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Russia-Netherlands Economic Forum November 7-8, 2005 Amsterdam, Hilton Amsterdam

Debt Capital Markets for Russian Borrowers. Russia-Netherlands Economic Forum November 7-8, 2005 Amsterdam, Hilton Amsterdam. Henk Paardekooper, Country Executive. Russian outlook.

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Russia-Netherlands Economic Forum November 7-8, 2005 Amsterdam, Hilton Amsterdam

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  1. Debt Capital Markets for Russian Borrowers Russia-Netherlands Economic Forum November 7-8, 2005 Amsterdam, Hilton Amsterdam Henk Paardekooper, Country Executive

  2. Russian outlook • Russian economic performance is strong and seems sustained: GDP growth in the 5% - 7% range, the Government runs a budget surplus as well as a current account surplus, foreign exchange reserves are rising and external debt is falling. • Fitch is the first rating agency who upgraded Russia to BBB and Moody’s has indicated it could follow shortly • The economic outlook is favourable based on the assumption that there will not be a sharp fall in the oil price. • In the longer term, economic stability will depend on the pace of economic reforms to boost the non-oil economy. • Political stability has increased, improving policy making capability significantly. • Business remains concerned about reform in legislation, uncertain property rights, red tape, corruption, the risk of rising Government interference in business and economy and the unstructured banking sector. • However, current investors in Russia are predominantly positive about their returns on investment and most of them are increasing their operations. • The vast potential of Russia (size of the market, growth rates, high quality and competitive labour force) should be better promoted!

  3. Evolution of the borrowing cycle in Russia Rating obtained Debut international bonds Structured Bonds Small bilateral loans Syndicated loan facility Credit Linked Notes EMTN Program Equity/IPO’s Few major players Some selective names Available for smaller issuers Source: ABN AMRO

  4. 1 Russian bond market trends

  5. Market trends in emerging markets • Positive economic fundamentals in Emerging Markets • High inflows into EM funds over last two years New flows into dedicated EM funds USD bln 1Q05* 1Q01 3Q02 1Q03 3Q03 1Q04 3Q04 3Q01 1Q02 Source: Emerging Portfolio

  6. Russian bond market trends • International Russian bond issuance has grown dramatically • High volume and diversity of issuance expected to continue Bond issuance volumes in Russia 40 15,000 35 30 10,000 25 Issuance Volume, USD mln Number of deals 20 15 5,000 10 5 0 0 2002 2003 2004 2005 (YTD) Issuance Volume Number of deals Source: Dealogic Bondware as of 30.08.2005

  7. Russian bond market trends Narrowing credit spreads Spread 2002 2004 2005 2003 Source: ABN AMRO as of 30.08.2005 • Russian credit spreads remain at historically low levels driven by Russia’s stronger fundamentals

  8. Russian bond market trends Spread development of Russian corporates Spread Jan-04 Jul-04 Jan-05 Jul-05 Source: ABN AMRO as of 30.08.2005

  9. Russian bond market trends • Energy and Banking sectors dominate but new names have been well received Issuance by industry type 2002-2004 Source: Dealogic Bondware

  10. Russian bond market trends • Longer maturities reflect depth of market • Average size: 300 - 400 million USD • In terms of currency, the majority of issues are in USD Average issue size and maturity Issuance by currency 7 800 6 600 5 Average Maturity Average Issue Size, USD mln 400 4 200 3 2 0 2002 2003 2004 2005 Average issue size Average Maturity Source: Dealogic Bondware as of 30.08.2005

  11. Russian bond market trends • Investors can now participate in a wide credit spectrum Expansion of a bank and corporate yield curve Russia Corporate Comparables (Yield basis) Source: ABN AMRO as of 14.10.2005

  12. International bond markets vs local capital markets

  13. Prospects in the International Markets vs Local Bond Markets • There are distinct advantages to Russian companies available in the international bond markets, including: • Relatively lower yields and longer tenors than the Rouble bond market and the international Credit Linked Note (CLN) market • Deeper and more sophisticated investor pool • Diversification away from higher cost and shorter dated Russian loan and bond markets • Larger amounts, and longer tenors, can be raised on a per issuer basis • Enables expansion of investor awareness thereby potentially enhancing future stock market valuation • Greater secondary market liquidity, thereby enabling stronger secondary market performance reflecting improving company or market fundamentals

