2Q10 Outlook Russia, CIS: Taking stockCIS Strategy Equity Research 13 April 2010 2Q10 Outlook...

StrategyCIS

Strategy Equity Research13 April 2010

2Q10 Outlook Russia, CIS: Taking stock

Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital.

13 April 2010 2Q10 Outlook Renaissance Capital

2

Executive summary 3 Russia 6

Equity recovery stalled 6 Valuations 7 Oil price 8 Fund flows 9 Economic recovery 9 Risk retraction 10 Ratings agencies 12 Leverage is coming back 12 Negative real interest rates 13 Interest rate easing cycle 13 Inflation 14 Overweight/underweight 15 Defaults 15 Risks 16 Maintain RTS Index target 16 Portfolio allocations 17

Economics 20 Russian banks: Liquidity abundant, lending recovery still lagging 24

2Q10 rouble bond market outlook 28 Ukraine 33

Performance beyond expectations 33 Election results 33 Yanukovich victory 33 Appointment of Azarov 34 Sovereign risk spread contraction 34 PFTS target price 34

Ukraine: Mostly good news 36 Political stability gets a fighting chance 36 First steps of the new government 36 Renewal of cooperation with the IMF 37 Upgrade of Ukraine's sovereign rating and rally in the bond market 38 Improvement in real sector indicators 38 Balance of payments – no risk for the hryvnia 40

Kazakhstan 42 Performance 42 Risk spreads 42 Competitive currency 43 Tenge revaluation 43 Target price 44

Kazakhstan: On the road to a stronger tenge 45 The current account 45 Foreign debt repayments 46 Population preferences 47

Valuations 49 Disclosures appendix 79

Contents

Tom Mundy +7 (495) 258-7770 x4395 Roland Nash [email protected]

3

Renaissance Capital 2Q10 Outlook 13 April 2010

Going into 2Q10, as we look across our CIS universe, it is clear that after a stellar 2009, Russian equities have started to lose momentum, gaining 7% over the quarter compared with 43%, 28% and 15% over the previous three quarters. While the domestic arguments to favour Russia are persistent, nagging doubts over the strength of global recovery remain. Investors’ fears of sovereign default have been piqued by the events in Greece and, away from Russia, growing inflation expectations are fuelling predictions of imminent monetary policy tightening. Russia’s equity market is again caught between the tailwind of impressive domestic drivers and the headwind of external concerns.

In Kazakhstan, the short-term domestic underpinnings for equity are somewhat stronger. There has been a marked contraction in risk spreads back to normalised pre-crisis levels. CDS spreads are now some 90% below where they were at the height of the crisis and roughly 50% below where they were at the start of the year. As lending rates continue to fall, we think equity markets will outperform. Added to that, a 34% valuations discount to Russia makes Kazakhstan the most attractively priced equity proposition across the CIS. As in Russia, the risks are international and the concern in 2Q and 3Q will be the crosswinds of a weaker euro and global tightening concerns.

In Ukraine, the successful outcome to the Ukraine election cycle has catalysed a remarkable performance in equities during 1Q. With the exception of Mongolia, Ukraine is now the top-performing equity market in the world this year and remarkably is now trading only 23% below its pre-crisis highs (compared with Russia and Kazakhstan which are both some 35% off pre-crisis levels). Investors have roundly cheered the relatively smooth transition of power to President Victor Yanukovich, the appointment of Prime Minister Mykola Azarov and, more crucially the renewal of relations with the IMF. In our view, and at these valuations, they should now be a little nervous. After a 62% run YtD we suggest that much of the good news around the election cycle is priced in and would suggest taking profits at these levels.

In this quarterly, we argue that the risk is weighted towards negative global shocks rather than the positive CIS investment case and that therefore investors take a more defensive stance to Russian and Kazakh equities. We expect a correction in the short term. Nonetheless, the long-term story is sound and we make no change to our year-end RTS Index target price of 1,900 and no change to our RENCASIA target of 850. In Ukraine, the picture is a little different. The PFTS smashed through our 750 target in early February and is currently trading at 931. While upgrades to our equity models suggest there could still be something left in the tank for investors before the year is out (our aggregated target price suggests a PFTS of 1,015), we believe it is time to take profits in Ukraine.

Why do we still believe in the long-term CIS investment case? First, we think the market is mispricing the retraction in risk levels across our universe. Interestingly, despite the headwinds of Greek default worries and the threat of monetary policy tightening, noted above, investors have maintained a healthy appetite for emerging market risk over the quarter in the search for higher yields; however this appetite has not yet been fully reflected in asset price performance. In Russia, and Kazakhstan, CDS spreads have normalised to pre-crisis levels at 131 and 171 respectively, yet the equity market is still trading at 35% below its pre-crisis highs. In Ukraine, spreads still have a little further to go at 615vs pre-crisis levels of around

Executive summary



4

270, yet the market is just 23% off its highs – another reason why we advocate taking profits

Second, appetite for emerging market (EM) equities is clearly robust. Fund flows into Russia-dedicated funds over 1Q10 are the strongest since 2006. Within the BRIC context, Russia has easily been the most favoured. With only three weeks of net outflows to Russia-dedicated funds since the start of the year, assets under management (AuM) of Russian-dedicated funds have grown 40% and are now back at July 2008 levels. Furthermore, the data we have collated suggest to us that global EM funds are overweight Russia and have been for some time. However, we struggle to reconcile this appetite for Russian equity risk with the market’s moderate performance YtD.

Third, as lending rates ease, the inevitable return of liquidity across all our markets is obvious to anyone with a Bloomberg screen. Historically falling rates have proven a major driver for equities and we think in this stage of cycle the small-cap names look well placed to benefit as companies that have previoulsy struggled to refinance on profitable terms through the crisis find more options available. In Russia, Mosprime rates have now fallen to below the levels of May 2008 when the market crashed and the Central Bank of Russia (CBR) refinancing rate is now at a historic low. The current deceleration in inflation implies that even after 12 cuts since April last year, there should be more to come and we expect a further 50-75 bpts by the middle of this year. We also note that Russia is back in an environment of negative real interest rates encouraging the reallocation of capital and again suggesting the return of the domestic investor base. Over the longer term, this dynamic implies that Russia will fail to escape its history of boom-bust scenarios, but also can prove a major driver for asset prices

Fourth, systemic risk is abating, though we acknowledge that the recovery in CIS economies is not necessarily straightforward. Our Russian economics team question whether the current speed of economic recovery – 5% QoQ growth in 4Q09 – is really sustainable. It argues that as the effect of stimulus packages starts to fade, the government is going to have to rely on a pickup in real and fixed investment. The good news is that both of these are starting to show signs of improvement. In Ukraine, our economics team cautiously forecast 2.1% growth in 2010. Much will depend on global metals prices and the base effect is likely to become less visible as we move through the year. Equity markets, however, are more likely to remain focused on negotiations with the IMF. In Kazakhstan, a 50% YtD pick up in exports and a growing trade surplus will likely push for a notable appreciation of the tenge and 2009 GDP forecasts significantly above expectations.

So what are the implications for equities in this environment? The reasons to like CIS equities over the longer term are clear; however, the fact that the market has been so underwhelmed suggests to us that it makes sense to be positioned over the short term in those names that, we think, would be less exposed to equity market volatility. Telecoms, particularly Vimpelcom and Comstar, and utilities such as OGK4 stand out, as well as oil companies with the least exposure to regulatory perks in the sector, notably Tatneft. We also think that, given low valuations in the sector, the most sensible exposure to the rate-easing cycle remains in real estate. We highlight LSR as our preferred access point. Finally, less defensive, but still attractive for technical reasons, we continue to favour the metals and mining sector. We think that the sector, as well as benefiting from low rates and global liquidity, can also take advantage of tight supply dynamics in coal and iron ore as well as the


5


inevitable subsequent push in steel prices. We would advise rotating into the names that underperformed over 1Q such as MMK.

For investors in the bond universe, we note the strong rally in the domestic bond market since the start of the year, and as rouble bond yields approach their pre-crisis levels, it clearly becomes more difficult to make a compelling call. Nonetheless, CBR interest policy, rouble appreciation and abundant rouble liquidity are likely to remain supportive for rouble bonds for at least the next three-to-six months, in our view. Our fixed income team sees value in longer-dated government bonds, in the quasi-sovereign rouble bond universe we draw attention to AIZK (Mortgage Agency) bonds as well as metals and mining bonds.

Tom Mundy +7 (495) 258-7770 x4395 [email protected]


6

Equity recovery stalled The Russian equity market has been particularly efficient historically at pricing in disaster. Russia’s collapse in 2009 was one of the harshest among all the major EMs. On the flip side, Russia has also been very efficient at pricing in recovery. Thanks, to a certain extent, to the base effect and rebounding commodity prices, from being a worst-performing market in 2008, falling 73%, Russia rebounded with 128% growth in the equity market in 2009. At the start of this year, further growth, we argued, would need to be driven by domestic factors, rather than external. As long as Russia is held hostage to the whims of global demand forecasts and euro/dollar sentiment, the RTS would be unlikely to rally to 1,900 to achieve our target price assumptions by year-end.

Figure 1: The momentum of the RTS vs EM

Source: Bloomberg

As it happens, Russia’s equity market performance this year has been caught between the headwind of a fragile global economic recovery and the tailwind of favourable domestic policy and supportive commodity prices. The RTS added 9% over the quarter advancing to 1,572, still 21% shy of our year-end target of 1,900. Russia’s performance was better, nonetheless, than the rest of the BRICs, as well as the EM average, reflecting a very marked contraction in risk spreads and signs of an improving economic environment.

Nonetheless, we are surprised that the benign domestic conditions and the marked contraction in risk spreads have not been converted into more equity market performance. Investors, it appears, while acknowledging the marked decline in systemic Russian risk, have been unwilling to commit to high-beta commodity plays while evidence of a global economic recovery remains fragile. This is hardly a disaster for Russia, in our view as long as the domestic economy continues to improve. It is, as we note above, the best performing of the BRIC markets YtD; however, it does indicate a lack of conviction from investors who have been happier to trade around external risks than domestic strength.

0

500

1,000

1,500

2,000

2,500

3,000

0

500

1,000

1,500

2,000

2,500

3,000

Feb-

07Ap

r-07

Jun-

07Au

g-07

Oct-0

7De

c-07

Feb-

08Ap

r-08

Jun-

08Au

g-08

Oct-0

8De

c-08

Feb-

09Ap

r-09

Jun-

09Au

g-09

Oct-0

9De

c-09

Feb-

10Ap

r-10

Jun-

10Au

g-10

Oct-1

0De

c-10

RTS Index 2010 target

Russia

momentum slowing



7

Valuations Nonetheless, the broader backdrop for the market remains extremely benign. Russia continues to look very cheap, trading not just in absolute, but also in relative, terms well below its EM peers. With a forward-looking P/E of 7.9x compared with the MSCI Emerging Market average of 12.5x, we believe Russia remains the clear value choice among the BRICs. On a relative basis, we also note that the discount to the EM average has widened over 1Q10. From a 66% discount at the market trough, Russia traded at a 33% discount at the start of the year, and is now trading at a 38% discount. Russia looks to us to offer good value too in comparison with struggling peripheral Europe trading at a 20% discount to Greece. This is despite Russian CDS spreads at a 52 bpts discount to Greece. The same can be said of Portugal, despite its recent Fitch ratings downgrade to AA-, (compared with BBB for Russia). Russia trades at a 45% discount to Portugal on a forward-looking P/E basis. This is despite, again, Portuguese CDS spreads trading in line with Russia at 131.

Figure 2: Russia P/E in absolute terms

Source: Bloomberg

Figure 3: Russia P/E vs Greece, Portugal vs CDS spreads

Source: Bloomberg

0

5

10

15

20

25

30

Jul-0

1No

v-01

Mar-0

2Ju

l-02

Nov-0

2Ma

r-03

Jul-0

3No

v-03

Mar-0

4Ju

l-04

Nov-0

4Ma

r-05

Jul-0

5No

v-05

Mar-0

6Ju

l-06

Nov-0

6Ma

r-07

Jul-0

7No

v-07

Mar-0

8Ju

l-08

Nov-0

8Ma

r-09

Jul-0

9No

v-09

Mar-1

0

MSCI Russia MSCI EM MSCI India MSCI Brazil MSCI China

Russia exceptionally cheap

02468

101214161820

Feb-

06Ap

r-06

Jun-

06Au

g-06

Oct-0

6De

c-06

Feb-

07Ap

r-07

Jun-

07Au

g-07

Oct-0

7De

c-07

Feb-

08Ap

r-08

Jun-

08Au

g-08

Oct-0

8De

c-08

Feb-

09Ap

r-09

Jun-

09Au

g-09

Oct-0

9De

c-09

Feb-

10

Greece Portugal Spain Russia



8

Figure 4: Russia P/E vs EPS

Source: Thomson Analytics

Oil price While the oil price has not surprised to the downside, at the same time it has provided little incentive to trade aggressively into the oil and gas names which constitute such a heavy weight in the index. As we acknowledged at the start of the year, as long as investors are not fully behind the sector, it will be difficult for the market as a whole to outperform significantly, and indeed sentiment for oil equities has been weak. Though the average oil price is almost 2% higher in 1Q10 compared with 4Q09, the RTS Index’s gains have been moderate.

Nonetheless, this is still a very supportive oil price environment for a country that is so reliant on the export of commodities. The fact that the RTS has not taken further store from supportive oil prices may reflect a degree of concern about the budgetary pressures of increased social spending as a result of expansionary fiscal policies, most notably an increase in public sector wages and pensions. However, we think it more likely that investors, as has historically been the case, recognise that Russia – with 51% of the RTS accounted for by oil and gas companies and a further 15% accounted for by other resource names such as steel, mining and potash – remains highly correlated to commodity price volatility and resource demand. In that context, question marks, particularly around the schedule for Chinese monetary policy tightening, are being well priced in by the equity market even if Russia’s balance sheet is comparatively sound.

