

• Enhance online data availability and distribution capabilities

Technology

services

• Co-location

• Points of Presence

• Access Protocol

10

Areas of expertise Key areas for development

MICEX-RTS: Opportunity to cover more asset classes and develop

more added-value pre-to-post-trade services

10

Note: (1) MICEX -RTS data

(2) NPI stands for New Product Introduction

(3) CCP stands for Central Counter Party

1

11

Clear strategy: already on track 2

11

Strong ambitions for further development

Current value1 and strategic ambition (US$mn)

Strategic goals

MICEX-RTS strategic ambition is to be in Top 5

of the world’s exchanges by market capitalization

Our near-term focus:

Become the platform of choice for international

traders and investors buying Russian and CIS

securities

Become the platform of choice for Russian and

CIS companies for IPO/SPO, bonds and

derivatives instruments

Drive and support infrastructure and legislative

improvements to attract further trading

volumes from foreign and domestic institutional

investors

Win market share in equities via increased

volumes vs. OTC and other venues

Increase derivatives product offering and

trading opportunities to foster related trading

volumes 4.044

4.346

4.491

4.600

5.728

6.058

7.263

8.919

12.496

13.583

18.279

19.002

4

6

8

3

10

2

1

5

7

9

12

11

12

Note: (1) Ranking by market capitalization. Market data (Bloomberg) of 07/02/2012 for all

players other than MICEX-RTS

(2) MICEX and RTS valuation as of deal parameters

2

13

Key growth drivers

3

13

14

Key Growth Drivers

Bring infrastructure

and business

practices in line

with the best

international

standards

Attract foreign

investors

Develop

IPO/SPO

market

Key Growth

Drivers

Further develop

Russian investor

base

14

What has been done and what is planned

Bringing business practices in

line with international standards

Создание российской

инвестиционной базы

Development of the IPO/SPO

market

Task Done in 2011

• Adoption of the Law on the Central

Depository (CD)

• Launch of trading involving the Central

Counterparty

• Cancellation of the capital gain tax for

nonresidents

• Privatization in Russia

• Optimization of the issuance procedure

• Modernization of listing (e.g. new

quotation lists)

• Bringing the standards of information

disclosure and corporate governance in

line with international standards

• Changes in the requirements for

preservation of non-state pension

funds’ assets as a result of revaluation

(abolition of the requirement of the

annual breakeven result)

• Changes in regulations on information

disclosure: disclosure in English (with

subsequent translation into Russian),

financial reporting under IFRS

Attraction of foreign investors

Expected in 2012

• Ensuring compliance of the NSD with

requirements for CD

• Implementation of T+3 and DVP

settlements

• Bringing the clearing infrastructure in line

with international standards

• Liberalization of the criteria of investment of

the means of the Pension Fund of the

Russian Federation, non-state pension

funds and insurance companies

• Expanding the possibilities of investing the

means of sovereign funds

• Measures to motivate individual investors

• Creation of new types of instruments

(ETF, structured products)

• Modernization of technologies of access

to trading (DMA, co-location)

• Motivational tariff policy (e.g. volume

discounts)

• Creation of an English-speaking

Customer Support Center

• Regulation of cross trades

Creation of the Russian

investor base

15

NSD – the CSD of the Russian Federation

Comments Modernization

New CSD law and NSD status

• Only one depository can have the status of the CSD

• NSD meets all legal requirements for the CSD

• In fact NSD is the only to contender to get the status of

the CSD

• NSD is expected to get the status of the CSD in July-

August 2012

All additional AGC requirements are answered

• Special CSD regulation

• Finality of CSD settlement

• Special status of CSD nominee accounts

• Obligatory reconciliation between the CSD and

registrars

• CSD records prevail registrars’ records

Now

NSD as CSD

16

Main market Main market

T+n Project Overview

Liquid shares

«Т0»

Market Sector

Standard

Liquid shares

«T+3»

17

•«T0», «T+3» (SPOT) •«FORTS» (Derivatives) •FX (next step)