  14. Main Requirements to Pursue an International Bond • Key Requirements for Russian companies to access the international bond markets, including: • Two Year historical IFRS audited financial statements • Listing on an international stock exchange (typically Luxembourg, London or Dublin) • Establishment of a Special Purpose Company in a double taxation jurisdiction to reduce Russian Witholding Tax on interest payments • Stock exchange compliant disclosure on company business description, transparancy in shareholder structure and corporate governance • Offering Circular containing Company Description, Terms & Conditions, Investor Restrictions, and various associated legal documents • 3-5 day international investor roadshow to various Asian, European and US investors

  15. Pros Cons Eurobond • Higher cost of funds; • Inflexible with regards to repayment; • Satisfactory rating; • Capacity to raise large amount for long term; • Diversification of international investor base; • International awareness and publicity; • Usually standard eurobond covenants; • Highly standardized documentation; • Better liquidity - pricing Syndicated Loan • Limited maturity; • Restrictive covenants; • Company already known in the banking sector; • Amortizing structure; Eurobond versus Syndicated Loan

  16. 2 Russian syndicated loan market trends

  17. Russian loan market trends Loans by volume, 2002- 2005 (USD m) 15,000 14,000 13,000 140 12,000 120 11,000 10,000 100 9,000 Number of deals 8,000 Issuance Volume 80 7,000 6,000 60 5,000 4,000 40 3,000 20 2,000 1,000 0 0 2002 2003 2004 2005 Volume, USD m Number of transaction Source: Dealogic Loanware as of 30.08.2005 • Bank market capacity for Russia credits has developed significantly

  18. Russian loan market trends Transactions by industry, 2005 Source: Dealogic Loanware as of 30.08.2005 • Traditional Oil & Gas dominance with growing telecom, banking and metals and mining volumes • The international market for regional and municipal borrowers is still not accessible

  19. Russian loan market trends • Bank liquidity demonstrated by growing size and falling margins • Reduction in margin is driven by: • improved Sovereign rating • strong commodities prices • tough competition between banks Loan Pricing trends 5 year Sec USD 500 m 400 5 year Sec USD 500 m 300 5 year Sec USD 450 m 5 year Sec USD 800 m 6 year Sec USD 1,100 m 200 6 year Sec USD 1,100 m Margin to Libor 1 year USD 270 m 1 year USD 275 m 3 year USD 450 m 100 0 1H03 2H03 1H04 2H04 1Q05 VTB Rosneft Gazprom Source: Dealogic Loanware as of 30.08.05

  20. 3 Landmark transactions

  21. Russian Standard Bank (Ba2/B+), US$500m 7.50% due October 2010 Distribution by Region • ABN AMRO acted as a bookrunner for Russian Standard Banks (“RSB’s”) second bond issue off its US$1.5bln EMTN Programme on the 30th September 2005. This US$500mln 5 year eurobond was the largest bond issue for RSB to date and also marks the largest and longest dated bond issue for a private sector bank from Russia. • After a focused and condensed two team international roadshow visiting financial centers in Asia, Europe and the US (organised by ABN AMRO), the orderbook drew a final size of US$2.3bln (oversubscription of >4.5x) with 209 accounts receiving allocations. The strong book allowed RSB to increase the size of the issue from US$300mln to US$500mln and to decrease the pricing from an initial price guidance of 7 5/8% -7/8% to 7.5%. • The new issue achieved a very broad geographical distribution, Europe receiving 42%, Asia 31% and US 27%. Banks received 23%, Fund Managers 35%, Private Banks 40% and others 2%. • The bond was accepted very well in the secondary markets and traded up slightly at the day of issuance. • The issue established RSB as one of the most frequent and sophisticated bond issuers out of Russia. Transaction Details Distribution by Investor Type