Figure 5: Oil price chart vs FX reserves

Source: Bloomberg

-20-15-10

-505

1015202530354045505560657075

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

EPS

Grow

th

PE

Ukrain

Taiwan

Chile

IndiaUK USPeru

MalaysiaChina

IndonesiaPhilippines

EMIsrael

Brasil

Poland

KoreaSouth Africa

Egypt

Thailand

MoroccoHungary

Jordan

Turkey

Pakistan

Russia

Argentina

350

400

450

500

550

600

0

50

100

150

200

Jan-

08

Mar-0

8

May-0

8

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar-0

9

May-0

9

Jul-0

9

Sep-

09

Nov-0

9

Jan-

10

Mar-1

0

Oil $/bbl Russia FX reserves $bn



9

Figure 6: Rouble vs FX reserves

Source: Bloomberg

Fund flows Fund flow data also reflect the correlation between appetite for Russian equities and external shocks. The increase in risk aversion that negatively affected EMs as a result of Greece’s debt troubles, as well as Chinese tightening concerns, was well reflected in early February with Russia-dedicated funds showing net outflows for three weeks. However, it is encouraging that, unlike China, where WoW outflows since the start of the year have outweighed inflows by, a factor of six, Russia has generally benefited from extremely strong inflows since the start of the year. Fund flow data suggest that there should be more momentum behind Russia than equity performance suggests.

Figure 7: Russia fund flow data

Source: EPFR

Economic recovery It is clear to us that the major systemic risks to Russia have abated and positive economic indicators have become more entrenched over 1Q10. Russian PMI manufacturing indicators have traded back up above 50.0 since the start of the year and currently stand at 50.2 indicating a fragile recovery in the manufacturing sector. Similarly though Russian industrial production grew 1.9% in February, disappointing the market after a 7.7% YoY gain in January, it is a long way from the 17% contraction of May last year.

350

400

450

500

550

600

20

25

30

35

40

Jan-

08Fe

b-08

Mar-0

8Ap

r-08

May-…

Jun-

08Ju

l-08

Aug-

08Se

p-08

Oct-0

8No

v-08

Dec-0

8Ja

n-09

Feb-

09Ma

r-09

Apr-0

9Ma

y- …Ju

n-09

Jul-0

9Au

g-09

Sep-

09Oc

t-09

Nov-0

9

Ruble Russia FX reserves $bn

1,000

3,000

5,000

7,000

9,000

11,000

13,000

-10%-8%-6%-4%-2%0%2%4%6%8%

Jan-

08Fe

b-08

Mar-0

8Ap

r-08

May-0

8Ju

n-08

Jul-0

8Au

g-08

Sep-

08Oc

t-08

Nov-0

8De

c-08

Jan-

09Fe

b-09

Mar-0

9Ap

r-09

May-0

9Ju

n-09

Jul-0

9Au

g-09

Sep-

09Oc

t-09

Nov-0

9De

c-09

Jan-

10Fe

b-10

Mar-1

0

EPFR WeeklyFlows, %

EPFR AssetsEoW, $mn (RHS)

Greece and China only stalled fund flows briefly, there is still plenty ofappetite for Russian risk



10

Figure 8: PMI

Source: Bloomberg

Figure 9: Industrial Production YoY %

Source: Bloomberg

Risk retraction If the equity market has lacked momentum, this has certainly not been reflected in risk spreads. Increasingly, Russia’s risk profile is returning to pre-crisis levels. The strength in inflows highlighted above fully reflects the decline in risk perception towards Russia. EMBI+ spreads have now fallen back to pre-crisis highs at 143 bpts and now trade with a 29 bpts discount to Brazil, the widest discount since Oct 2008, and a 55 bpts discount to Turkey, again the widest discount since autumn 2008. This is despite Russia trading at a 40% discount to Brazil on a forward-looking earnings basis and a 15% discount to Turkey.

2545

65

Oct-0

7

Dec-0

7

Feb-

08

Apr-0

8

Jun-

08

Aug-

08

Oct-0

8

Dec-0

8

Feb-

09

Apr-0

9

Jun-

09

Aug-

09

Oct-0

9

Dec-0

9

Feb-

10

above 50 = optimism China Manufacturing PMIUS Manufacturing PMI Russia Manufacturing PMI

-20

-15

-10

-5

0

5

10

15

20

Sep-

06No

v-06

Jan-

07Ma

r-07

May-0

7Ju

l-07

Sep-

07No

v-07

Jan-

08Ma

r-08

May-0

8Ju

l-08

Sep-

08No

v-08

Jan-

09Ma

r-09

May-0

9Ju

l-09

Sep-

09No

v-09

Jan-

10Ma

r-10



11

Figure 10: EMBI+

Source: Bloomberg

CDS spreads show the same dynamics. Again as a reflection of the mispricing of Russian risk, it is interesting to note that Russian CDS spreads are currently priced at a 70% discount to Greece yet on a valuations basis, Russia currently trades with a 20% discount on a forward-looking basis.

Figure 11: CDS

Source: Bloomberg

Historically a contraction in Russian risk spreads is a major driver for equities. It is worth noting that while risk is back to pre-crisis levels, the RTS is still trading at 40% of the highs of May 2008.

Figure 12: Debt vs equity

Source: Bloomberg

0

200

400

600

800

1,000

Oct-0

7No

v-07

Dec-0

7Ja

n-08

Feb-

08Ma

r-08

Apr-0

8Ma

y-08

Jun-

08Ju

l-08

Aug-

08Se

p-08

Oct-0

8No

v-08

Dec-0

8Ja

n-09

Feb-

09Ma

r-09

Apr-0

9Ma

y-09

Jun-

09Ju

l-09

Aug-

09Se

p-09

Oct-0

9No

v-09

Dec-0

9Ja

n-10

Feb-

10Ma

r-10

Russia EMBI+ Turkey EMBI Brazil EMBI Emerging Markets EMBI+

0200400600800

1,0001,200

Jan-

08Fe

b-08

Mar-0

8Ap

r-08

May-0

8Ju

n-08

Jul-0

8Au

g-08

Sep-

08Oc

t-08

Nov-0

8De

c-08

Jan-

09Fe

b-09

Mar-0

9Ap

r-09

May-0

9Ju

n-09

Jul-0

9Au

g-09

Sep-

09Oc

t-09

Nov-0

9De

c-09

Jan-

10Fe

b-10

Mar-1

0

Russia 5 year CDS Citigroup 5 year CDS Turkey 5 year CDS

-

500

1,000

1,500

2,000

2,500

3,000

-

200

400

600

800

1,000

Jan-

08

Mar-0

8

May-0

8

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar-0

9

May-0

9

Jul-0

9

Sep-

09

Nov-0

9

Jan-

10

Mar-1

0

JPMorgan EMBI Plus Russia Sovereign Spread RTS Index

Least risk Most risk



12

Ratings agencies As mentioned above, Russian risk still appears to be mispriced by the market. It is noteworthy that despite the 87% contraction in CDS spreads and 82% contraction in EMBI+ spreads, Russia is still rated by Standard & Poor’s (S&P) at BBB+ having been downgraded in Dec 2009. In comparison, Greece with a government debt to GDP ratio of over 100% and now at the mercy of the EU, is also rated at BBB+ by S&P (albeit with a Negative outlook). Considering Russia’s strong balance sheet with foreign exchange reserves now at $450bn, risk spreads now at pre-crisis levels and a supportive oil price environment, it does not seem too unlikely a proposition that Russia’s ratings may come under review.

Figure 13: Government debt as % of GDP

Source: Bloomberg

Figure 14: Russia local currency long-term debt (S&P) Rating Effective BBB+ (outlook Stable, effective 21 Dec 2009) 8 Dec 2008 A- 4 Sep 2006 BBB+ 15 Dec 2005 BBB 31 Jan 2005 BBB- 27 Jan 2004 BB+ 5 Dec 2002 BB- 26 July 2002 B+ 19 Dec 2001 B 28 June 2001 B- 27 July 2000 CCC+ 15 Feb 2000 CCC 7 May 1999

Source: Bloomberg

Leverage is coming back Importantly, we think the market is still mispricing a return of Russian liquidity. Russia has seen a continued and sustained decline in the cost of money which has brought life back into the bond markets and which should in turn be reflected in equity market performance. As we highlight later, with the rouble carry trade firmly in place, and inflation expectations dampened by a lagged pick-up in consumer spending, we expect further momentum behind the rate easing cycle to come in 2010. Historically such an easing cycle is very positive for equity markets as more and more companies find it possible to refinance on favourable terms. We have long cited the absence of a domestic investor base as a key reason for the underlying

7%0%

20%40%60%80%

100%120%140%160%180%200%

Japa

n

Unite

d Stat

es

Germ

any

India

Unite

d King

dom

Braz

il

Turke

y

Kore

a

China

Russ

ia



13

volatility in the Russian market and though admittedly, credit extension has been slow to pick up, we believe it is just a matter of time before improved borrowing conditions combine with further evidence of a pick-up in the domestic economy to lend weight to the equity market.

Figure 15: Mosprime one-month rate

Source: Bloomberg

Negative real interest rates We also note that Russia is back in an environment of negative real interest rates encouraging the allocation of capital and again suggesting the return of the domestic investor base as investors look to put capital to work. Over the longer term, it implies that Russia will fail to escape its history of boom-bust scenarios, but in the short term can prove a major driver for asset prices.

Figure 16: Negative real interest rates

Source: Bloomberg

Interest rate easing cycle The CBR has continued, as expected, to loosen monetary policy through 1Q10. Since Apr 2009, the CBR has cut the main refinancing rate 12 times from 13% to 8.25%. While inflation conditions are still depressed and industrial production recovery slow, we expect another 50-75 bpts cuts in key benchmark rates this year, again a major driver for asset prices. However, we note that the decrease in rates has yet to spur a significant increase in loans and we continue to witness a lagged pick-up in credit extension within the banking sector. However, with the crisis now avoided, liquidity returning and depositor confidence on the up, we are not surprised

05

1015202530

Jan-

07

Mar-0

7

May-0

7

Jul-0

7

Sep-

07

Nov-0

7

Jan-

08

Mar-0

8

May-0

8

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar-0

9

May-0

9

Jul-0

9

Sep-

09

Nov-0

9

Jan-

10

Mar-1

0

-20-10

010203040

Aug-

05

Nov-0

5

Feb-

06

May-0

6

Aug-

06

Nov-0

6

Feb-

07

May-0

7

Aug-

07

Nov-0

7

Feb-

08

May-0

8

Aug-

08

Nov-0

8

Feb-

09

May-0

9

Aug-

09

Nov-0

9

Feb-

10

PPI YoY % Mosprime



14

to see some evidence of this liquidity being accessed. Our real estate team has noted a significant pick-up in mortgage activity in 1Q10. For example, in Jan 2010, the amount of mortgage loans issued approached the same level as in Apr 2008. Our financials team also note the pick-up in consumer confidence as evidenced by the sustained switch back out of dollar deposits. Following a slight pick-up during the crisis, the split between rouble and FX deposits is now back at pre-crisis levels.

Figure 17: Main refinancing rate

Source: Bloomberg

Figure 18: Deposit split in currencies

Source: Bloomberg

Inflation As our economics team highlights later in this report, despite expansionary monetary and fiscal policy, inflation has not accelerated over the past quarter and indeed may go further to support further rate cuts. The most recent mid-March data show that the YoY indicator reached 7.0%, the lowest level in modern Russian history.

789

1011121314

Jan-

07

Mar-0

7

May-0

7

Jul-0

7

Sep-

07

Nov-0

7

Jan-

08

Mar-0

8

May-0

8

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar-0

9

May-0

9

Jul-0

9

Sep-

09

Nov-0

9

Jan-

10

Mar-1

0

CBR Main refinancing rate

0%5%10%15%20%25%30%35%40%

62%64%66%68%70%72%74%76%

Dec-0

8

Jan-

09

Feb-

09

Mar-0

9

Mar-0

9

Apr-0

9

May-0

9

May-0

9

Jun-

09

Jul-0

9

Jul-0

9

Aug-

09

Sep-

09

Sep-

09

Oct-0

9

Nov-0

9

Dec-0

9

Dec-0

9

Jan-

10

% Ruble % FX



15

Figure 19: Inflation

Source: Renaissance Capital estimates/CBR

Overweight/underweight Interestingly, fund flow data indicate that the market is overweight Russia at the moment. It is not just CBR policy that implies there is a wall of liquidity ready to be put to use, fund flow data also suggest that as risk spreads have narrowed investors have also moved to put work in Russia. This increased level of confidence with Russian equities is fully in line with the marked contraction in debt spreads since the start of the year, even if equity markets have yet to pick up the slack.

Figure 20: Investor weightings in MSCI Russia vs MSCI weightings

Source: EPFR

Defaults Looking back over the past 12 months, it appears that fears of large-scale default were largely overdone and indeed going into 1Q10, we envisage no major defaults within the banking and corporate sectors. According to the CBR, banks will have to pay around $34bn in 2010 and corporates will have to pay around $70bn in both principal and interest payments, which we view as a comfortable level in the context of an improvement in access to refinancing and lower borrowing rates. In the short term, while we think it entirely likely that further down the liquidity curve small companies may continue to find it difficult to access funding on terms that would make their projects profitable, over the longer term, as confidence returns, we also expect terms to improve for the smaller-cap names which could prove highly

579

11131517

Aug-

05

Nov-0

5

Feb-

06

May-0

6

Aug-

06

Nov-0

6

Feb-

07

May-0

7

Aug-

07

Nov-0

7

Feb-

08

May-0

8

Aug-

08

Nov-0

8

Feb-

09

May-0

9

Aug-

09

Nov-0

9

Feb-

10

CPI YoY %

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Aug-

08

Sep-

08

Oct-0

8

Nov-0

8

Dec-0

8

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-0

9

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct-0

9

Nov-0

9

Dec-0

9

Jan-

10

Feb-

10

% ov

er/un

derw

ieght



16

beneficial for struggling small-cap names. The beleaguered Russian auto industry stands out.