Single cash position

•Collateral: RUB, USD or securities

•Collateral assets usable for delivery Partial collateral

•Arbitrage strategies

•Currency hedge

Implementation of complex strategies

•Major international investors Increased liquidity

Liquid stocks and RDRs - TOP 35

Foreign securities

Liquid stocks and RDRs - TOP 50 Foreign securities

Government bonds

Liquid stocks and RDRs - TOP 50 Government bonds and corporate bonds - TOP 15 Foreign securities

35

60*

75*

First stage

Second stage

Third stage

*

* - number of issuers

12.1

51.9

64 27

27

25

25

21 21

4.5

16.5

21

4

4

Total ПФР+НПФ Банки Частные инвесторы Суверенные фонды Страховые компании ПИФ

2011 2013 Insurance

Companies

Sovereign

Funds

Pension

Funds

Key Growth Factors*

US $72,6 bn

US $ 161,7 bn

Потенциал роста внутренней инвесторской базы

Growth of Insurance

Companies’ reserves

Liberalization of the

criteria of investment

of the means of

insurance companies

Expanding the

possibilities of

investing the means

of sovereign funds

Growing domestic institutional investor base and developing legislative

environment are reliable sources of Russian financial market development

18

Growth of Pension

Funds assets

Liberalization of the

criteria of investment

of the Pension

Funds’ assets

18

Domestic investors’ demand has huge growth potential

*All numbers are projections and are based on MICEX-RTS team’s calculations ; the numbers represent the funds invested by domestic investors in free-float of Russian companies

Pension

funds Banks Private investors Sovereign Funds Insurance Companies Mutual funds

Source: OECD and National League of Managers for Russia

73%

As % of GDP

64% 81% 82% 5% 4% 2% 16%

2

2 1

1

3

Pension system development will drive investment

Pension funds assets structure (2010) - Significant

opportunity

Currently Russian pension funds savings are

concentrated in low-yield bonds that represent

84.4% of their total investment portfolio due to

regulatory limitations

Less then 0.7% of local pension funds

savings are currently invested in equities

MICEX-RTS is actively involved in development

of new legislation which will stimulate

institutional investment into the equity market

We expect significant growth in total volume of

available savings of the pension funds

The major investment inflow should be driven by

pension funds after liberalization of pension

savings allocation regulation

Insurance market development and

recapitalization will also bring additional

investment

Pension funds assets (US$bn, 2010) - Significant

opportunity

19

Note: (1) 2009 numbers for UK

(2) Source for Japan: Tower Watson

(3) Other includes: loans, land and buildings, unallocated insurance contracts, private

investment funds and other investments

Comments

Russia’s privatization plan likely to attract foreign investors and

increase number of IPOs/SPOs

2012 2013 2014+

60

76

91

100

100

56

66

79

Sberbank

VTB

Alrosa

Sovkomflot

Rus.Helicopters

Rostelecom

Ilyushin Finance

FSK

FNL

FNL

MM

TRSP

MNF

TLC

MNF

PWR SPO

IPO

SPO

IPO

IPO

IPO

SPO

SPO

52

100

100

100

PWR

FNL

MNF

TRSP

58

Inter RAO

Rosnano

OSK

Sheremetyevo

RusHydro PWR

IPO

IPO

IPO

SPO

SPO 50 PWR Gazprom Energo IPO

IPO

IPO

IPO

TRSP

Russian Agri Bank

70

100

100

RosAgroLeasing

Russian Railways

FNL

FNL

Russia plans to launch a privatization program in 2012-2014+

The size of the program is over $32 billion*

It has been officially announced that privatization will take place in Russia

with further listing at MICEX-RTS.

Gov.

Share Company Industry Deal type

Gov.

Share Company Industry Deal type

Gov.

