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Russian economy, financial market , investment instruments, risks

Russian economy, financial market , investment instruments, risks. Strong Export Positions. Public finance: structure of budget expenses. 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).

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Russian economy, financial market , investment instruments, risks

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  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 (overUSD 20bn)

  5. Tax reform:two vectors of different direction • Imposition of severance tax and increase of export duties on oil and oil products • 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

  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 same1998. • In September1995,the firstexchange–Russian Trade System (RTS) - began computation of the index • In1993,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 participantsof 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 Professional participants in the market FFMS SRO National Association of Securities Market Participants NAUFOR (~300 brokers) National Association of FundsNFA (~300 banks) Professional Association of Registrars, Transfer Agents, and Depositories PARTAD (~80) National League of Managers NLU(~70)

  10. Russian stock market:Exchanges • 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)

  11. Russian stock market:MICEX Maximum value of MICEX index is 1758 points

  12. Russian stock market:RTS Maximum value of RTS index is 1984 points

  13. Russian stock market:structurein 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. Russian stock market:IPO projects of Stock Exchanges «IRC» - MICEX «RTS-Start» - RTS Stock Exchange Listing broker • 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 - 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. 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) • 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

  19. Russian stock market:Professional participants in the market

  20. Russian stock market:Professional participants in the market 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

  21. Russian stock market:Issuers Largest industries in terms of capitalization The highest free-float is recorded with Sberbank of Russia – 0,92, The lowest one is recorded with ОАО Irkutskenergo0,08

  22. Russian stock market:Issuers «General publicIPO»

  23. Russian stock market:Issuers Trends in theIPO market • 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. • Entry of companies with medium-size or small capitalization to the IPO market – private placements. Simplified version of private placement. • Increase in the number of free-floating shares after additional issues. • Emergence in the organized market of large amount of over-the-counter addressed transactions. • Large interest to share market on the part from private investors.

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

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

  26. Russian stock market:Investors Investment instruments

  27. Participants in financial marketBanking sector

  28. Russian Banks:The Biggest Deals With Foreigners

  29. Participants in financial marketBanking sector Concentration in banking sector

  30. Participants in financial marketBanking sector Growth of assets in banking sector

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

  32. Participants in financial marketBanking 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 marketBanking sector Shares of banks in Russian stock market Prospective issuer banks:Rosbank, Gazprombank, Uralsib, KIT-Finance Bank

  34. Participants in financial marketInsurance sector

  35. Participants in financial marketInvestment companies

  36. Participants in financial marketAssetmanagement companies

  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. National Rating Agency • 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

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

  40. No risk Pattern of default probability 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.

  43. Tel.+7 (495) 775-59-02 Fax.+7 (495) 775-59-01 info@ra-national.ru www.ra-national.ru

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