Figure 21: External debt service, $bn 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11 3Q11 4Q11

All sectors 25.6 30 26.5 26 108.1 17.4 25.8 20 n/a Government 1.6 1.6 0.7 0.9 4.8 1.5 1 1.4 n/a Banks 8.3 13 5.7 6.8 33.8 4.6 7.9 6.4 n/a Other sectors 15.6 15.3 20.2 18.3 69.4 11.4 17 12.2 n/a

Source: World Bank

Risks We were concerned at the start of the year that a widening of spreads, either as a result of a withdrawal of stimulus measures or an external correction, such as debt issues in sovereign Europe, would inevitably result in a contraction in equity markets. We also argued that because the rally in Russian equity markets has yet to be built on leverage, and instead is a function of speculation, the unwinding of which is far less severe by implication than that of a leverage fuelled rally, that a correction would be limited. It has been interesting therefore that though the Russian market has traded with increased volatility around external shocks such as Greece and Chinese tightening, risk spreads quickly returned to their downward trend and the market failed to correct substantially. Interestingly, Russian CDS spreads, which widened sharply in early February, have now contracted to a level that is now some 50 bpts below start-of-the-year levels at 131. This implication is that the dislocation that stems from such external shocks is significant, but is in fact far less severe than the market anticipated. The recovery in Russia’s economy, combined with a sustained high oil-price environment, has allowed it to ride out such shocks without a significant draw to the downside.

Figure 22: CDS spreads around the Greek crisis

Source: Bloomberg

Maintain RTS Index target We see little reason to be overly concerned about the Russian market. After a mediocre 1Q performance, valuations, in our view, do not look overstretched with Russia trading at 7.9x forward-looking earnings and the discount to the EM average at a significant 38%. However, in the short term, we think this is of little consequence to Russia as long as the market is focused on contagion from

0

200

400

600

800

1,000

1,200

Nov-0

8

Dec-0

8

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-0

9

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct-0

9

Nov-0

9

Dec-0

9

Jan-

10

Feb-

10

Mar-1

0

Russia 5 year CDS Greece 5 year DS



17

peripheral Europe and Russia is caught in the headwind of fears over the start of the global monetary policy tightening cycle.

We have continued to witness a narrowing in risk spreads, with Russia’s risk-free rate now at pre-crisis levels. In this light, we see no reason to adjust our RTS forecast for 2010 of 1,900. As we highlighted last quarter, as risk spreads continue to narrow, we think it is entirely feasible that equities should catch up and that, in turn, the RTS should trade near to its pre-crisis levels, which implies 21% upside potential from the end of 1Q10.

Portfolio allocations Given the uncertainties that remain in peripheral Europe and given that the oil price continues to trade over the last quarter on average at $9/bbl above our 2010 forecast, we think the market is likely to maintain a more defensive stance over the coming quarter. We think the market is likely to ignore further evidence that systemic risk has abated and indeed overwhelming evidence that the government has been an effective provider of liquidity and stability to the market.

Defensive. Looking back over the past quarter, it is interesting to note the performance of the non-cyclical defensive names. Utilities and telecoms have proven to be among the most sensible picks in the Russian market during this volatile period. Fixed-line telecoms have been outperformers on the back of the Svyazinvest restructuring, with North West Telecom and VolgaTelecom both major outperformers; although we think the market continues to be attracted by the certainty of tariff growth, we think it makes sense to rotate into Comstar for a similar level of defensive exposure. Among the potential drivers looking into 2Q, we highlight the completion of the asset swap with government, as well as regional expansion, the build-out of fixed line internet, as well as being the most undervalued telecoms stock assuming it stays standalone (ie MTS does not buy the minorities out) MTS has also outperformed the market over the period adding 12% and providing a relatively liquid blue-chip access point to defensive exposure. However, we think it makes sense to look at VimpelCom. In our view, once VimpelCom Ltd is created, the strong fundamentals for the stock, such as growth in disposable income, recovery of corporate and roaming spending, superior retail presence to MTS, and superior fixed-line network to MTS, should kick in for the stock which underperformed both MTS and the RTS indices YtD. Elsewhere in an environment of recovering economics, we would note the outperformance of MRSK Holding, which added 43% over the period and is trading at an EV to likely iRAB of only 0.4x. We would continue to look at the stock over the next quarter despite recent strong share-price performance. Our utilities team believes that recent government decrees demand will lead to a full implementation of rate-return legislation by the end of 2010. We also note the strong performance of OGK4, which added 29%. We think the company is poised to take full advantage of the potential for improved profitability created by increased demand in Russia's rapidly liberalising generation markets. We continue to be attracted by the management benefits of its controlling shareholder, E.on, and we believe it provides an attractive entry point to the sector without the corporate governance risk generally inherent in Russian-controlled gencos. Finally, we would note the performance of OGK1, which added 47%. And we would continue to recommend looking at the stock and are attracted by the relatively low market value for its generation assets which are likely to be among the



18

most profitable in liberalised markets. The planned consolidation into InterRAO in due course via a share swap based on relative market values will add value and, in the meantime, InterRAO will provide much-needed capex funds by buying up a forthcoming new OGK1 share issue.

Liquidity provision. We continue to think that in an environment of abundant liquidity and easing debt spreads, real estate names are likely to be the key beneficiaries particularly when demand for credit returns. In our view, the continued performance of the recovery in the real estate sector is likely to be led by the residential names and that the nascent early indications of price rises combined with improving transaction volumes will continue as the economic recovery gains momentum. As we have noted throughout this piece, the liquidity backdrop is improving, but for the short term we would favour developers with income-generating properties as well as developers with strong balance sheets which could drive industry consolidation. In this context we continue to prefer LSR for access to the continued recovery in mass-market residential real estate. We also think that there is significant potential for LSR to take market share from competitors who have emerged from the crisis in a less favourable position and especially those finding it more difficult to access financing. The company has ambitious plans to scale-up, especially in mass-market residential and though expansion comes with execution risk, if successful, we see significant potential for LSR to outperform the markets in which it operates and for medium-term valuation upside. We also favour Raven Russia as we see the real estate market as one of the more promising ways to access a pick-up in industrial production. The company is one of the few Russian real estate companies with income-generating assets and manageable leverage which should help Raven to lead industry consolidation and/or pay an increasing dividend to its investors.

Banking sector normalisation. At the start of the year, we noted early signs of an asset-quality turnaround and a pick-up in loan growth in the Russian banking sectors which we believed would continue to attract attention to the sector. We believe that in the prevailing trend of gradual monetary policy tightening, Russian banks will stand to benefit and that Sberbank is a clear medium- to long-term net beneficiary. However, we also note that the recent share-price performance of Sberbank vs EMEA and EM financials indices has led to a valuation catch-up, with, on our estimates, Sberbank now trading on a P/B basis in 2010 in line with the GEM average. We think in this context it makes sense to be cautious on Sberbank in the short term and, for a liquid access point to the Russian macro story, to switch into the oil names. We preferred Tatneft to Rosneft at the start of the year and the stock’s outperformance since then has justified that call with the Tatarstan oil producer outperforming both of its peers by a substantial margin. As our oil and gas team has highlighted since the start of the year, much of Rosneft’s performance in 4Q09 was a function of the market’s view that it will benefit from an extended period of export duty relief for East Siberian oil (as well as an attractive production growth profile). However, Tatneft’s performance over the past quarter supports the view that the market believes it makes sense to look at names that derive less of their current earnings from regulatory subsidies which we believe have a high likelihood of being scrapped (as well as being resource rich). LUKOIL, though not as protected as Tatneft from an earnings quality point of view, is also comparatively well positioned vs Rosneft for example. We also think the company is attractively valued trading at a 15% discount to Rosneft on 2010 earnings. Further news flow on ConocoPhillips’ share sale should also provide some much need momentum to the share price



19

Global recovery. As noted, we believe Russian policymakers will maintain expansionary policies for some time. The resulting momentum of low rates and abundant liquidity will produce a strong, cyclical backdrop for EM recovery, supported by a weaker dollar and high commodity prices. In our view, the metals and mining sector still has scope to benefit from this dynamic. We also believe that cost pressures and tight supply will continue to pull up steel prices. We continue to like MMK for its superior customer base capturing pipes, shipbuilding and infrastructure roll-out, overseas growth and cash flows particularly through its acquisition of Belon on the back of rising coal prices and output. We also rate Evraz for its exposure to major state-run construction and infrastructure projects (2014 Sochi Olympics and 2012 APEC Summit in Far East) and by the Russian Railways (RZhD) purchases. We also think the company provides attractive leveraged exposure to a Russian (and global) infrastructure roll-out. Evraz has been demonstrating efficient management of its significant debt burden in 2009 bringing net debt to $7.4bn by the year-end. The dollar inflating against commodities also contributes to a positive environment for leveraged names, and Evraz remains undervalued compared with its major peers priced at less than 30% of peak levels seen in mid-2008. We continue to think Raspadskaya, with 100% exposure to coking coal, maintains a unique position. Even after a 46% YtD rally, in an environment of tight supply and rising prices, we think the stock can continue to perform. We expect further growth in Ukrainian steel production (a core market for Raspadskaya) driven by high competitiveness of local steelmakers, but we also think the market will be focused on the company’s Asian advances. Raspadskaya’s CEO, Gennady Kozovoy, stressed recently the importance of Asian markets for the company and we think signs of growth in Raspadskaya’s sales to South East Asia may become an essential driver for the company in 2010. Finally we think the market will remain focused on Mechel with China and India driving coal prices higher and the company the only Russian name with significant exposure to Asian markets.

Alexei Moisseev +7 (495) 258-7946 Anton Nikitin and Maxim Raskosnov [email protected]


20

We believe the current pace of Russian economic recovery is unsustainable. According to Rosstat, the economy resumed growth as early as in 3Q09 (+2% QoQ1) and accelerated in 4Q09 adding almost 5% QoQ, by preliminary estimates. On independent assessments, growth could amount to 4% in 1Q10; however, material deceleration – possibly down to 0% – is projected by the RenCap-NES Leading GDP Indicator in 2Q10.

However, due to Rosstat’s changes to its calculation methodology of some indices in January, some historical comparisons are now irrelevant. So we could illustrate concerns about a weak economic state citing that overall industrial production data for February increased only 1.9% compared with the same period of last year which was near to the deepest point of the recession. The main laggard of the past year – manufacturing – has stagnated near the level reached at the end of 3Q09 due to the colder weather and a modest revival of stressed demand.

The manufacturing sector is the largest employer in Russia (hiring around 17% of the total labour force), however, it has not been producing new payrolls recently. Russia’s unemployment level peaked at 9.2% in January, the highest level since Mar 2009, due to seasonal effects, and a lack of temporary jobs during the winter. Bureaucratic reasons prevented the government from renegotiating agreements with the regional authorities aimed at co-financing programmes to combat unemployment. When necessary funds from the federal budget were transferred to the regions (even in advance of the usual schedule) the pressure in the labour market weakened and unemployment was back on track at 8.6% in February.

Under these circumstances, we are confident that there are positive signs of a recovery in economic growth but new sustainable growth sources have yet to be found. Effects from the government stimulus package introduced last year will soon start to disappear, particularly in the retail sector. The main anti-crisis measure – increases in pension payments – will be completed in April. Pension indexation is still a slow driver for sales with real disposable income following a negative trend since December (seasonally adjusted -3.5% in Dec 2009-Feb 2010). Hence, as consumer lending is still low, rising real wages could be the driver of a recovery of consumer demand (see Figure 23).

Figure 23: Real wages and disposable income

Source: Rosstat

1 All growth figures are seasonally adjusted

-10.0

-5.0

0.0

5.0

10.0

15.0

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-0

9

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct-0

9

Nov-0

9

Dec-0

9

Jan-

10

Feb-

10

Real disposable income (YoY), % Real wages (YoY), %

Economics



21

We believe that government support for consumer demand faces two problems: first, pensioners have the highest savings rate across the population; and second, their consumer basket is quite specific. Recent inflationary trends demonstrate that even overall inflation stays at a favourable level, due to component-wise jumps at the start of the year of 13-15% (in many tariff-regulated services and vegetables). Low-income levels of the population are hit the hardest.

Figure 24: Monthly CPI dynamics

Source: Rosstat

Fixed investment, another economic driver (which added 6 ppts to QoQ economic growth in 4Q09), is traditionally at an embryonic stage at the start of year. The rising share of machinery imports points to reviving investment demand, nevertheless, this is around 25% lower than pre-crisis levels. At the same time, facility construction boomed in 4Q09, but only because buildings are typically put into operation at the year-end. Thus, the construction process slowed as widely expected in 2010 due to the extremely cold winter.

Hence, when other drivers are sluggish, an effective state stimulus policy becomes more important. However, analysis of the federal budget indicates that any build up in spending is no longer possible. Moreover, if the current budget policy remains intact, we believe Russia could face a budget crisis depending on the market situation for major export goods.

As Figure 25 shows, the oil price is the key factor for the stability of the Russian budget.