Share Company Industry Deal type

75 O&G Rosneft SPO SPO TRSP 51 Aeroflot

IPO Uralvagonzavod 100 MNF

IPO Zarubegneft 100 O&G

IPO OAK 83 MNF

O&G Transneft IPO 100

20

Source: Dealogic, Offerings.ru, Ministry of Economic Development of the Russian Federation, Russian Privatization Plan

* http://www.economy.gov.ru/minec/about/structure/depreal/doc20101123_01

- Depository receipts of Russian issuers - IPO/SPO of Russian companies - Eurobonds of Russian issuers

- Shares of Russian issuers - IPO/SPO of Russian companies

- IPO/SPO of Kazakh companies - Depository receipts of Russian issuers - IPO/SPO of Russian & CIS companies - Eurobonds of Russian issuers

- IPO/SPO of CIS & CEE companies

- IPO/SPO of Belarusian companies

- IPO/SPO of Ukrainian companies

MICEX-RTS seeks to be the primary center for price discovery, trading,

clearing and settlement for Russian and CIS financial instruments

Returning Liquidity back to Russia

21

Header 1 Header 2 Header 3

Text Text Text

Text Text Text

Text Text Text

MICEX-RTS technology and infrastructure services

• Connectivity solutions through domestic and global Network Service Providers and

international points of presence

• FIX and FIXFAST as well as proprietary APIs for execution and market data delivery

• Accessibility through Independent Software Vendors and trading networks:

Bloomberg, Reuters, Fidessa, Sungard, CQG and others

• Comprehensive exchange colocation with variable footprint sizing options

• Certification and testing environment services for new client/vendor technologies

• Dedicated client relationship team for a smooth on-boarding process

Connectivity solutions

• 300+ electronic broker systems certified to access the Exchange

• The Exchange is accessible by more than 15 telecommunication providers including

BT Radianz, SFTI and Orange, and more are coming

• Three data centers in Moscow

• Client connectivity protocols: Proprietary API, FIX trading interface, UDP multicast

FIX FAST

22

Thank you for your time and support!

23

Ekaterina Anthony

Global Business Director

MICEX-RTS

Ekaterina.Anthony@micex.com

+ 44 781 494 0974 (UK)

+41 786 82 09 74 (Swiss)

23

Disclaimer

• This presentation has been prepared and issued by Open Joint Stock Company "MICEX-RTS" (the “Company”). Unless otherwise stated, the

Company is the source for all data contained in this document. Such data is provided as at the date of this document and is subject to change without

notice.

• This document does not constitute or form part of, and should not be construed as, an offer or invitation for the sale or subscription of, or a solicitation

of any offer to buy or subscribe for, any securities, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in

connection with, any offer, contract, commitment or investment decision relating thereto, nor does it constitute a recommendation regarding the

securities of the Company.

• The information in this document has not been independently verified. No representation or warranty, express or implied, is made as to, and no

reliance should be placed on, the fairness, accuracy or completeness of the information or opinions contained herein. None of the Company, or any of

its subsidiaries or affiliates or any of such person's directors, officers or employees, advisers or other representatives, accepts any liability whatsoever

(whether in negligence or otherwise) arising, directly or indirectly, from the use of this document or otherwise arising in connection therewith.

• This presentation includes forward-looking statements. All statements other than statements of historical fact included in this presentation, including,

without limitation, those regarding our financial position, business strategy, management plans and objectives for future operations are forward-looking

statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results,

performance, achievements or industry results to be materially different from those expressed or implied by these forward-looking statements. These

forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which

we expect to operate in the future. Important factors that could cause our actual results, performance, achievements or industry results to differ

materially from those in the forward-looking statements include, among other factors:

– perception of market services offered by the Company and its subsidiaries;

– volatility (a) of the Russian economy and the securities market and (b) sectors with a high level of competition that the Company and its subsidiaries operate;

– changes in (a) domestic and international legislation and tax regulation and (b) state policies related to financial markets and securities markets;

– competition increase from new players on the Russian market;

– the ability to keep pace with rapid changes in science and technology environment, including the ability to use advanced features that are popular with the Company's and its

subsidiaries' customers;

– the ability to maintain continuity of the process of introduction of new competitive products and services, while keeping the competitiveness;

– the ability to attract new customers on the domestic market and in foreign jurisdictions;

– the ability to increase the offer of products in foreign jurisdictions.

