Post on 27-Dec-2015
Public finance:structure of budget expenses
Current structure
Other revenues
14%
Severance tax17%
Export duties32%
Corporate profit tax
7%
Uniform social tax
5%
VAT25%
Prospective structure (2009)
Uniform social tax
5%
Corporate profit tax
7%
Export duties20%
Severance tax10%
Other revenues
18%
VAT40%
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 transfers 33,3 5,8
National defense 15,0 2,6
Issues of national significance 12,2 2,1
Law enforcement activities 12,2 2,1
National economy 9,5 1,7
Education 5,1 0,9
Social policy 3,9 0,7
Health care and sport 3,8 0,7
Culture and mass media 1,2 0,2
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
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
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
Russian stock market:Regulators
Federal FinancialMarket Service
Central Bank of Russia
Ministry of Finance
Stock market
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)
SROFFMS
Professional participants
in the market
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
Russian stock market:MICEX
Average amount of trading per
month, USD bn
Number of traded securities
Foreign currency 5,4 -
shares 4,0 325
bonds 1,4
544:430 – corporate105 – municipal9 - Eurobonds
Maximum value of MICEX index is 1758 points
Russian stock market:RTS
Average amount of trading per month,
USD bn
Number of securities traded
Forward market 8,4 -
shares 2,8 392
bonds 0,025 161
Maximum value of RTS index is 1984 points
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.
Second-Tier Stock Market
Market Capitalisation of National Companies
100 1000 10000 100000
Brazil
South Africa
India
Korea
China
Russia
Italy
Australia
ОМХ
Switzerland
Spain
Germany
Canada
Hong Kong
Euronext
UK
Japan
USA
USD Billion
Source: RTS, World Federation of Exchanges
As of 31 Dec. 2006 Log Scale
Russian stock market:Structure in terms of place of trading
0
10
20
30
40
50
60
70
80
90
2000 2001 2002 2003 2004 2005 2006
Stock market Over-the-counter market
«IRC» - MICEX
«RTS-Start» - RTS
Russian stock market:IPO projects of Stock Exchanges
Listing broker
StockExchange
- Companies of medium-size and small capitalization - Possibility of public and private placement - Possibility of legalization of business
Russian stock market: Depositories and registrars
II quart
er 2004
II quarter 2005
II quart
er 2006
Special depositories 26 24 26
Mutual funds 295 329 438
Share investment funds 5 5 5
Non-government pension funds 227 256 248
Number of operations performed 63486 68984 117530
- 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)
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 marketLicensing of professional activities in the stock market is performed by the Federal Financial Markets Service (FFMS, former FCSM)
Russian stock market:Professional participants in the market
15%
38%
47%
Investment companies (broker) Banks Management companies
Trust management, Mutual investment funds, Close-end investment funds
Trust management, Brokerage services, Common Fund of Bank Management, DEPOSITS
Trust management, Brokerage services
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
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
Industry Major issuers
Percentage of
capitalization
Average free-float
Oil and gasGazprom, Rosneft, Lukoil, TNC-ВР
Over 60% 0,33
Ferrous metallurgy
HLMC, EurasHolding
7% 0,24
Mobile Communica-
tionsMTS, Vympelcom 4,5% 0,35
Largest industries in terms of capitalization
Russian stock market:Issuers
Capitalization gained
(USD bn)
Ultimate free-float
Number of subscribers
ОАО Rosneft 10.6 0,12 115 000
ОАО Sberbank 8.8 0,92 46 000
ОАО VTB - 0,25 ~ 150 000
«General public IPO»
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
Russian stock market:IssuersStep-by-step strategy of entry to stock market
Loan against billsof exchange
Bonded debt
IPO in Russia
IPO in London
Less than 5 years
- Western funds – 60% of investment is Russian money invested via foreign funds
- Russian investors1. Institutional companies of financial and non-
financial sectors2. Qualified investors3. Individuals
Russian stock market:Investors
Russian stock market:Investors
Investment instruments
Object of investment
Profitability Profitability less
inflation rate
Business 40-70% 30-60%
Real estate 30-50% 20-40%
Stock market 15-25% 5-15%
Forex 12-15% 2-5%
Bank deposits 9-11% (-1%) – 1%
«Pillow» 0% (-10%)
Participants in financial marketBanking sector
Number
Russian banks 1080
Banks with foreign participation
60
NCO 45
Russian Banks:The Biggest Deals With Foreigners
Date Seller Buyer Amount of deal, USD
Million
% of equity purchas-
ed
Price to book value ratio
Dec. 2004 Delta Bank GE Consumer Finance
100 100 4,5
Apr. 2005 KMB Bank Banca Intesa 90 75 3,9
Aug. 2005 Deltacredit Societe Generale 110 100 3,2
Jan. 2006 Monchebank DnBNOR 21 97 2,2
Feb. 2006 Impexbank Raiffeisen International
550 100 2,9
Jun, Sep. 2006
Rosbank Societe Generale 634 20 4,5
Jul. 2006 Investsberbank OTP Bank 477 96 3,9
Nov. 2006 Orgresbank Nordea 318 75 4,0
Participants in financial marketBanking 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
Participants in financial marketBanking sector
Growth of assets in banking sector
23633160
41455601
7137
9750
13750
18000
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2000 2001 2002 2003 2004 2005 2006 2007 F0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
Assets, billion rubles % of GDP
Participants in financial marketBanking sectorGrowth of credits to general public with respect to GDP and assets
1,93 3,4
5,4
8,7
16,4
22
2,33,6
5,5
8,1
12,112,1
0,6 1,1 1,3
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007F year
%
of assets of GDP
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
Mar.2005 Aug.2005 Dec.2005 Feb.2006 Mar.2006 Ju.2006 Jul.2006
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)
Participants in financial marketBanking sector
Shares of banks in Russian stock marketFree-float
Мcap, $mP/E
2006P/BV 2006
Sberbank of Russia 0,92 39 482 13,8 3,6
Uralsib 3 594 11,0 2,0
Bank of Moscow 0,20 2 614 18,7 2,6
Rosbank 0,08 3 096 0,1 3,4
Promstroybank 0,48 1 403 8,8 2,5
Vozrozhdenie 500 13,2 3,4
Prospective issuer banks:Rosbank, Gazprombank, Uralsib, KIT-Finance Bank
Participants in financial marketInsurance sector
Indices
Insurance companies 918
Insurance premiums collected in 2006
USD 23.5bn
Insurance indemnity payments in 2006
USD 13.5bn
Participants in financial marketInvestment companies
Indices
Investment companies over 900
Capitalization (2006) USD 1.7bn
Assets (2006) USD 9.5bn
Profit (2006) USD 0.4bn
Participants in financial marketAsset management companies
Indices
Asset management companies
over 200
Trust management USD 10.2bn
Funds of NPF USD 15.3bn
Mutual and investment funds USD 14.6bn
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
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
Brokers
Management companies
Banks
EnterprisesInsurance companies
Brokers 250Management companies 100Banks 200Insurance companies 22Enterprises 15
Participants in financial market in the Agency’s ratings
Pattern of default probability
Probability of default depending on the term Up to 180 days Up to 1 year Up to 2 years Up to 3 years
AAA 0,0% 0,0% 0,0% 0,0%
AA+ 0,0% 0,0% 0,0% 3,0%
AA 0,0% 0,0% 1,5% 5,5%
AA- 0,0% 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% 100,0% 100,0% 100,0%
No risk
Low risk
Moderate risk
Increased risk
High risk
Maximum risk
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.