Figure 25: Budget revenues and deficit vs oil price, $/bbl 40 50 60 70 80 90 100 110

Oil-and-gas revenues 3,057.2 3,108.2 3,240.7 3,477.0 3,755.6 4,030.0 4,324.1 4,592.2 Non-oil-and-gas revenues 3,668.9 3,662.5 3,717.6 3,829.5 3,949.3 4,057.2 4,183.1 4,323.9 Budget revenues 6,726.1 6,770.7 6,958.3 7,306.6 7,705.0 8,087.2 8,507.2 8,916.2 Ministry of Finance estimate 6,950.2 Budget expenditures 9,967.7 9,934.8 9,901.8 9,868.8 9,852.4 9,835.9 9,819.4 9,786.5 Budget deficit, % GDP -8.0% -7.6% -6.9% -5.9% -4.9% -4.0% -3.0% -1.9%

Source: Rosstat

Importantly, the federal budget now only becomes balanced at much higher oil prices (above $100/bbl). So far, oil prices have moved to the budget’s advantage, but another metric – inflation – lowers budget revenues (see Figure 26).

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-0

9

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct-0

9

Nov-0

9

Dec-0

9

Jan-

10

Feb-

10



22

Figure 26: Budget revenues and deficit vs inflation 3.0% 5.0% 6.0% 7.0% 9.0% 11.0% 13.0%

Oil-and-gas revenues 3,477.0 3,477.0 3,477.0 3,477.0 3,477.0 3,477.0 3,477.0 Non oil-and-gas revenues 3,777.6 3,809.1 3,824.8 3,840.6 3,872.1 3,903.6 3,935.1 Budget deficit, % of GDP -6.3% -6.1% -6.0% -5.9% -5.7% -5.6% -5.4%

Source: Rosstat

Budget revenues could be approximately RUB100bn lower, as we expect inflation in 2010 to decline to 6-7% vs the 10% factored in the budget.

According to recent IMF publications, the success in fighting the crisis grossly depends on the flexibility of the main government policy tools – monetary and budget. This could imply a drastic lowering of interest rates and/or a sharp increase in budget spending.

In Russia, a monetary manoeuvre is impossible objectively, as the regulator has little power to influence interest rates in the de-facto currency control environment. Rather, the rates are impacted by currency inflow/outflow, which – based on the experience of 2008 – is often uncontrollable by the authorities. In this context, the main burden of the crisis in 2008-2009 fell on the federal budget, which at that time was perfectly ready for anti-crisis measures. This has changed.

As Figures 25 and 26 show, the government still runs the budget with a high deficit and does not plan to cut spending or increase revenues materially (for example, by heavier taxation of the gas and metals industries in line with the oil sector), . Furthermore, the federal budget now finances more than half of Pension Fund expenditure (see Figure 27) and this share is set to rise.

Figure 27: Pension fund budget balance

Source: Rosstat

Russia is now facing a rather hard choice, resembling the challenges of 1986-1988.

476.0 722.71,303.2

2,407.01,158.81,449.5

1,429.7

1,717.8

1,770.82,341.5

3,003.1

4,398.0

26.9%30.9%

43.4%

54.7%

0%

10%

20%

30%

40%

50%

60%

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

2007 2008 2009 2010

Federal budget (without transfer of unified social tax)Insurance payments (insured part) and unified social taxInsurance payments (fully-funded part)Other revenuesPension fund expendituresTransfers from federal budget, % expenditures



23

In order to be ready for a new price fall in the energy markets, the authorities should consider one or several steps aimed at increasing adaptability of the fiscal and monetary policy to imminent external shocks:

Liberalising the exchange rate will allow the CBR to pursue its policy independent of the currency market and assure financing of the wider economy and federal budget deficit at reasonable rates

Raising taxes on certain export sectors is a possibility as a dramatic reduction in expenditure on social services, national security and defence, is impossible in practical terms

Accordingly, raising the retirement age seems inevitable as the demographic environment indicates that the Pension Fund deficit will grow quickly and could get out of control by mid-decade

Abandon plans of sovereign external debt issuance and more actively tap the domestic debt market instead. With planned net borrowings in the domestic market at RUB568bn for 2010 and highly favourable market conditions, net borrowings stood at negative RUB30bn as of 17 Mar. At the same time, issuers such as Moscow City move significantly ahead of schedule, securing financial resources with repayments up to 12 years at rates lower than 8%. The Russian Ministry of Finance ignores the domestic market entirely, which runs counter to the concept of creating an international financial centre and also leads to serious macroeconomic risks due to the focus on external borrowings

In an environment of a persistent budget deficit and high dependence on commodity prices, it is important to ensure the highest degree of flexibility in terms of managing state finances. This is achievable only in the absence of external debt, while domestic debt could be:

1. Refinanced by the CBR at predictable rates

2. Monetised through inflation

3. When oil prices fall, external debt hinders rouble devaluation significantly, thus making it impossible to maintain the competitiveness of Russian manufacturers.

Arguing that OFZ placement will decelerate the inflow of credit into the economy does not work as Russian banks currently have over RUB1trn of free liquidity. They do not use these resources to lend to the economy but could invest in OFZs.

Finally, we note that at this point that Russia, in financial terms, is not ready for a new global crisis, which is inevitable, unfortunately. To change the situation, it needs to liberalise its currency policy, look at ways of cutting the budget deficit and avoid accumulating external debt.



24

Russian banks: Liquidity abundant, lending recovery still lagging Short-term liquidity in the Russian banking system can currently be characterised as more than comfortable and even excessive, as the banks are continuing to experience significant deposit inflows, while the possibility of investing this liquidity remains scarce. One of the key reasons for this abundant liquidity is a large gap between short-term rates, which have recently come down quite significantly, and long-term rates, which remain elevated. Overall, at this stage, the banks are ready and willing to increase lending, while demand from corporate borrowers remains sluggish due to still-high lending rates. This temporary gauge at this stage is filled by the rouble market which continues to show explosive growth rates. However, as funding costs for the banks continue declining under pressure from the CBR, we expect lending growth to catch up in 2H10.

There are a number of ways to look at the liquidity situation in the Russian banking system. The most revealing angle now, in our view, is through the utilisation of various liquidity channels provided by the regulators (CBR and the Ministry of Finance [MinFin]). During January and February, the banks continued to steadily repay their liabilities to the CBR, reducing the total amount of obligations to regulators by approximately RUB460bn.

As of the end of February, the total amount of outstanding CBR and MinFin liquidity facilities (not including subordinated loans and other long-term financing) utilised by Russian banks stood at RUB407bn. This is quite an insignificant figure, almost fully covered by commercial bank deposits held with the CBR (RUB387bn as of 1 Mar), which on a system-wide level could be repaid without putting any material pressure on the banks’ short-term liquidity.

Figure 28: Banks assets/liabilities to CBR and MinFin, RUBbn

Source: CBR, Renaissance Capital estimates

On the aggregate level, the banking system has not only fully covered its liabilities to regulators, but has also placed significant amounts of excess liquidity in low-yielding government and CBR instruments (CBR bonds and deposits, sovereign OFZ bonds issued by MinFin), as shown in the chart above. Although this de-facto means a sterilisation of liquidity, we do not see this process as putting any significant

-3,500-3,000-2,500-2,000-1,500-1,000

-5000

5001,0001,5002,000

1-Ja

n-08

1-Ma

r-08

1-Ma

y-08

1-Ju

l-08

1-Se

p-08

1-No

v-08

1-Ja

n-09

1-Ma

r-09

1-Ma

y-09

1-Ju

l-09

1-Se

p-09

1-No

v-09

1-Ja

n-10

Assets Liabilities Net assets



25

pressure on the money market situation, as CBR bonds and deposits are mostly short term, while OFZ are eligible for refinancing with CBR repos, i.e. banks will be able to source liquidity against them, should the need arise.

Other confirmation of the strong liquidity situation in the Russian banking system is the fact that the massive bond issuance absorbed by the banks over recent months did not cause any significant increase in demand for repo operations. This means that the banks are currently ready to absorb sizable amounts of risk without the need to source respective funding from the CBR. We also note that de-facto monetary sterilisation (which came in the form of RUB41bn OFZ and RUB164bn CBR bond issuance) did not have a negative impact on the banks’ liquidity positions or on the short-term interest rate environment.

The banks’ lack of dependence on short-term liquidity supplied by the CBR has kept money market rates almost continuously below the targets set by the regulator. However, at this stage, while inflation remains low, the CBR seems to be comfortable with this situation.

Despite short-term interest rates staying very low, the aggregate funding costs for the banking system remain quite high due to a massive re-pricing of liabilities during the crisis, i.e. the interest rate curve remains extremely steep for the banks. In order to address this issue, the CBR started in summer 2009 to intervene in the banks’ policy of pricing their long-term funding sources.

Figure 29: Max RUB retail deposit rate at top-10 banks

Source: CBR, Renaissance Capital estimates

The CBR has the regulatory power to request a cut in retail deposit rates from any bank whose deposit rates exceed the average maximum rates of the 10 largest banks by more than 150 bpts, which is monitored on a weekly basis. So far, these efforts have produced quite positive results, with rates on retail deposits falling from 15% nine months ago to less than 11% presently. We believe this is very positive for the stability of the banking system, as it prevents redistribution of retail deposits in favour of the less financially stable institutions and also helps the banks to preserve their interest margins.

Most recently, the regulator has also started paying attention to the rates on corporate deposits, making similar efforts. Overall, the CBR is currently sending the market a clear signal that interest rates will continue falling for a long time. In our view, this is the crucial prerequisite for the long-awaited lending recovery and for

10%

11%

12%

13%

14%

15%

16%

Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10



26

growth in banking assets. These measures will definitely have a significant positive effect on funding costs of the banking system, although it will take some time to translate into a full-scale normalisation of the deposit market.

In our view, the main structural problem in the Russian banking system at the current stage is very depressed lending growth. In January, the aggregate loan book of the banking system fell 0.5%, a decrease of approximately $3bn. Although the January figure by itself might not be particularly revealing due to possible seasonal make-ups in the financials, loan book stagnation has been a problem for quite a long time now. In our view, such unimpressive dynamics can be explained by the unwillingness of the major corporate borrowers to attract money from banks at still-elevated lending rates. At the same time, banks are concerned about credit risk and remain very cautious about originating new loans to what can be characterised as Tier-3 and Tier-4 borrowers.

The situation in the retail lending segment is also very sluggish, and loan books have declined in every month of the past year. However, the reason for this is somewhat different in our view: weak consumer confidence and the lack of recovery in the labour market are affecting the population’s propensity to spend, limiting demand for consumer finance. On top of these factors, high interest rates are discouraging mortgage applications.

In our view, this problem has no immediate solution that would bring both retail and corporate lending growth rates back to positive territory over the span of a few months. A government initiative under which state-controlled banks – Sberbank, VTB, Russian Agricultural Bank, Gazprombank and VEB – were requested to demonstrate at least 2% loan book growth has confronted the problem that borrowers repay old debts faster than the banks can originate new loans.

We believe that this problem will be gradually solved by cheapening funding rates for the banks, and that the banks will need to place excessive liquidity even at moderate interest margins in order not to be faced with negative net interest income problems. As the decline in interest rates has accelerated over the past few months, we believe it is logical to expect a recovery in lending by summer 2010.

Despite the unimpressive dynamics in loan books, so far the banks have managed to demonstrate some moderate growth in their working asset bases on the back of rapidly growing loan portfolios.

Initially, this trend was mostly driven by the banks’ concerns regarding the liquidity situation and future availability of funding, as these risks for bondholders are mitigated by availability of refinancing through CBR repos. As the bond market reopened, almost all rated Russian Tier-1 and Tier-2 corporates tapped this source at least once with primary bond placements. Federal and regional governments have also been quite active borrowers in the rouble bond market. Although, as we mentioned above, liquidity is not currently a major point of concern for the Russian banks, the bond market still massively outperforms direct lending in terms of volumes. There are two key reasons for this, in our view: 1) the bond market has the potential to offer better interest rates to borrowers due to the fact that the CBR easing cycle is not over yet; and 2) under the rouble bond framework, borrowers are not requested to pledge their assets (as they are usually requested to do when obtaining loans), which makes this instrument more attractive for borrowers.



27

There was a significant slowdown in new corporate bond issuance in January and February, which can be fully attributed to some regulatory changes requesting most issuers to make some changes in bond documentation. Primary issuance is already recovering quickly. Overall, we expect that, going forward, Tier-1 and Tier-2 borrowers will use the local bond market more frequently than before the crisis, and that this market segment will continue to outperform. At the same time, we think primary issuance from Tier-3 borrowers is likely to be more limited in the coming months because most investors learned from the crisis that the unsecured bonds of smaller companies put their holders in a weak position relative to the banks in any workout or restructuring process.

Nikolay Podguzov +7 (495) 783-5673 [email protected]


28

The rouble bond market has remained in good shape early this year. The rally in the domestic bond market continued through 1Q10, with bond yields dropping 120-170 bpts and approaching their pre-crisis levels. For example, the yield on Moscow-56 (maturing in 2016) dropped to 7.6% from 9.3%.

Pre-crisis levels achieved. As rouble bond yields have moved closer to pre-crisis levels, the temptation to take profits has increased. However, we note that all supportive factors for the domestic bond market are still in place, and we think they are unlikely to disappear in the next three-to-six months.

What next? Rouble bond yields, while currently low in absolute terms, do not look too expensive against running inflation, current key CBR interest rates and NDF rates. Moreover, in an environment where the CBR is likely to continue cutting rates in order to drive economic recovery, we think rouble bond yields could continue to tighten.

The rally looks likely to continue. We expect a further 100-150 bpts drop in OFZ and high-grade bond yields by mid-year, and see the greatest value in longer-dated government bonds.

AIZK bonds: A top first-tier pick. In the quasi-sovereign rouble bond universe, we expect AIZK (Mortgage Agency) bonds to outperform. Specifically, we draw investors’ attention to AIZK-12, AIZK-13, AIZK-14 and AIZK-15, coupon payments on which are linked to the CBR refinancing rate.

Metals and mining bonds to outperform further Our full list of rouble bond recommendations, including higher-yielding unrated bonds, is set out in Figure 35. We put the strongest emphasis on metals and mining bonds, where we see the greatest upside potential.