• Forward-looking statements speak only as of the date of this presentation and we expressly disclaim any obligation or undertaking to release any

update of, or revisions to, any forward-looking statements in this presentation as a result of any change in our expectations or any change in events,

conditions or circumstances on which these forward-looking statements are based.

24

Presentation NSD-DCC Karen Papoyan

Head of NSD-DCC Integration Communications

Office, Director of Risk Management & International

Relations, DCC

UPDATE – CSD IN RUSSIA

Building CSD in Russia

Karen Papoyan NSD-DCC Integration Communications Office

23 May 2012

• Market consolidates: MICEX and RTS merged to create a single integrated

exchange holding. Impact: trading defragmentation, increasing liquidity

• CSD law passed on Jan 1, 2012, implementation in progress

• NSD expected to become the CSD in Q3 2012

• Liberalization of Government bonds’ market (OFZ) in 2012

• Foreign nominee concept recognized, coming into force July 1, 2012

• Plans to launch T+3 for equities in November 2012

• Migration of DCC services to NSD to be completed by the end of 2012

• Liberalization of DR placement limits for non-strategic Russian stocks – expected

in 2013.

27

Russian Market – What’s New?

Integration Process

1

2

3

NSD to become the single settlement depository/bank of MICEX-RTS in 2012

May 2012

Parallel settlement depository for former RTS markets

July 2012

Single settlement depository for all MICEX-RTS trades

July 2012

Single settlement bank for all MICEX-RTS trades

End of 2012

Transfer of essential OTC services of DCC

28

Russian Market Consolidates

29

Came into force on 1 January 2012 except certain provisions:

• 1 Jul 2012 – provisions on foreign nominee account opening

• 1 Jan 2013 – no CSD nominee accounts with custodians for listed companies

Establishes:

• CSD legal status and operational requirements

• Procedure for granting the CSD status

• Government control and oversight of CSD activity

New account types:

• Foreign Nominee • Foreign Trustee • DR programs

at Custodians

at CSD • Foreign CSDs • Foreign ICSDs

Benefits:

•Lower costs: Fixed settlement fees (no more high bps registrar fees)

•Shorter settlement cycles: defragmented post-trade environment

•Simplified settlement: ‘spaghetti’ system with multiple settlement options eliminated

•17f-7 eligibility => green light for US funds

•Lower risks: One place of settlement – CSD

•CSD has exclusive rights to open nominee accounts at registrars

•Finality of settlement: issue solved

•Foreign Nominee: investors participate directly in corporate actions

•EDI mandatory for registrars: no more paper flows

CSD Law – Highlights

Global Custodian

Registrar

Local Custodian

CSD, ICSD ADR Issuer Trust

Owner

Limited foreign accounts, multiple settlement options

30

Before CSD Law

Investor

Owner Owner

Global Custodian

Registrar

Local Custodian

CSD, ICSD ADR Issuer Trust

DR program

Foreign Nominee accounts, centralized settlement structure

31

Investor

Foreign nominee Foreign Trustee

After CSD Law

CSD

Timeframe for obtaining CSD status

NSD submits application to FSFM to obtain the CSD status

FSFM reviews NSD documentation and activity to ensure compliance with CSD status requirements

Expected timeframe for obtaining the CSD status Opening of CSD’s nominal holder accounts at registers of securities shareholders

Q2 2012

Within 4 months of submitting documents

Q3 2012

Within one year of granting the CSD status to NSD

32

33

Thank you!

www.nsd.ru

DISCLAIMER

This presentation has been prepared and issued by NSD (the “Company”). Unless otherwise stated, the Company is the source for all data contained in this document. Such data is provided as at the date of this document and is subject to change without notice.

This document does not constitute or form part of, and should not be construed as, an offer or invitation for the sale or subscription of, or a solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any offer, contract, commitment or investment decision relating thereto, nor does it constitute a recommendation regarding the securities of the Company.

The information in this document has not been independently verified. No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information or opinions contained herein. None of the Company, or any of its subsidiaries or affiliates or any of such person's directors, officers or employees, advisers or other representatives, accepts any liability whatsoever (whether in negligence or otherwise) arising, directly or indirectly, from the use of this document or otherwise arising in connection therewith.

