1. Russian economy, financial market, investment instruments, risks

2. Strong Export Positions

3. Public finance: structure of budget expenses

4. Public finances: structure of budget expenses Expenses of the federal budget in 2007 are provided for in the amount of 17,5% of GDP (over USD 20bn) % of budget expenses % of GDP Inter-budget transfers33,35,8 National defense15,02,6 Issues of national significance12,22,1 Law enforcement activities12,22,1 National economy9,51,7 Education5,10,9 Social policy3,90,7 Health care and sport3,80,7 Culture and mass media1,20,2

5. Tax reform: two vectors of different direction Introduction of flat rate schedule of income tax on individuals on the level of 13% Reduction of corporate income tax from 35% to 24% Reduction of VAT rate from 20% to 18% Cancellation of sales tax Reduction of UST rate Differentiation of severance tax rate depending on fields Imposition of severance tax and increase of export duties on oil and oil products

6. Russian stock market: History In 2007, Russian market will be 12 years old. 1992-1997 privatization auctions and first allocation of securities in the market. Formation of the basis of the stock market. Origin of GCO market – 1993 … end of the same 1998. In September 1995, the first exchange – Russian Trade System (RTS) - began computation of the index In 1993, the Federal Commission on Securities Markets (FCSM) was established, having among its main functions regulation of activities in the stock market Placement of the first bond debt in the domestic market - 1999 Gazprom bonds The first technical default on bonds – 2002, Sibur company (underwriter - Reiffeisenbank ) The first IPO in the Russian market – RBC (Rosbiznesconsulting), a media sector company

7. Russian stock market: Structure in terms of composition of participants Regulators Associations and SRO Stock Exchanges Depositories and registrars Professional participants of the Securities Market Issuers Investors

8. Russian stock market: Regulators Federal Financial Market Service Central Bank of Russia Ministry of Finance Stock market

9. Russian stock market: Associations and Self- Regulating Organizations National Association of Securities Market Participants NAUFOR (~300 brokers) National Association of Funds NFA (~300 banks) Professional Association of Registrars, Transfer Agents, and Depositories PARTAD (~80) National League of Managers NLU (~70) SRO FFMS Professional participants in the market

10. MICEX – Moscow Interbank Currency Exchange (foreign currency market, bond market, share market, clearing, indices) RTS – Russian Trading System (forward market, market of shares of second and following issues, clearing, indices) Russian stock market: Exchanges

11. Russian stock market: MICEX Average amount of trading per month, USD bn Number of traded securities Foreign currency 5,4- shares 4,0325 bonds 1,4 544: 430 – corporate 105 – municipal 9 - Eurobonds Maximum value of MICEX index is 1758 points

12. Russian stock market: RTS Average amount of trading per month, USD bn Number of securities traded Forward market 8,4- shares 2,8392 bonds 0,025161 Maximum value of RTS index is 1984 points

13. Russian stock market: structure in terms of amount of trading Growth of the stock market amounted to 85% in 2005 and to 67% in 2006.

14. Second-Tier Stock Market

15. Russian stock market: Structure in terms of place of trading

16. «IRC» - MICEX «RTS-Start» - RTS Russian stock market: IPO projects of Stock Exchanges Listing broker Stock Exchange - Companies of medium-size and small capitalization - Possibility of public and private placement - Possibility of legalization of business

17. Russian stock market: Depositories and registrars II quarter 2004 II quarter 2005 II quarter 2006 Special depositories262426 Mutual funds295329438 Share investment funds555 Non-government pension funds227256248 Number of operations performed6348668984117530 - Law “On the Central Depository”. - Bringing of depositories to compliance with new requirements (capital, certified equipment, programs of insurance of current activities and risks) - Bringing of registrars to compliance (Effects of raidership)

18. Investment companies – financial companies having any of the four, or all of the four licenses (broker, dealer, trustee, or depository license) Credit institutions – banks having, along with banking license, one or more licenses of professional participant. Moscow Interbank Currency Exchange (currency market, bond market, share market, clearing, indices). Asset Management companies – operate within the framework of individual or joint management strategies, having one or two available licenses for trust management or joint investment management Russian stock market: Professional participants in the market Licensing of professional activities in the stock market is performed by the Federal Financial Markets Service (FFMS, former FCSM)

19. Russian stock market: Professional participants in the market

20. The latest achievements in the sphere of regulation of professional participants in the stock market - Development of the project of prudential supervision in the stock market - Regulation of ethical standards in the stock market - Development of the mechanism of introduction of GIPS standards for adequate assessment of profitability of trust management Russian stock market: Professional participants in the market

21. Russian stock market: Issuers The highest free-float is recorded with Sberbank of Russia – 0,92, The lowest one is recorded with ОАО Irkutskenergo 0,08 IndustryMajor issuers Percentage of capitalization Average free-float Oil and gas Gazprom, Rosneft, Lukoil, TNC-ВР Over 60%0,33 Ferrous metallurgy HLMC, EurasHolding7%0,24 Mobile Communica- tions MTS, Vympelcom4,5%0,35 Largest industries in terms of capitalization

22. Russian stock market: Issuers Capitalization gained (USD bn) Ultimate free-float Number of subscribers ОАО Rosneft10.60,12115 000 ОАО Sberbank8.80,9246 000 ОАО VTB-0,25~ 150 000 «General public IPO»

23. 1. More than 40 companies plan their IPOs for 2007-2008. Among the novices are insurance companies, coal companies, retail chains, construction companies, air carriers. Dilution of the share of oil and gas sector in capitalization of the Russia’s market. 2. Entry of companies with medium-size or small capitalization to the IPO market – private placements. Simplified version of private placement. 3. Increase in the number of free-floating shares after additional issues. 4. Emergence in the organized market of large amount of over-the-counter addressed transactions. 5. Large interest to share market on the part from private investors. Russian stock market: Issuers Trends in the IPO market