The rouble bond market has remained in good shape early this year. The rally in the domestic bond market continued through 1Q10, with bond yields dropping 120-170 bpts and approaching their pre-crisis levels. For example, the yield on Moscow-56 (maturing in 2016) dropped to 7.6% from 9.3%. Despite a slow start to the year, due to a long winter holiday season, the primary market is gaining momentum with almost RUB200bn of government and non-government rouble bonds having been placed YtD. The average maturity of placed bonds increased dramatically through 1Q, with most issuers currently favouring three-to-five-year instruments, rather than the one-to-three-year bonds they were able to place in 2009. City of Moscow offered investors a pioneering 12-year rouble bond at auction, setting the yield at 7.69%. Overseas demand for rouble-denominated assets is also increasing, on the back of renewed rouble appreciation expectations. State-owned Russian Agricultural Bank (RSHB) tested this demand with the smooth placement of a RUB30bn three-year eurobond yielding 7.5%. The current upswing in the domestic bond market has recently been supported by the following factors:

CBR interest-rate policy aimed at promoting economic activity. The Central Bank of Russia (CBR) slashed its key interest rates by 400 bpts in 2009 and has continued its easing cycle in 2010, with a further 50 bpts cut delivered in 1Q10. Most recently, on 26 Mar, the central bank reduced its

2Q10 rouble bond market outlook


29


key overnight minimum auctioned repo rate by 25 bpts, to 5.50%; and renewed its overnight depositary operations, setting the rate at 2.75%. The decision was taken on the back of a further slowdown in inflation. According to the CBR, YoY inflation stood at 6.9% as of 22 Mar vs 7.2% as of Feb 2010. The CBR sees no significant risk of acceleration in inflation this year (although we think inflation might start to pick up in about 4Q). We think the CBR’s main goal at the moment is to promote greater economic activity and internal demand; the regulator considers the current trend of the economic recovery rather unsustainable. A second goal is to reduce the incentives for speculative inflow. We expect more rate cuts and we forecast that the key overnight repo rate will be reduced to 4.75-5.00% by mid-year.

The rouble is appreciating again. As commodity markets have demonstrated a further recovery, driving Russia’s current account deeper into surplus (we estimate a surplus of USD15bn in 1Q10, vs USD7.0bn in 1Q09) the rouble has regained popularity among investors. The rouble/basket rate approached the CBR bid level of 35.0 in mid-February, and the CBR had since had to participate in currency trading with dollar purchases almost every day – gradually shifting its bid level to 33.90 in 5-kopek steps, and respectively accumulating an additional USD16-18bn in its reserves. The CBR’s reserves reached a year-high of USD448.2bn on 25 Mar.

Abundant rouble liquidity. Massive CBR currency purchases were the main reason for a significant recent increase in banking sector liquidity. The average level of the cumulative banks’ balances on correspondent accounts and deposits with the CBR amounted to RUB1.1trn in 1Q10, vs RUB750bn in 2009 and RUB870bn in 4Q09. As a result, banks’ usage of CBR refinancing facilities reduced sharply. Banks have almost fully repaid the most expensive unsecured loans that were actively provided by the CBR at the start of last year. This category of banks’ liabilities reduced from more than RUB1.9trn as of Mar 2009 to RUB69bn as of end-1Q10 (RUB190bn as of start of 2010). Overnight money market rates dropped to 2.5-3.5% in 1Q with repo rates against most liquid government bonds and corporate issues settled at 3.0-3.5%.

Figure 30: Banking system liquidity

Source: CBR

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10

Deposits Correspondent accounts



30

As rouble bond yields have moved closer to pre-crisis levels, the temptation to take profits grows. However, we note that all the aforementioned support factors for the domestic bond market are still in place, and we think they are unlikely to disappear in the next three-to-six months, which is likely to frustrate any attempt to push the market lower from its current, relatively expensive levels. Figures 31 and 32 illustrate our rouble bond market outlook by comparing current domestic bond market parameters with those seen in the market in 1Q08. Figure 31 plots the main rouble bond curves as of 30 Mar, and Figure 32 plots the same curves as of 1 Feb 2008 – the date on which the CBR, for the first time in modern Russian history, hiked the key overnight repo rate from 6.0% to 6.25%.

Figure 31: Rouble bond yields as of 30 Mar 2010 Figure 32: Rouble bond yields as of 1 Feb 2008

Source: MICEX, Renaissance Capital estimates Source: MICEX, Renaissance Capital estimates

Comparing Figures 31 and 32, we make the following observations:

Currently, YoY CPI stands at 6.6-6.7% (Renaissance Capital estimate), vs 12.6% at 1 Feb 2008.

The CBR’s repo rate currently stands at 5.5%, and we forecast it will be slashed a further 50-75 bpts over the next three-to-six months. The same rate at the start of Feb 2008 stood at 6.0% and was hiked to 7.0% over the following few months.

The OFZ curve is currently almost exactly where it was around two years ago. However, it is slightly steeper at the moment, with longer-dated OFZ yields 50-70 bpts higher vs pre-crisis levels.

OFZ yields currently provide a 30-100-bpt positive spread over NDF rates, which was absolutely not the case for the domestic market in 1H08. Besides, the positive spread between OFZ and the CBR’s key repo rate is much wider (50-120 bpts for OFZ with durations longer than one year) than at 1 Feb 2008, when only longer-dated government bonds provided a small (up to 30 bpts) premium over the repo rate.

The current positionings of the City of Moscow, Gazprom/Russian Railways (high-grade) and telecoms curves relative to the government bond curve are roughly the same as before the crisis.

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0

%

Duration, years

TelecomsRZD City of Moscow

OFZ

NDF curve

CBR key overnight REPO rate - 5.50%

Expected CBR key overnight REPO rate in 6m time- 4.75-5.00%

CPI Y-o-Y: 6.6-6.7%

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0

%

Duration, year

CBR key overnight REPO rate in 6m time- 7.00%

CBR key overnight REPO rate - 6.00%

City of Moscow OFZ

NDF curve

Telecoms

Gazprom

CPI Y-o-Y: 12.6%


31


In light of the above, we make the following conclusions:

Rouble bond yields, while currently low in absolute terms, do not look too expensive against running inflation, current key CBR interest rates and NDF rates. Moreover, in an environment where the CBR is likely to continue cutting rates in order to drive economic recovery, we think rouble bond yields could continue to tighten.

We expect a further 100-150 bpts drop in OFZ and high-grade bond yields by mid-year, and see the greatest value in longer-dated government bonds.

In the quasi-sovereign rouble bond universe, we expect AIZK (Mortgage Agency) bonds to outperform. Specifically, we draw investors’ attention to AIZK-12, AIZK-13, AIZK-14 and AIZK-15, coupon payments on which are linked to the CBR refinancing rate. We model coupon schedules for these instruments assuming a gradual CBR decline over the next few months. Our estimates (which we regard as conservative) indicate that AIZK floating-coupon bonds offer up to a 120-bpt premium over fixed-coupon AIZK bonds.

Figure 33: AIZK floating-rate bond to outperform

Source: MICEX, Renaissance Capital estimates:

Figure 34: Floating-rate AIZK bonds

Bond Price, % of par Yield, % Duration,

years Issue volume,

RUBmn Volume outstanding,

RUBmn Coupon rate, %

Coupon period, days

Premium over CBR refinancing rate, bpts

AHML-12 105.75 8.75 2.97 7,000 7,000 10.25 182 250 AHML-13 106.05 9.4 5.34 7,000 7,000 10.25 182 250 AHML-14 106.01 9.72 7.1 7,000 7,000 10.25 182 250 AHML-15 106.49 9.76 8.83 7,000 7,000 10.25 182 250

Source, MICEX, Renaissance Capital estimates

Our full list of rouble bond recommendations including higher-yielding unrated bonds is set out in Figure 35. We place the strongest emphasis on metals and mining bonds, where we see the biggest upside potential.

AIZK-12

AIZK-13 AIZK-14 AIZK-15

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

%

Duration, years

OFZ yield curveAIZK fixed coupon yield curve

100-120bpts



32

Figure 35: Rouble bond top picks

Instrument Price, % of par YTP/YTM, % DtM/DtP, years

Issue size, RUB mln.

Coupon rate, %

Maturity date

Put option expiration date (at par)

Rating (S&P/Moody's/Fitch)

Sovereigns OFZ 46014 101.45 6.87 4.37 58,290 8.000 29 Aug 2018 BBB/Baa1/BBB OFZ 46017 100.50 6.76 4.80 80,000 7.500 03 Aug 2016 BBB/Baa1/BBB OFZ 46018 100.60 7.24 7.42 128,934 8.500 24 Nov 2021 BBB/Baa1/BBB OFZ 46020 95.95 7.41 11.83 116,911 6.900 06 Feb 2036 BBB/Baa1/BBB

Metals and mining Evraz-1 100.00 9.34 1.86 10,000 9.250 13 Mar 2020 26 Mar 2012 B/B2/B+ Evraz-3 100.00 9.46 2.68 5,000 9.250 13 Mar 2020 26 Mar 2013 B/B2/B+ Sibmetinvest-1,2 113.00 10.12 3.43 20,000 13.500 10 Oct 2019 20 Oct 2014 B+/ -- / -- CHTPZ, BO-1 104.85 13.58 1.47 5,000 16.500 04 Dec 2012 08 Dec 2011 -- /Withdrawn/ --

Oil and gas Bashneft-1,2,3 107.60 9.48 2.33 50,000 12.500 13 Dec 2016 21 Dec 2012 -- / -- / --

Banks and financials MDM Bank, BO-1 109.80 8.73 2.28 5,000 12.750 29 Nov 2012 BB-/Ba2/BB- Petrocommerce-05 109.99 8.72 2.33 5,000 12.750 21 Dec 2014 24 Dec 2012 B+/Ba3/ -- RCCF-2 105.02 12.20 0.48 3,000 22.000 04 Apr 2012 15 Oct 2010 B-/B3/CCC Vostochny Express, BO-1 102.15 10.29 0.91 1,000 12.500 07 Mar 2013 15 Mar 2011 -- /B3/ -- AIZhK-10 100.85 8.11 4.80 6,000 8.050 15 Nov 2018 BBB/Baa1/ -- AIZhK-11 100.59 8.34 5.47 10,000 8.200 15 Sep 2020 BBB/Baa1/ -- AHML-12 104.78 9.07 2.97 7,000 13.250 15 Dec 2013 BBB/Baa1/ -- AHML-13 105.00 9.59 5.33 7,000 13.250 15 Apr 2018 BBB/Baa1/ -- AHML-14 105.10 9.85 7.08 7,000 13.250 15 May 2023 BBB/Baa1/ -- AHML-15 105.53 8.38 8.46 7,000 11.000 15 Sep 2028 BBB/Baa1/ -- Uralsib-Leasing-2 105.05 10.50 1.21 5,000 14.500 21 Jul 2011 -- / -- / -- Uralsib-Leasing-4 110.00 10.52 1.60 2,000 16.500 19 Jan 2012 -- / -- / -- Uralsib-Leasing-5 103.25 10.16 0.78 3,000 14.250 19 Jan 2012 26 Jan 2011 -- / -- / --

Chemicals Akron-2 106.05 9.79 1.39 3,500 14.050 19 Sep 2013 26 Sep 2011 -- / -- /B+ Akron-3 108.82 9.43 1.86 3,500 13.850 20 Nov 2013 25 May 2012 -- / -- /B+

Consumer and retail Det Mir-C-1 88.87 11.73 4.10 1,150 8.500 26 May 2015 -- / -- / -- Dixy-1 98.01 11.82 0.94 3,000 9.250 17 Mar 2011 -- / -- / -- Magnit-2 99.78 8.50 1.87 5,000 8.200 23 Mar 2012 -- / -- / --

Source: MICEX



33

Performance beyond expectations Ukraine has been the most dynamic in our universe over the past quarter with the year-end target of 750 for the PFTS already being exceeded and the index currently trading at 931, only 23% below its pre-crisis high. The market has welcomed the recent election results, breaking free from the headwinds of default fears, gas disputes, economic woes and election uncertainty that had pulled the index down over 4Q09.

Figure 36: PFTS rally

Source: Bloomberg

Election results While we can put some of the performance down to the base effect, Ukraine was the worst-performing equity market globally in 2009 and was still lagging the recovery of its CIS peers going into 2010, most of Ukraine’s outstanding performance so far in 2010 can be attributed, in our view, to the election results. We go into more detail later in this report, but it is clear to us that the market’s fears of a divisive and protracted power struggle between Yulia Timoshenko and Viktor Yanukovich were overplayed and a combination of supportive factors have been leapt on by investors eager to access one of the strongest re-rating stories in the CIS space.

Yanukovich victory The election was a relatively painless process and, despite the best efforts of the former prime minister, Timoshenko, Yanukovich’s inauguration proceeded largely without incident. More importantly post election, Yanukovich’s rapid consolidation of power, followed by the appointment of Mykola Azarov as prime minister has been welcomed. Azarov has a strong track record of reform and is widely seen as independent of the industrial lobbyists behind Party of Regions. We think he promises to be an effective anti-crisis manager, and we note his track record of clear, composed decision-making.

0

200

400

600

800

1,000

1,200

1,400

Feb-

06Ap

r-06

Jun-

06Au

g-06

Oct-0

6De

c-06

Feb-

07Ap

r-07

Jun-

07Au

g-07

Oct-0

7De

c-07

Feb-

08Ap

r-08

Jun-

08Au

g-08

Oct-0

8De

c-08

Feb-

09Ap

r-09

Jun-

09Au

g-09

Oct-0

9De

c-09

Feb-

10

PFTS 750 Target Price

Elections have proven a major driver to equity market performance

Ukraine



34

Appointment of Azarov Under Azarov, Ukraine has significantly improved relations with the IMF and indeed the renewal of relations with the IMF was one of Azarov’s key aims on his appointment. It now seems a certainty after further the IMF visits to Kiev at the end March that the final tranche of the $16.4bn IMF loan will be made available underpinning the recent equity market performance.