This presentation includes forward-looking statements. All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding our financial position, business strategy, management plans and objectives for future operations are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, achievements or industry results to be materially different from those expressed or implied by these forward-looking statements. These forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we expect to operate in the future. Important factors that could cause our actual results, performance, achievements or industry results to differ materially from those in the forward-looking statements include, among other factors:

• perception of market services offered by the Company and its subsidiaries;

• volatility (a) of the Russian economy and the securities market and (b) sectors with a high level of competition that the Company and its subsidiaries operate;

• changes in (a) domestic and international legislation and tax regulation and (b) state policies related to financial markets and securities markets;

• competition increase from new players on the Russian market;

• the ability to keep pace with rapid changes in science and technology environment, including the ability to use advanced features that are popular with the Company's and its subsidiaries' customers;

• the ability to maintain continuity of the process of introduction of new competitive products and services, while keeping the competitiveness;

• the ability to attract new customers on the domestic market and in foreign jurisdictions;

• the ability to increase the offer of products in foreign jurisdictions.

Forward-looking statements speak only as of the date of this presentation and we expressly disclaim any obligation or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation as a result of any change in our expectations or any change in events, conditions or circumstances on which these forward-looking statements are based.

© 2012 NSD 34

Presentation Otkritie Capital Tom Mundy

Chief Strategist

THE APPEAL OF RUSSIA

Accessing Russia 2012

Tom Mundy

Chief Strategist, Otkritie Capital, Moscow

thomas.mundy@otkritie.com

May 23 , London

April 2012 37

1 Equity market valuations are compelling - LT sov debt yields contracting whilst earnings yields are rising. Russia

now 55% cheaper then EM, MXRU agg; div’ yield = LT sov debt yield.

2 Sovereign risk is manageable- Russia has ‘credibility’ problem, but not a ‘credit’ problem, FX reserves at $524bn,

debt repayment schedule manageable, GDP growth around 4%, inflation at record low, assuming oil stays at current

levels the budget should balance this year.

3 Political risk is subsiding - State is engaging society. New government, central role of the Kremlin dismantled, recent

protests a ‘wake up call’ for the Kremlin. Power has switched back to the President.

4 Transparency, efficiency and accountability among state run companies is improving - Raising dividend payout

ratios among state run companies, denying tariff increases for Gazprom, targeting cross holdings in state companies

5 Gov’ appears serious about tackling corruption – Creation of federal financial crimes task force, enshrining rights

for whistleblowers, joining OECD Anti-bribery Convention, clamping down on offshore companies, some improvement

in TI index.

6 Financial market infrastructure is moving to western standards – Creation of CSD, move to T+n settlement, all

listed companies to publish IFRS accounts by from July 2013, DR caps for non-strategic companies to be lifted from

25%, Strategic Sectors Lawbeing eased for Russian companies listing abroad.

7 Russia is integrating with global markets - WTO accession to be ratified this July, held up due to disputes with

Georgia and Russian protectionism, av’ tariff to fall from 10% to 7.8%, Russia benefits from access to WTO dispute

resolution mechanism, cements Russia’s commitment to a knowledge based economy.

8 Gov’ is committed to a balanced budget - Gov proposals to increase tax revenue by 2% of GDP in order to support

plans for increased spending in defense, public health and other government priorities, expect increases in MET, sin

taxes, excessive consumption tax, promote efficiency in budget allocation, move to program planning budget system.

9 Of course there remain plenty of risks - ST risk = Market remains high beta play on oil price, imports volatility form

EU, highly reliant on international flows, still no natural domestic buyer. LT risk = Reforms are painful, Putin will need

to spend political capital. Resolve may weaken, market tired of ‘reform rhetoric.’