  22. Industry & Construction Bank (Ba1/B+), Lower Tier II, US$400m 6.20% due Sept. 2015 callable Oct. 2010 Distribution by Region • Following the successful debut bond issue for ICB in July 2005, ABN AMRO acted as a Joint Bookrunner for ICB’s US$400mln Lower Tier II (“LTII”) subordinated LPN’s in September 2005. • ICB’s LTII issue marks the third hybrid capital deal out of Russia. • Vneshtorgbank (US$750mln, 10NC5, Coupon: 6.315%) • Sberbank (US$1,000mln, 10NC5, Coupon: 6.23%) • ICB (US$400mln, 10NC5, Coupon: 6.20%) • With the success of the inaugural senior issue in mind, investors immediately started to show interest in this subordinated deal. Supported by a two day roadshow in London, the book reached approx. US$850mln (oversubscription of more than 2x). • Initial price guidance was set at 6.375% area on the 20th of September, then revised downwards to 6.25% area on the 21st September and later that day moved to 6.20-6.25%. The deal eventually priced at 6.20% on the 22nd of September, making this the lowest coupon LTII deal out of Russia so far. • Geographic distribution was UK 31%, Eastern Europe 25%, Asia 12%, Switzerland 8%, Germany 7%, Greece 5% and other 12%. By type of accounts, Banks 48%, Fund Managers took 41%, Retail 8% and other 3%. • ABN AMRO was responsible for the documentation of this bond issue and assisted ICB in its dialogue with the Central Bank to receive Tier II capital approval. Transaction Details Distribution by Investor Type

  23. Gazprom Intl. SA (BBB-/BBB-), USD 1.25bln, 7.201%, due 2020 • The transaction was the first ever future flow receivables-backed international bond issue from the Former Soviet Union. This allowed Gazprom to raise funds at almost 150bps savings to the secondary trading levels of its unsecured bond curve. • The offering marked Russia’s first ever issue with two investment grade ratings, and was marketed to an entirely new investor base of investment grade investors, previously unable to buy Russian securities. With an order book approaching USD 6.0bln across over 300 separate international investors, the transaction was priced through initial price guidance and upsized to achieve a transaction size of USD 1.25bln. The bond attracted a wide audience of investors from Europe, the US and Asia. • The issue was priced at 299bps over UST Feb 2012 (equiv. to bond average life of 7.4yrs) producing Gazprom’s all time lowest spread to date. The innovative nature of the structure drove many first time buyers to the Russian Federation and to Gazprom, specifically. • The stable secondary trading performance after launch exhibited ABN AMRO’s strong market making capacity. ABN AMRO’s strong distribution network enabled Gazprom to ever diversify its investor base across Europe, the US and Asia. Distribution by Region Transaction Details Distribution by Type

  24. On May 20, ABN AMRO acted as Joint Bookrunner for the highly successful benchmark EUR1billion 5.875% 2015 bond offering for OJSC Gazprom. The transaction has been structured as Loan Participation Notes issued by Gaz Capital under Gazprom’s existing US$5bn EMTN Program. At the outset of the premarketing, Gazprom defined a particular borrowing requirement of EUR1bn equivalent, with a stated desire to establish a EUR benchmark. Given the volatile market conditions at the time, the Joint Bookrunners advised Gazprom to pursue a dual tranche EUR 10year and US$ 10year offering with the objective to reach the defined borrowing requirement. Initial price guidance was defined at 6.0% area and 7.00% area, respectively. When it became clear that there would be sufficiently large investor appetite in either currency to meet Gazprom’s defined borrowing requirement, Gazprom elected to pursue a EUR only offering. The total EUR orderbook drew a final size of EUR4.28bn across over 275 international investors and allowed Gazprom to revise price guidance from 6.00% area to a range of 5.75 to 6.00%. In the end, Gazprom was able to price at 5.875% in the middle of the revised range. At the final pricing the orderbook consisted of a total of EUR3.75bn in total orders and allocations were made to 225 investors. Gazprom’s EUR1bn benchmark offering was the first Russian EUR offering in 2005, and nearly matches the US$1.425bn of total Russian eurobond supply to date in 2005. The new issue achieved a very broad geographical distribution, with particularly strong diversification into new accounts from Europe, US, and Asia. Gazprom (Baa3/BB/BB-), EUR 1 bln, 5.875%, due 2015 Distribution by Region Transaction Details Distribution by Type

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