Sovereign risk spread contraction Ukraine sovereign risk has continued to narrow, through the past quarter, which has proven a major driver of equities. From a high of 5,383 in March last year, Ukraine CDS spreads now trade at 630. Still double the level of Greece and some four times higher than Russia, but still the downward trend is very marked. At the start of this year spreads were double what they are now. Ratings upgrades from both Fitch and S&P have helped. Fitch raised Ukraine’s outlook to Stable from Negative and affirmed the country’s long term currency rating at B- on 17 Mar. S&P upgraded Ukraine to B- on 12 Mar.

Figure 37: Ukraine foreign currency long-term debt Rating Effective

B- 11-Mar-10 CCC+ 25-Feb-09

B 16-Feb-09 B 24-Oct-08

B+ 15-Oct-08 B+ 12-Jun-08 BB- 11-May-05 B+ 20-Jul-04 B 21-Dec-01

Source: Bloomberg

Figure 38: CDS spreads

Source: Bloomberg

PFTS target price After such a strong rally YtD, we would not be surprised to see some profit-taking from these currently elevated levels. As we move through the election cycle we see the potential for further support for the market should the IMF make good on its final

0

1,000

2,000

3,000

4,000

5,000

6,000

Feb-

06Ap

r-06

Jun-

06Au

g-06

Oct-0

6De

c-06

Feb-

07Ap

r-07

Jun-

07Au

g-07

Oct-0

7De

c-07

Feb-

08Ap

r-08

Jun-

08Au

g-08

Oct-0

8De

c-08

Feb-

09Ap

r-09

Jun-

09Au

g-09

Oct-0

9De

c-09

Feb-

10Ukraine CDS spreads PFTS



35

tranche, as we believe it is now almost certain to. However, after a 64% rally YtD, we believe that much of this news is already priced in and would not be surprised to see some short-term volatility. We also think that Ukraine continues to face the inherited dangers of the fallout over peripheral Europe. In the past quarter, with the market mostly focused on the election cycle, external shocks have not proven a factor, (indeed Ukraine CDS spreads have actually declined during the Greek crisis). However, as we move through the election cycle, with the obvious catalysts subsiding, we would not be surprised to see Ukrainian equities correlate more closely with their CIS cousins. Nonetheless, it is clear that the backdrop for Ukraine is improving and we expect long-term growth in the equity market should continue to be underpinned by a further decline in risk spreads back to more normalised pre-crisis levels of around 150, as they do so should provide a major underpinning to the next leg of equity market performance. With the PFTS currently trading at 931 our DCF-derived model yields 9% upside potential to current prices, which implies a revised year-end target price of 1,015 from 750.

Alexei Moisseev +7 (495) 258-7946 Anastasia Golovach [email protected]


36

Political stability gets a fighting chance Victor Yanukovych won the Ukraine presidential election held in Feb 2010 and has managed to rapidly consolidate political power. Pro-presidential Party of Regions has become the core of the new ruling coalition in parliament and Yanukovych has appointed a new government consisting mainly of his allies. The new cabinet largely comprises Party of Regions’ members who have worked together for a number of years – a factor we think promises much more effective teamwork than we have seen in recent times (for more details, please view our note, Ukraine: Political stability gets a fighting chance, dated 12 Mar).

Newly appointed Prime Minister Mykola Azarov is one of the most experienced governors in Ukraine in terms of budget management, in our view, a factor we regard as very important given Ukraine’s economic situation. Azarov was head of the Rada’s budgetary committee, and headed the state tax administration for six years (the longest term in Ukraine’s history). Under his stewardship, Ukraine’s policy on tax collection was very tight and the country’s black economy shrank significantly (although the level of bureaucracy remained high). He was the first deputy prime minister and minister of finance in Yanukovych’s cabinet over 2002-2004 and 2006-2007. Under Yanukovych’s and Azarov’s direction, economic reforms were implemented covering fiscal matters, taxation, pensions and regulation. Azarov seems to be more or less independent of Party of Regions’ industrial lobbyists. We think he will be an effective anti-crisis manager, and we note his track record of clear and composed decision-making.

Volodymyr Stekmakh, head of the National Bank of Ukraine (NBU), will remain in office, as Yanukovch announced that there are no plans to change this position. We regard this as positive.

First steps of the new government The government will face many challenges with regard to public finance. The financial crisis seriously deteriorated the budget’s performance, lead to a high deficit of the Pension Fund and state-owned Naftogas. The population is still unwilling to return its money to the banking system yet, and the banks are not issuing new loans to the economy at affordable rates.

At the same time, recent speeches by key governors lead us to believe that they are fully aware of the problems of Ukraine’s economy and are committed to resolving them. The new prime minister has promised that a realistic budget up to mid-April will be submitted and that cooperation with the IMF will be renewed.

The new government is only a few weeks old and in this period it has singled out areas for further action and economic reform. Key among which are:

The budget. Azarov has said that the state coffers are empty, and that renewal of cooperation with the IMF is therefore important. He also noted his hope that the IMF would resume lending to Ukraine, with the standby programme broadened and reviewed to reflect current realities. The new government has already made some progress in working out the 2010 budget. First, it reviewed the macro forecasts on which the budget will be based. Real GDP growth is expected at 3.7%, and inflation at 12.2%, which

Ukraine: Mostly good news



37

seems to us to be more realistic. At the same time, despite Azarov previously saying that the budget deficit should be reduced through the optimisation of state spending, in reality the government currently seems to be cutting capital expenditure. According to the published information on the 2010 budget draft, the main difference of the new budget compared with those suggested by Tymoshenko’s cabinet, is that the new authorities envisage additional budget revenues for 2010 (an increase of some taxes and excises, and implementation of a tax on luxury goods). Overall the planned deficit of the central budget is expected to be at UAH65bn or about 6% of GDP. According to Azarov’s statement, made after negotiations with the IMF, the fund agreed this size of the budget deficit.

Privatisation is expected to be an important source for covering any gaps in the budget. According to Deputy Prime Minister Sergiy Tygypko, the government this year expects to receive at least UAH10mn from privatisation. It was publically announced that among the companies that will be offered to investors are: Ukrtelekom, Luganskteplovoz, utility companies and banks which were recapitalised by the state last year.

Review of gas agreements with Russia. One of Yanukovych’s election promises is to reduce the price of purchasing gas. A Ukrainian delegation visited Moscow for talks to adjust the gas price agreement. There is a chance that Ukraine will negotiate a discount in exchange for Russia’s participation in Ukraine's gas transit network. According to Deputy Prime Minister Andriy Kluyev, the law on gas transit system concessions after the creation of a gas transit consortium is nearly ready. He noted that, in this case, the gas transit system will continue to be owned by the state. At the same time, the government sees a greater opportunity to attract funds for modernisation of the network from the European Union and Russia, and ensure stable gas supplies to European countries.

Renewal of cooperation with the IMF Azarov, in his first speech following his appointment, said that Ukraine will fulfill all its obligations to the IMF. Last year, the main obstacle to the IMF’s disbursement was that Ukraine did not meet the fund’s requirements on the budget deficit in 2010 as parliament voted for an increase in social spending.

The IMF’s technical mission started to work in Ukraine mid-March. It is consulting government on the 2010 budget draft. The IMF mission, headed by Thanos Arvanitis, was in Kiev during 24 Mar to 2 Apr. After the negotiations, Azarov announced that he expects to have a new programme with the IMF in place in May. The IMF representatives mentioned significant progress in negotiations with Ukraine; however, a few issues remain. The IMF will continue discussions with Ukraine authorities in coming weeks. We believe Ukraine currently has a high chance of reaching an agreement on all the remaining issues with the fund.

After the rather long break in the IMF’s standby programmne, it is likely to be seriously reviewed. We believe the timetable and size of the next tranches will be changed. Ukraine has already received about $10.5bn of the IMF loan with about $5.8bn to be disbursed this year. This volume will likely to be split into two or three separate tranches.



38

IMF funds are expected to be the main source to cover the budget gap this year. The World Bank’s programme is also linked to the IMF’s , which in the case of renewal of cooperation with the IMF, plans to inject $850mn for state projects in 2010.

Upgrade of Ukraine's sovereign rating and rally in the bond market On 12 Mar, soon after the new government was appointed, S&P upgraded Ukraine's sovereign rating to B- from CCC+; S&P also maintains its Positive rating outlook. Ukraine's S&P rating is now in line with Fitch (B-) and one notch below Moody's rating (B2). S&P explained that the decision reflects "the greater likelihood of stronger policy coordination to restore economic and, in particular, fiscal sustainability" after the formation of a governing coalition and appointment of a prime minister. This was the first positive rating action on Ukraine of the past few years. On 17 Mar, Fitch revised Ukraine's outlook from Negative to Stable; and affirmed it at B-. Fitch highlighted that the passing of elections and formation of a government have lessened the risks of a prolonged period of post-election policy uncertainty and further intensification of macroeconomic and financial instability.

Investor sentiment on Ukraine has notably improved resulting in a strong rally in the sovereign eurobonds segment. Ukraine 13 gained over 10 ppts in the past month with its yield dropping to a pre-crisis level of 7%. Demand for local sovereign bonds has also improved significantly. Despite its main driver recently was increasing hryvnia-liquidity of the banking system and lack of other interesting instruments, the interest of foreign investor is growing very quickly. The volume of bids for local government bonds reached a record high of UAH9.3bn at the primary auction at the end of March. At the last primary auction on 30 Mar, the Ministry of Finance managed to place the record for the single auction amount of OVDP of UAH3.3bn .

Improvement in real sector indicators Ukraine’s real GDP dropped 15.1% YoY in 2009 to about $113bn. The slide in GDP was triggered by a 26% YoY decline in the processing segment (which comprises 17.9% of GDP) and 17.9% YoY in retail trade and repayment (15.4% of GDP). Last year, the agriculture and financial segments were the only sectors posting growth of 0.2% YoY and 14.4% YoY, respectively.



39

Figure 39: Dynamic of GDP structure

Source: State Statistic Committee

The decrease in capital investments more than doubled in 2009, compared with 2008 (construction declined 48.3%YoY), due to a virtual lack of bank loans to the economy, while foreign investors were constrained by the unpredictable political situation. The decline in household consumption (64% of GDP) reached 14.1% YoY in 2009, while the contraction in government’s spending (19.3% of GDP) was comparably lower at 9.6% YoY.

The main driver of GDP growth in 2010 should be growth in industrial production driven by the recovery in the global markets and a very low base for comparison. Industrial production grew 8.8% YoY for the first two months of the year. Despite rather high MoM increases in most sectors (over 15% MoM), the decline in February was posted by the key industry – metallurgy. Metallurgical output dropped 8.7% MoM in Feb and production of steel decreased 15.3% MoM. At the same time, we expect a further recovery of the global metals and mining markets to positively impact Ukrainian metallurgical sectors in the near future and expect the MoM dynamic in the sector to improve soon.

Figure 40: Dynamic of key DGP components, %

Source: State Statistic Committee

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

2007 2008 1Q09 2Q09 3Q09 2009

Agriculture Processing industry Retail trade and repayment

Transports GDP

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-0

9

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct-0

9

Nov-0

9

Dec-0

9

Jan-

10

Feb-

10

Industrial production, YoY Retail trade, YoYAgriculture, YoYYtD



40

In light of the current difficulties with the budget’s performance, we do not expect any serious growth in social spending. Therefore, the main driver of an increase in consumption this year should be peoples’ savings accumulated outside the banking system, which the National Bank of Ukraine (NBU) estimates to be $55bn. A renewal of capital investment is possible, but only after bank loans become available, in our view. The NBU’s new refinancing rules could help to resolve this issue. At the same time, we currently do not expect to see banks granting mortgage loans in Ukraine any time soon, which will hinder any notable improvement in construction.

We remain rather cautious in our 2010 GDP forecast of 2.1% YoY, which should be driven by the gradual improvement in global metals markets and the low base of comparison. According to the NBU’s preliminary estimates, real GDP grew 3.5% YoY in Jan-Feb 2010. The GDP dynamic has improved on the back of the low base of comparison and renewed demand for Ukrainian export. The NBU also mentioned that in February the improvement of GDP was slower than in January because a positive trend in industrial output is still not sustainable. The regulator also highlighted that in the next months the effect of the low base of comparison will be less visible.

Balance of payments – no risk for the hryvnia Ukraine’s balance of payments has improved since 2009 on the back of the decline in imports which appeared to be higher than the fall of exports and led to the deficit of the current account dropping to $1.9bn (vs $12.9bn in 2008). The deficit of the capital account was at $11.8bn which was lower than Ukrainian regulators expected initially.

The current account turned positive for Jan-Feb 2010 as the deficit in trade of goods declined to $0.3bn per month and was covered by growing services surplus. According to the NBU, exports grew 25.3%YoY in February, while imports increased only 4.1%YoY, seasonally adjusted imports declined 14% MoM.