8 reasons to BUY Russia and 1 reason to SELL

April 2012 38

Russia 30 yield

Otkritie Capital, Bloomberg

RTS fwd earnings yield

Otkritie Capital, Bloomberg

Russia discount vs EM

Otkritie Capital, Bloomberg

Russia 30 yield vs MXRU yield

Otkritie Capital, Bloomberg

1) Equity market valuations are compelling

Russia’s risk free rate has contracted

since the start of the year from 4.6%

to 4.3% - largely thank to the oil price

averaging $101/bbl since the start of

the year – 9% higher than the

average price over the last quarter of

2011.

However, it is the dynamics of the oil

price are more relevant to investors in

the near team. The oil price has fallen

from March, pushing up Russia’s

earnings yield to 22% and the implied

ERP to almost 18% vs 15% at the

start of January.

Russia is now trading at 55%

discount to EM with a dividend yield

now equal to the yield on the

country’s LT gov’ debt. The

argument for equities is compelling.

0

2

4

6

8

10

12

14

Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Jul-11

0

5

10

15

20

25

30

35

40

45

Jan-06 Jul-07 Jan-09 Jul-10 Jan-12

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Jan-07 Jul-08 Jan-10 Jul-11

Russia PE Discount to EM Historic discount0%

1%

2%

3%

4%

5%

6%

Mar-10 Sep-10 Mar-11 Sep-11 Mar-12

MXRU div yield Russia 30 yield

April 2012 39

Structure of Russian reserves

CBR

Structure of Russian foreign debt,

$mn

CBR

Foreign Debt Repayments - All

repayments, $bn

CBR

Debt Repayments– Private sector

(non-financials/banks), $bn

CBR

2) Sovereign risk is manageable

Russia looks comfortable enough at a

sovereign level with reserves back up

to $524bn ($373bn in CBR Reserves,

$62bn in Reserve Fund, $89bn in

National Welfare Fund).

Foreign debt repayments are more

manageable now than in 2008 with

some $27bn in repayments in 3Q12

and $41bn in 4Q12. Russia’s debt

repayments in 3Q08 were $60bn

and $80bn for 3Q08 and 4Q08

respectively.

Russia’s stronger sovereign position

is reflected in declining sovereign

debt yields as the oil price has helped

rebuild FX reserves and corporates

have extended maturities. However,

the market trades the direction of the

oil price and volatility has driven

equity risk premiums higher.

0

100

200

300

400

500

600

700

1-F

eb-0

8

1-M

ay-0

8

1-A

ug

-08

1-N

ov-0

8

1-F

eb-0

9

1-M

ay-0

9

1-A

ug

-09

1-N

ov-0

9

1-F

eb-1

0

1-M

ay-1

0

1-A

ug

-10

1-N

ov-1

0

1-F

eb-1

1

1-M

ay-1

1

1-A

ug

-11

1-N

ov-1

1

1-F

eb-1

2

1-M

ay-1

2

CBR reserves Reserve Fund National Prosperity Fund

0

10

20

30

40

50

60

70

80

90

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

0

10

20

30

40

50

60

70

80

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

0

100

200

300

400

500

600

1-Oct-06 1-Oct-07 1-Oct-08 1-Oct-09 1-Oct-10 1-Oct-11

Government CBR

State-owned banks State-owned companies

Private banks Private companies

April 2012 40

Important government changes have been seen in May but Status Quo preserved

• Government was confirmed on May 21. Lots of new faces, but Putin retains control.

- Shuvalov remains the only First Deputy PM, the second in charge in the new government setup.

- Kozak, Rogozin, Surkov and Khloponin all retained the same Deputy PM posts and areas of responsibility.

- Power bloc in the Cabinet is firmly in the hands of Putin’s men: Serdyukov remains Defense Minister and

Kolokoltsev (Moscow police chief – close to Putin and Moscow Mayor Sobyanin) becomes Home Affairs Minister.

- Economic bloc is also made from Putin’s guard: Siluanov remains Finance Minister while Belousov (guy

close to Gref/Kudrin group) becomes new Economy Minister.

- Sergei Lavrov remains Foreign Affairs Minister.

• Presidential Administration confirmed May 22. Few new faces in positions of influence.