24. Russian stock market: Issuers Step-by-step strategy of entry to stock market Loan against bills of exchange Bonded debt IPO in Russia IPO in London Less than 5 years

25. - Western funds – 60% of investment is Russian money invested via foreign funds - Russian investors 1. Institutional companies of financial and non- financial sectors 2. Qualified investors 3. Individuals Russian stock market: Investors

26. Investment instruments Object of investment Profitability Profitability less inflation rate Business40-70%30-60% Real estate30-50%20-40% Stock market15-25%5-15% Forex12-15%2-5% Bank deposits9-11%(-1%) – 1% «Pillow»0%0%(-10%)

27. Participants in financial market Banking sector Number Russian banks1080 Banks with foreign participation60 NCO45

28. Russian Banks: The Biggest Deals With Foreigners DateSellerBuyerAmount of deal, USD Million % of equity purchas- ed Price to book value ratio Dec. 2004Delta BankGE Consumer Finance 100 4,5 Apr. 2005KMB BankBanca Intesa90753,9 Aug. 2005DeltacreditSociete Generale1101003,2 Jan. 2006MonchebankDnBNOR21972,2 Feb. 2006ImpexbankRaiffeisen International 5501002,9 Jun, Sep. 2006 RosbankSociete Generale634204,5 Jul. 2006InvestsberbankOTP Bank477963,9 Nov. 2006OrgresbankNordea318754,0

29. Participants in financial market Banking sector Percentage Moscow banks 58% Assets of 10 largest banks 53% Capital of 10 largest banks 46% Clients of 10 largest banks 56% Credits of 10 largest banks 56% Concentration in banking sector

30. Participants in financial market Banking sector Growth of assets in banking sector

31. Participants in financial market Banking sector Growth of credits to general public with respect to GDP and assets

32. Participants in financial market Banking sector Evaluation of Russian banks (P/BV) - In 2006, the average value of multiplier (P/BV) in the sector was 3,3 – 3,5. - Maximum multiplier in Russia was recorded in acquisition of UFG (United Financial Group) by Deutsche Bank - 10 (P/BV)

33. Participants in financial market Banking sector Shares of banks in Russian stock market Free-floatМcap, $m P/E 2006 P/BV 2006 Sberbank of Russia0,9239 48213,83,6 Uralsib3 59411,02,0 Bank of Moscow0,202 61418,72,6 Rosbank 0,083 0960,13,4 Promstroybank0,481 4038,82,5 Vozrozhdenie50013,23,4 Prospective issuer banks: Rosbank, Gazprombank, Uralsib, KIT-Finance Bank

34. Participants in financial market Insurance sector Indices Insurance companies918 Insurance premiums collected in 2006 USD 23.5bn Insurance indemnity payments in 2006 USD 13.5bn

35. Participants in financial market Investment companies Indices Investment companiesover 900 Capitalization (2006)USD 1.7bn Assets (2006)USD 9.5bn Profit (2006)USD 0.4bn

36. Participants in financial market Asset management companies Indices Asset management companiesover 200 Trust managementUSD 10.2bn Funds of NPFUSD 15.3bn Mutual and investment fundsUSD 14.6bn

37. Types of rating agencies in Russia International rating agencies National Rating Agencies Trade rating agencies Agencies at media holdings Information and marketing rating agencies Rating agencies at associations, unions, and partnerships

38. Conducts activities related to rating and ranking of participants in financial market on the basis of financial and economic indices from 2000.  Assesses reliability and solvency of participants in financial market  Provides information support to decision-making in management and business, outsourcing with respect to risk management systems in terms of assessment of contracting party risk, and monitoring with application of scoring models.  Advances initiatives aimed at improvement of Russia’s investment climate and transparency of participants in financial markets National Rating Agency

39. Participants in financial market in the Agency’s ratings

40. Pattern of default probability Probability of default depending on the term Up to 180 daysUp to 1 yearUp to 2 yearsUp to 3 years AAA 0,0% AA+ 0,0% 3,0% AA 0,0% 1,5%5,5% AA- 0,0% 4,0%8,0% A+ 0,0%1,0%8,0%12,0% A 0,0%3,0%10,0%15,0% A- 0,0%6,0%13,0%18,0% BBB+ 0,0%7,0%15,0%20,0% BBB 0,0%10,0%18,0%23,0% BBB- 1,5%14,0%22,0%28,0% BB+ 7,0%20,0%30,0%35,0% BB 11,0%26,0%36,0%41,0% BB- 15,0%30,0%40,0%45,0% B+ 22,0%37,0%47,0%54,0% B 26,0%41,0%51,0%58,0% B- 30,0%45,0%55,0%62,0% CC+ 38,0%53,0%63,0%71,5% CC 44,0%59,0%69,0%77,5% CC- 49,0%63,0%73,0%81,5% C+ 56,0%70,0%79,0%84,0% C 62,0%78,0%87,0%92,0% C- 69,0%86,0%93,8%98,8% D 100,0% No risk Low risk Moderate risk Increased risk High risk Maximum risk

41. Distribution with respect to rating scale

42. Target audience of ratings Our ratings are recognized by market participants and applied as criteria in risk management systems they use; Banks, investment companies, asset management companies, insurance companies, clearing floors, exchanges, industrial enterprises, and investors apply our ratings in their activities; Rating report presented by our Agency may be used as independent public assessment by the Agency in activities of a company or a bank; Ratings are used as criteria in holding of tenders by DIA and MHCA, by major private and public companies, and in accreditations carried out by regulators - FFMS, Ministry of Finance, and Central Bank of RF.

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