Figure 41: Balance of payments breakdown

Source: NBU, Renaissance Capital estimates

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10

$mn

Current account balanceCapital account balanceNet currency intervantions by the NBU

Redemption of $700mn

sovereign eurobond

Usual post-elec

tionoutflow

of capital

Redemption of $500mn sovereign eurobond



41

For the past six months, the main pressure on the capital account has originated from high demand for foreign currency from the population and events, such as sovereign debt redemption and typical post-election outflows of capital. However, looking at the shape of these flows currently, it becomes increasingly evident that, much like in Russia in 2009, expectations of massive capital account outflows are highly unlikely to materialise as rollovers of external debt in the banking and corporate sectors reached as much as 76% and 97%, respectively. Though many of these rollovers are actually defaults, the point for the capital account holds true – money does not leave the country. A positive current account and a largely neutral – even without the IMF – capital account have manifested themselves through forex market dynamics: the USD/UAH remained stable for five consecutive months as the NBU supported it through modest interventions. The NBU’s foreign reserves amounted to $26.5bn as at the beginning of the year and then declined to $23.5bn as of 1 Mar. However, since mid-February, the supply of dollars has prevailed in the market. Ukraine’s foreign reserves grew $1bn to $25.1bn in March. Based on our estimates, last month the NBU bought over $1.5bn from the market on the back of a higher supply of currency from the population and exporters (please see Ukraine: The Hryvnia: What crisis? dated 29 Mar 2010). The NBU explained that it is currently buying the excess supply of currency from the market for two reasons: to support its reserves (the NBU is still selling currency from its reserves to secure gas payments) and to increase its monetary base in order to satisfy a growing demand for the hryvnia in the light of the recovery in economic activity. As a result, the monetary base grew 1.8% for Jan-Mar 2010, while in March it increased 4% MoM.

The NBU is again concerned about inflation, which was 3.5% YtD in February. We see three possible issues that may put pressure on CPI this year:

The need to increase gas tariffs for the population and utilities

Less prudent monetary policy and the monetising of OVDP by the NBU in order to finance the budget gap

An increase in PPI, triggered by increased global commodity prices

Accordingly, we think CPI is likely to exceed 10%, amounting to 13-14% YoY, for 2010. In this light, the NBU may hold back on a further decline in the key rate (10.25%) and will support the appreciation of the hryvnia in order to curb inflation.



42

Performance Kazakhstan has performed with a very strong correlation to the Russian RTS Index over the course of 1Q with the RENCASIA Index adding 8% over the quarter compared with the RTS’s gain of 9%. Much like Russia, Kazakhstan had a very strong start to January, racing to 716, just 19% shy of our year-end target price of 850. However, as with Russia, Kazakhstan was caught in the crosswind of question marks over Greek sovereign debt and Chinese monetary policy tightening leading to a volatile quarter, though the surge in commodity prices towards the end of the quarter provided another push for equities with the index currently trading at 722.

Figure 42: Kazakh equity market performance

Source: Bloomberg

Risk spreads Kazakh risk spreads continue to narrow, with CDS spreads now trading at 165, roughly in line with Russia, and roughly half the level they were at the start of the year. At the peak of the crisis, Kazakh CDS spreads reached a high point of 1,646.

Figure 43: Kazakhstan risk spreads

Source: Bloomberg

As we argued at the start of the year, we think a normalisation in the banking system will provide one of the most attractive access points to the Kazakhstan equity space in 2010. The banking sector’s reliance on external financing meant that

0

200

400

600

800

1,000

1,200

1,400

Feb-

06Ap

r-06

Jun-

06Au

g-06

Oct-0

6De

c-06

Feb-

07Ap

r-07

Jun-

07Au

g-07

Oct-0

7De

c-07

Feb-

08Ap

r-08

Jun-

08Au

g-08

Oct-0

8De

c-08

Feb-

09Ap

r-09

Jun-

09Au

g-09

Oct-0

9De

c-09

Feb-

10

Rencasia Index 850 Target Price

0200400600800

1,0001,2001,4001,6001,800

Jan-

08Fe

b-08

Mar-0

8Ap

r-08

May-…

Jun-

08Ju

l-08

Aug-

08Se

p-08

Oct-0

8No

v-08

Dec-0

8Ja

n-09

Feb-

09Ma

r-09

Apr-0

9Ma

y-…Ju

n-09

Jul-0

9Au

g-09

Sep-

09Oc

t-09

Nov-0

9De

c-09

Jan-

10Fe

b-10

Mar-1

0Russia 5 year CDS Greece 5 year DS Kazakhstan 5 year CDS

Kazakhstan


43


Kazakhstan’s credit crunch started a year early. The government has had considerable time to stabilise the banking system through a series of measures including, raising loan-loss provisions, injecting capital, adding deposits of state funds, debt restructuring, increasing deposit insurance and strengthening regulation and oversight. In 2010, we expect to see asset quality recovery and NPLs plateauing, which taken together will drive earnings and returns. We expect Halyk Bank’s earnings to triple in 2010, for example.

Competitive currency As our economics team highlight later in this report, the one-off devaluation of the tenge in Feb 2009 resulted in a 50% increase in exports YtD. Resource exporting companies have been clear beneficiaries of this trade and the predominant access point to Kazakhstan’s relatively competitive currency. ENRC for example has climbed some 30% since the start of the year. Though the tenge has been under pressure to appreciate through the year as the country’s current account dynamics improve it nonetheless remains on relatively competitive terms with its major commodity exporting neighbour Russia

Figure 44: Relative revaluations of rouble and tenge

Source: Bloomberg

Tenge revaluation As noted above, we expect the tenge to come under pressure to strengthen in 2010 through a combination of favourable current account dynamics, an improved debt profile and a growing preference for tenge deposits over dollars. Banks have successfully restructured, and reduced foreign debt obligations significantly through 2009, to $28.4bn (from $39.2bn at the start of 2008). As the appreciation trend continues, we think it should have a positive impact on the banks. As our financials team point out, Halyk Bank, our top pick in the banking sector at the start of the year, and which rose 14% over the quarter, should benefit though a combination of a larger dollar balance sheet; higher capital ratios, as risk-weighted assets decline and asset-quality support, as FX-denominated loans become more serviceable.

60708090

100110120130140

Feb-

06Ap

r-06

Jun-

06Au

g-06

Oct-0

6De

c-06

Feb-

07Ap

r-07

Jun-

07Au

g-07

Oct-0

7De

c-07

Feb-

08Ap

r-08

Jun-

08Au

g-08

Oct-0

8De

c-08

Feb-

09Ap

r-09

Jun-

09Au

g-09

Oct-0

9De

c-09

Feb-

10

Kazakh Tenge Russian Ruble Brazilian Real



44

Figure 45: Halyk Bank performance

Source: Bloomberg

Target price As credit markets have opened up and commodity prices improved, our implied equity-risk premium for Kazakhstan has fallen back to normalised, pre-crisis levels, from some 19% in February this year to 6%. As global credit conditions remain supported and domestic liquidity remains abundant we think the easing in risk spreads will continue to support the market , and we keep our year-end target price for the RENCASIA Index of 850, implying around 22% upside potential from current levels.

0

5

10

15

20

25

30

Dec-0

6

Feb-

07

Apr-0

7

Jun-

07

Aug-

07

Oct-0

7

Dec-0

7

Feb-

08

Apr-0

8

Jun-

08

Aug-

08

Oct-0

8

Dec-0

8

Feb-

09

Apr-0

9

Jun-

09

Aug-

09

Oct-0

9

Dec-0

9

Feb-

10

Alexei Moisseev +7 (495) 258-7946 Anton Nikitin [email protected]


45

At the end of 2009, Grigory Marchenko, chairman of the National Bank of Kazakhstan (NBK), announced a new exchange rate policy for 2010.

According to Marchenko, the NBK will continue to band-manage the exchange rate with KZT150/$1 set as a target level for 2010. The regulator revised the corridor from the previous KZT150±5/$1 which was set on 4 Feb 2009. Effective from 5 Feb 2010 until 20 Mar 2011, the lower limit is KZT127.5/$1 and the upper limit is KZT165/$1.

We take full note of Marchenko’s comments as his track record is impressive.

According to an official press release, tenge dynamics will depend, as in the past, on the euro and rouble exchange rates, the global commodities market and Kazakhstan’s balance of payments. Any revision of the newly set exchange-rate policy may be introduced if there is a significant long-term change in world currency and commodity market sentiment.

We also note that the NBK bought $1.7bn in February, to follow a $3bn purchase in November and over $1bn in January.

We see three main reasons for the tenge to remain under pressure to appreciate in the near future:

1. Favourable current account dynamics

2. An improved debt profile

3. The apparent shift of popular preferences from the dollar in favour of the national currency

The current account A one-off tenge devaluation of 20% in Feb 2009 helped to ease Kazakh foreign trade. Export volumes have risen more than 50% YtD and at a much faster pace than imports, especially in recent months. The trade surplus more than doubled from $0.8bn in Jan 2009 to $1.9bn in Oct 2009. On the back of this development, government officials expect Kazakh economic growth in 2009 to be 1-2% above the previous official forecast of 0.1%.

Kazakhstan: On the road to a stronger tenge



46

Figure 46: Goods trade, $bn

Source: NBK

The trade surplus has grown very rapidly as exports have rebounded and imports have not since July 2009 (Figure 46), underpinning a return to positive current account figures. The latter in 3Q09 was slightly negative ($500mn), showing a marked improvement after negative numbers in 1H09, and, continuing the trend, shifted straight into a sizeable surplus in 4Q09 (Figure 47).

Figure 47: Balance of payments, $bn

Source: NBK

Foreign debt repayments Foreign debt repayments are no longer a threat to reserves. As of the end of 2008, the banks had to repay $11bn in principal and interest in 2009. Acceleration of debts of BTA and Alliance Bank in 2009 initially made the situation more complicated. Currently, banking foreign debt at the macro level looks more favourable to us. According to Marchenko, the banking system’s foreign debt over 2009 was reduced to $28.4bn (from $39.2bn as of 2008E). Successful bank debt restructuring, which we think now looks very likely, will result in a write-off of about $10bn of external debt. Moreover, restructuring terms stipulate significantly prolonged principal repayments and reduced interest rates, which should further reduce pressure on the

0

1

2

3

4

5

6

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-0

9

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct-0

9

Nov-0

9

Dec-0

9

Jan-

10

Exports Imports

-3

-2

-1

0

1

2

3

4

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

Current account Capital account



47

country’s capital account. As is seen from Figure 47, the capital account has been in surplus as early as 2Q09.

Population preferences Over 2009, the share of foreign currency deposits grew 16 ppts to 57.8%. Moreover, average sales of foreign currency in cash amounted to $0.5-1bn per month. With a significant easing of further tenge devaluation expectations by the population, we would expect lower purchases of foreign currency in cash. The interest rate structure, where the rates on tenge deposits are 200-400 bpts higher than on foreign currency deposits, will stimulate individuals to shift their preferences towards the tenge and we would not exclude the conversion of FX deposits into local currency.

In recent months, the NBK has regularly stepped in at the lower end of the band as a result of a positive FDI-driven capital account and improvement on the current account side. Kazakhstan’s international reserves (including the National Oil Fund) have increased $5bn since June 2009, the largest proportion of which is attributed to Nov 2009. Thus, in order to avoid future interventions and undesirable inflationary pressure, the NBK was clearly motivated to respond to improved terms of foreign trade and a stronger growth outlook by expanding the exchange rate band. The asymmetric nature of the band move may reflect the regulator’s outlook with regard to the oil price, and it would appear that it expects a strengthening of the tenge to be more probable than a significant weakening.

Figure 48: International reserves, $bn

Source: NBK

Therefore, we maintain our forecast, calling for a notable appreciation of the tenge, as presented in Figure 49.

Figure 49: USD/KZT 2009 2010E 2011E 2012E 2013E 2014E

Eop 148 135 132 134 137 137 Pa 148 142 134 133 136 137

Source: Renaissance Capital estimates

0

10

20

30

40

50

60

Jan-

08Fe

b-08

Mar-0

8Ap

r-08

May-0

8Ju

n-08

Jul-0

8Au

g-08

Sep-

08Oc

t-08

Nov-0

8De

c-08

Jan-

09Fe

b-09

Mar-0

9Ap

r-09

May-0

9Ju

n-09

Jul-0

9Au

g-09

Sep-

09Oc

t-09

Nov-0

9De

c-09

Jan-

10Fe

b-10

National oil fund Net reserves


48

Valuations


50


51

Oil and gas

Country Reuters ticker Currency Price

29-Mar-10 MktCap,

$mn P/E EV/EBITDA Div. Yield, % EV/Proved reserves,

$/boe, 2009 EV/Production,

$/boe, 2009 2009 2010E 2011E 2009 2010E 2011E 2009 2010E Russia

Gazprom Russia GAZP.RTS USD 5.6 131,822 5.9 4.4 3.4 4.5 3.3 2.3 15.1 2.2 1.4 43.2 Novatek Russia NVTK.RTS USD 6.6 20,142 32.2 19.4 15.6 19.8 13.2 10.5 1.1 1.9 2.8 92.5 Rosneft Russia ROSN.RTS USD 7.96 76,422 11.7 8.2 8.5 6.8 5.1 5.0 1.2 1.4 4.0 105.9 LUKOIL Russia LKOH.RTS USD 57 47,652 6.4 6.6 5.1 3.7 3.6 2.7 2.3 2.4 3.0 63.2 TNK-BP Holding Russia TNBP.RTS USD 2.10 34,048 7.3 6.5 6.1 4.7 4.3 4.1 5.6 6.1 3.4 60.4 Surgutneftegas Russia SNGS.RTS USD 0.99 13,661 3.0 3.3 3.5 -0.2 -0.3 -0.8 3.2 2.9 -0.1 -3.1 Gazprom neft Russia SIBN.RTS USD 5.38 25,464 8.0 8.4 6.3 5.1 5.0 4.1 4.0 4.5 3.8 68.9 Tatneft Russia TATN.RTS USD 4.94 10,308 4.9 8.4 4.2 3.3 4.5 2.2 5.6 3.4 1.6 52.3 Cap-weighted average 8.8 6.9 5.9 5.6 4.4 3.5 7.3 2.6 2.5 63.9