- Nabuillina joins as Advisor to Putin. Ivanov remains head of Presidential Administration

- Sechin not named in team – moves to head up Rosneft. Kudrin remains outside state structures.

Power vertical is being dismantled (to an extent)

• Threshold for parties entering Duma lowered to 5% from 7% / Direct election of regional governors (though

governors can still be dismissed by the President)/ Relaxation of rules to register parties (however coalitions still

forbidden).

3) Political risk is subsiding

April 2012 41

Payout Ratio and Dividend Yield

Otkritie Capital

FCF Yield

Otkritie Capital

Government is addressing the issue of low dividends amongst state-owned companies by enforcing a 25% payout ratio.

Though this appears to contradict government’s aim to limit its influence in company management we believe the move is

driven by a focus on efficiency. Recent proposals to increase MET and deny Gazprom tariff increases support this view.

The government is also looking at the issue of cross-holdings among state owned companies, particularly those that are

focused on infrastructure.

4) Improving transparency, efficiency and

accountability among state run companies

16%

9%

3%

23%

10%

8%

5%

2%

3%

2% 1

% 1%

0%

5%

10%

15%

20%

25%

Gazprom Rosneft Transneft Rostelecom Federal GridCompany

RusHydro

Payout Ratio (12E) Dividend Yield (12E)

16%

3%

-3%

6%

-11%

-10%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Gazprom Rosneft Transneft Rostelecom Federal GridCompany

RusHydro

FCF yield (12E)

April 2012 42

• Russia has historically lacked checks and balances. For example FSB and Office of the Prosecutor General have

internal bodies set up to monitor corruption. The creation of a federal financial crimes taskforce under First Deputy

PM Zubkov is encouraging.

• Protection for whistleblowers is weak. Russian state employees prefer to go the ECHR to report abuses. However

the Constitutional Court has recently upheld the rights of whistleblowers in the civil service and from 2013 slander

and libel will be defined by article 52 of the civil code, precluding a custodial sentence. This important step followed

the successful defence by Oleg Orlov of a libel suit brought against him by Ramzan Kadyrov

• Russia’s accession to the OECD Anti-bribery convention will hopefully bring more external supervision (Russia

joined the Council of Europe Group of States Against Corruption in 2007)

• Zubkov has proposed a draft legislation to make it harder for companies to create offshore structures, is

investigating the sources of capital flight and is pushing for firms to reveal beneficial owners

• TI Corruption Perception Index reported a moderate improvement last year from 154th to 143rd place. However,

Russia is still placed lower than Cameroon, Sierra Leone and Iran. Last year Russians paid $5.3bn in bribes to

teachers, policeman in “everyday situations” – double the level of 2001

5) The government appears serious about tackling

corruption

April 2012 43

• Creation of CSD should allow greater participation by foreign investors in the local market, reduce operational risk

and reduce transaction costs.

• T+n settlement will reduce operational hassles. Extending settlement will bring Russia in line with international

counterparts

• All listed companies will need to publish audited financial statements by May 2013. FSFR favours disclosure of

beneficial owners to receive voting rights and dividends.

• FSFR is planning to remove the cap on DRs for non-strategic companies (currently at 25%). Disclosure of beneficial

owners of DRs will avoid mandatory buyback requirements.

• FAS is trying to clarify laws on foreign listings. Up to 25% of a strategic company would no longer need government

approval. Suggestions even that limit could be raised to 50%. This is separate to the law which puts a 25% cap on

DRs strategic companies, but has encouraging implications

6) Financial market infrastructure is moving to

western standards

April 2012 44

• WTO Discussion will pick up ahead of ratification in July. Held up by dispute with Georgia, Kazakhstan and Belarus

Customs Union and arguments revolving around protection for specific sectors. For example, auto sector

protectionism. From Jan 2011 local component requirement for foreign automakers was raised to 60% + $500mn

minimum investment + production at 300,000 vehicles in order to get preferential 5% tariff.

• Existing members will not be able to impose unilateral restrictions on Russian exports. Russian chemical and meals

exporters are currently subject to over 100 anti-dumping quotas and tariffs. Measures can be challenged through

WTO Dispute Resolution Mechanism

• On average the legally binding tariff level for importing goods into Russia will be 7.8% vs 2011 level of 10% across

all products

• Tariff limit for agriculture products will be 10.8%, down from the previous 13.2%. Manufactured goods tariff limit will

drop to 7.3%, down from 9.5%. Dairy products will fall from 19.8% to 14.9%. Alcohol from 20% to 12.5%.

Automobiles from 15.5% to 12%. Medicines from 15% to 5%. IT products will go from 5.4% to zero. 49% limit on

foreign equity in telecom firms will be eliminated. Russia will allow 100% foreign ownership of retail and wholesale

businesses—and foreign universities will be allowed to set up branches. Foreigners will be allowed to take ownership

in Russian banks subject to an overall limit of 50% of all the capital in the Russian banking system (up from the

current 15%). The subsidized agricultural sector looks unlikely to suffer too much. Total trade distorting subsidies will

be reduced from $9bn to $4bn

• Cements Russia’s move to a knowledge based economy, based on innovation and competitive manufacturing.

7) Russia is integrating with global markets

April 2012 45

• Ministry of Finance is developing proposals to increase tax revenue by 2% of GDP in order to support plans for

increased spending in defense, public health and other government priorities – the so called “tax maneuver”

• The Cabinet has approved the main directions of tax policy for 2013-2015 though we expect more taxation reforms

to follow once the new Cabinet is in place.

• The Cabinet plans to increase the mineral extraction tax (MET) for gas producers and excise taxes for alcohol and

tobacco. The government will also consider increasing MET rates for producers of other natural resources, but this

issue will have to be discussed further.

• There is no clarity regarding future tax increases on property and 'excessive consumption.' Deputy Finance Minister

Sergei Shatalov said after the meeting that a new property tax could be introduced in 2014 and not in 2013 as

originally planned. The payroll tax rate will remain at its current level of 30% for the first RUB512,000 of salaries,

while any amount above this level will be taxed at a higher rate of 10% instead of the current 2%.

• Government is looking to move from budget allocation through government departments for federal programmes to

the so-called “programme planning budget system” which focuses on specific state programmes and is tied to

achievement indicators

8) The government is committed to a balanced budget

April 2012 46

Greece

• June election is a vote on EU membership. Coalition between ND, PASOK and Democratic Left most likely scenario

which could save Greece in short term. However, coalition will still need to agree to further austerity and Germany will

have to be lenient. Greece also has to fund EUR1-6bn a month in bond redemptions and coupons a month over the

next six months.

Spain

• 10 year yields approaching 6.5%. Spain still needs a bailout of its banking system of EUR125bn. PLL and ESM

should be flexible enough to meet this. However it would be insufficient to cover Italy. Run on Spanish and Italian

banks may have already started.

France

• Elections to National Assembly on 10-17 June. Should the Socialist not win a clear majority they will have to rely on

leftist parties and install a leftist PM. Best case would be to win a strong enough mandate to install a centrist PM.

Germany

• CDU loss in North Rhone Westphalia and coalition in Schleswig-Holstein could foreshadow grand coalition between

CDU and SPD in September 2013 elections.

9) Of course there remain plenty of risks

April 2012 47

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Important Notices

ELECTRONIC EXECUTION IN RUSSIAN

EQUITIES

Chaired by:

Stuart Adams, FPL EMEA Regional Director

Speakers:

Tatyana Frolova, Head of Electronic Trading Department, Aton

Chris French, Business Development Manager, London Stock Exchange's Equities &

Derivatives Peter Rowe, Director International Sales, Electronic Trading, Renaissance Capital

HIGH FREQUENCY

TRADING/ALGORITHMS/LIQUIDITY SOURCING

Speakers:

Rebecca Healey, Senior Analyst, Tabb Group (Chair)

Serge Alexandre, Electronic Trading Services, Otkritie Capital

Pinar Emirdag, Head of Business Development, London Stock Exchange

Sergey Shelyagin, Head of Technology Products and Services, MICEX-RTS