Other GEM oil companies KazMunaiGas Kazakhstan KMG.L USD 24.2 11,144 6.3 7.7 6.7 3.0 1.2 1.1 19.9 3.7 16.1 71.4 Ukrnafta Ukraine UNAF.PFT USD 33 1,814 11.1 6.0 4.2 5.8 3.4 2.4 0.6 3.6 2.9 49.4 Petrochina China 601857.SS RMB 13 323,524 19.2 15.6 13.9 9.3 7.8 7.0 2.1 2.6 15.7 290.0 Petrobras Brazil PETR3.BR BRL 40 184,922 12.7 11.6 10.1 6.6 6.6 6.2 3.0 2.2 19.9 267.0 Sinopec China 386.HK CNY 5.58 130,944 14.8 13.9 12.7 7.9 7.3 6.7 3.7 3.7 40.8 471.8 ONGC India ONGC.IN INR 1,092 51,945 11.0 10.5 n/a 4.9 4.6 n/a 3.3 3.3 7.1 132.7 CNOOC China 883.HK CNY 11.26 73,664 17.4 12.7 11.4 9.8 7.4 6.6 2.4 3.0 28.6 372.5 Cap-weighted average 16.0 13.6 11.5 8.1 7.0 6.2 2.9 2.8 21.6 308.7

International oil companies ExxonMobil USA XOM.US USD 67 317,742 16.6 11.3 9.4 6.4 4.6 3.8 2.5 2.6 15.0 276.5 BP UK BP/.GB USD 9.4 175,813 12.5 9.6 8.2 5.8 4.8 4.2 6.0 6.0 11.1 139.3 Royal Dutch Shell Holland/UK RDSB.GB USD 27 175,848 13.2 9.2 7.5 6.0 4.7 3.8 6.2 6.7 14.1 174.0 Total France FP.FR EUR 43 135,100 11.4 9.1 7.9 4.9 3.9 3.3 6.0 6.2 14.7 185.2 Chevron USA CVX.US USD 75 151,088 14.6 9.4 7.3 4.9 3.7 2.9 3.5 3.7 13.7 162.8 ConocoPhillips USA COP.US USD 51 76,052 13.5 7.9 6.0 5.2 3.6 2.8 3.7 3.9 10.2 122.2 Cap-weighted average 14.1 9.8 8.1 5.7 4.4 3.6 4.4 4.6 13.6 195.7

International gas companies Quicksilver Resources USA KWK.US USD 14 2,344 15.5 14.7 10.4 8.6 7.6 6.0 0.0 0.0 13.2 303.7 Murphy Oil USA MUR.US USD 55 10,509 17.1 10.1 7.6 5.6 3.9 3.4 1.6 1.7 28.9 250.1 Devon Energy USA DVN.US USD 65 28,850 17.5 10.3 8.6 7.3 5.1 4.5 0.9 0.9 14.4 147.4 Chesapeake Energy USA CHK.US USD 23 15,175 9.9 9.8 8.1 6.7 6.2 4.9 1.3 1.3 13.5 193.5 Encana Canada ECA.CA USD 30 22,539 8.4 14.7 n/a 3.5 4.3 n/a 1.3 1.3 9.8 113.8 Pioneer Natural Resources USA PXD.US USD 54 6,288 n/a 32.5 18.1 10.6 6.8 4.9 0.3 0.3 9.4 202.3 Apache USA APA.US USD 100 33,588 17.8 9.7 7.7 6.5 4.4 3.4 0.7 0.7 15.6 191.5 Anadarko Petroleum USA APC.US USD 72 35,233 n/a 52.4 23.0 10.4 6.8 5.2 0.5 0.5 19.9 221.3 XTO Energy USA XTO.US USD 47 27,645 13.6 20.9 20.6 5.5 6.0 5.3 1.0 0.9 16.3 264.5 BG Group UK BG/.GB GBP 11.4 57,500 14.9 13.6 12.1 7.1 6.4 5.6 1.2 1.4 25.5 276.3 Cap-weighted average 12.2 17.3 11.7 6.8 5.7 4.6 2.4 2.4 18.3 216.1 Russian average to international gas companies -28% -60% -50% -18% -23% -24% 208% 7% -86% -70% Russian average to international oil companies -38% -30% -28% -2% 1% -2% 64% -43% -81% -67% Russian average to other GEM oils -45% -49% -49% -31% -37% -43% 146% -6% -88% -79%

Source: RTS, MICEX, Thomson financial, Company data, IBES, Renaissance Capital for estimates


52

Coal producers

Ticker Price,$ MktCap EV/Sales EV/EBITDA PE FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E

Russian coal producers Raspadskaya RASP RU Equity 7.1 5,544 11.3x 5.3x 3.7x 19.1x 7.4x 5.0x 65.5x 13.8x 9.5x Mechel MTL US Equity 28.75 11,968 2.8x 1.9x 1.5x 19.9x 6.7x 5.1x -238.6x 9.2x 6.4x Weighted average 4.9x 2.7x 2.0x 19.7x 6.9x 5.1x -142.4x 10.7x 7.4x

US and Australian coal producers Alpha Natural Resources ANR US Equity 50.62 6,123 2.4x 1.6x 1.3x 11.3x 6.5x 4.6x 46.1x 16.4x 10.6x Arch Coal ACI US Equity 23.38 3,799 2.0x 1.8x 1.4x 11.1x 8.1x 5.6x 57.9x 27.6x 12.5x Centennial Coal Company CEY AU Equity 3.81 1,501 2.3x 2.3x 1.8x 9.3x 9.7x 5.8x 25.2x 24.5x 13.1x Consol Energy CNX US Equity 42.66 7,739 1.9x 2.0x 1.7x 6.8x 6.6x 5.0x 14.5x 12.3x 8.7x International Coal Group ICO US Equity 4.74 849 1.1x 1.0x 0.8x 6.4x 5.6x 3.9x 42.1x 23.4x 9.4x Massey Energy MEE US Equity 54.27 5,165 2.2x 1.8x 1.4x 12.2x 7.9x 5.1x 53.0x 18.8x 10.6x Patriot PCX US Equity 20.78 1,888 1.0x 0.9x 0.8x 18.5x 11.9x 5.6x - - 21.6x Peabody Energy BTU US Equity 46.07 12,382 2.4x 2.0x 1.7x 11.3x 8.0x 5.9x 27.6x 15.8x 11.0x Weighted average 2.1x 1.8x 1.5x 10.7x 7.7x 5.3x 33.0x 16.5x 11.1x

Emerging markets coal producers Banpu BANPU TB Equity 0 0 1.0x 1.0x 1.0x 1.0x 1.0x 1.0x 0.0x 0.0x 0.0x Bumi Resources BUMI IJ Equity 18.62 5,060 3.4x 2.9x 2.3x 10.1x 9.5x 7.3x 11.7x 12.1x 10.0x China Shenhua Energy 1088 HK Equity 0.26 5,027 2.1x 1.9x 1.5x 6.4x 5.7x 4.4x 12.1x 12.9x 9.2x Tambang Batubara Bukit PTBA IJ Equity 4.42 86,020 5.0x 4.2x 3.7x 10.0x 8.5x 7.4x 17.7x 15.5x 14.0x Fushan Coal 639 HK Equity 1.91 4,395 4.0x 3.7x 2.9x 9.1x 9.2x 6.8x 14.1x 14.9x 11.5x Yanzhou Coal Mining 1171 HK Equity 0.77 4,141 6.9x 4.2x 2.8x 10.6x 7.0x 4.8x 19.3x 12.9x 10.3x Weighted average 4.7x 3.9x 3.4x 9.6x 8.2x 7.0x 17.1x 15.1x 13.3x

Source: Company data, RTS, Thomson, Renaissance Capital estimates


53

Steel

Price, $/sh

MktCap, $mn

EV/Sales, x P/E, x EV/EBITDA, x FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E

RUSSIA 2.7x 1.7x 1.4x -30.2x 10.8x 7.7x 19.0x 6.3x 4.8x Severstal $14.40 $14,511 1.6x 1.2x 1.0x -23.2x 13.2x 9.9x 24.4x 7.0x 5.9x NLMK $34.80 $20,856 3.7x 2.4x 1.8x 37.0x 10.1x 6.6x 16.4x 7.0x 4.7x MMK $12.50 $10,745 2.5x 1.4x 1.0x 41.8x 8.1x 6.7x 11.4x 4.5x 3.6x EVRAZ $41.50 $18,163 2.7x 1.6x 1.2x -18.0x 12.4x 8.9x 20.2x 5.7x 4.4x Mechel $28.75 $11,968 2.8x 1.9x 1.5x -238.6x 9.2x 6.4x 19.9x 6.7x 5.1x LATAM 3.7x 2.7x 2.2x 30.6x 15.5x 11.2x 17.5x 8.6x 6.5x Gerdau $15.80 $22,673 1.9x 1.6x 1.3x 40.8x 15.5x 10.6x 15.2x 8.1x 6.0x Usiminas $33.50 $17,164 3.1x 2.6x 2.2x 30.3x 15.3x 10.9x 22.2x 9.4x 7.0x CSN $40.00 $30,207 5.5x 3.7x 3.0x 23.0x 15.5x 11.8x 16.7x 8.5x 6.7x ASIA 1.4x 1.4x 1.2x 21.7x 16.5x 11.7x 9.1x 9.5x 6.3x POSCO $119.90 $41,275 1.8x 1.6x 1.4x 14.5x 9.7x 9.1x 9.0x 5.8x 5.2x Nippon Steel $4.00 $27,259 0.8x 1.1x 0.9x 15.7x - 13.9x 6.3x 12.4x 6.5x JFE $41.20 $25,338 1.1x 1.3x 1.1x 18.9x 59.6x 14.1x 7.6x 10.9x 6.3x Tata Steel $14.40 $12,741 0.7x 1.1x 0.9x 6.6x - 10.5x 5.5x 14.9x 7.0x SAIL $5.40 $22,509 2.2x 2.3x 2.1x 18.5x 15.5x 13.2x 11.0x 9.6x 8.1x China Steel $1.00 $13,540 3.0x 2.2x 1.9x 28.9x 13.3x 11.2x 21.9x 10.1x 8.5x Baoshan Steel $1.20 $20,498 1.2x 0.9x 0.8x 24.7x 13.8x 11.1x 7.5x 5.5x 4.5x Angang Steel $1.90 $12,581 1.6x 1.2x 1.1x 58.9x 15.0x 11.4x 13.5x 7.3x 5.8x Maanshan Steel $0.60 $4,777 0.9x 0.7x 0.5x 56.0x 13.7x 10.1x 7.7x 4.8x 3.6x EU/US 1.2x 0.9x 0.8x -8.3x 19.4x 10.4x 22.2x 8.0x 5.4x Nucor $46.00 $14,507 1.4x 1.0x 0.8x -44.5x 27.4x 12.5x 69.2x 9.9x 5.8x Thyssen Krupp $35.20 $18,091 0.4x 0.4x 0.4x -12.1x 36.2x 12.8x 26.3x 6.2x 4.5x Arcelor Mittal $44.80 $69,882 1.4x 1.0x 0.9x - 15.9x 9.3x 17.3x 7.7x 5.5x US Steel $64.90 $9,305 1.0x 0.7x 0.6x -6.5x - 10.8x -10.8x 11.6x 5.2x


Pipes

Price, $ MktCap, $mn EV/Sales EV/EBITDA PE FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E

TMK 21 4,583 2.6x 1.7x 1.3x 25.5x 7.8x 5.6x -11.6x 15.5x 8.2x Tenaris 43.5 25,683 3.0x 2.7x 2.1x 10.6x 9.7x 6.9x 21.9x 19.3x 12.5x Vallourec 204.6 11,722 2.0x 2.0x 1.6x 9.2x 11.2x 6.7x 17.4x 23.2x 12.7x Shandong Molong 1.3 426 1.5x 1.2x 1.0x 9.6x 7.7x 6.6x 10.4x 7.5x 6.5x Average 2.7x 2.3x 1.8x 13.0x 9.7x 6.6x 16.9x 19.8x 12.0x



54

Iron ore

Price,$ Shares, mn MktCap, $mn EV/Sales EV/EBITDA PE FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E

Russia Ferrexpo 5.4 589 3,180 4.2x 3.0x 3.0x 11.9x 6.3x 6.5x 16.9x 8.6x 7.7x Russia average weighted 4.2x 3.0x 3.0x 11.9x 6.3x 6.5x 16.9x 8.6x 7.7x

International peers Anglo American 42.6 1,316 56,063 3.0x 2.3x 1.9x 10.2x 6.3x 4.7x 20.8x 11.7x 8.9x BHP Billiton 34.1 2,207 212,301 4.4x 4.2x 3.4x 10.0x 9.0x 6.4x 24.3x 16.9x 11.6x Vale 32 3,257 162,391 7.2x 4.6x 3.7x 17.4x 9.1x 6.6x 29.2x 13.9x 9.7x Rio Tinto 58.8 1,526 133,891 3.7x 2.9x 2.5x 11.8x 7.0x 5.6x 23.1x 12.1x 10.1x International peers average weighted 4.9x 3.8x 3.1x 12.6x 8.2x 6.1x 25.1x 14.4x 10.4x Ferrexpo (Disc)/Prem to international peers, % -13% -20% -2% -5% -23% 6% -33% -40% -26%


Mining

Bloomberg ticker

Share price, $

MktCap, $mn

P/E, x EV/EBITDA, x 2008E 2009E 2010E 2008E 2009E 2010E

Russia Norilsk Nickel GMKN RU equity 181.15 34,526 14.5 17 12 7.4 8.1 6.3 Russia average 14.5 17 12 7.4 8.1 6.3

International peers Alcoa AA US equity 14.44 14,070 -361.9 -16.3 33.5 11 48.6 8.5 Anglo American AAL LN equity 43.39 52,152 11 50.7 21.8 8.2 16.3 10.9 Anglo Platinum AMS SJ equity 99.6 23,704 18.4 0 0 12.7 0 33.9 Antofagasta ANTO LN equity 15.71 15,487 32 31.7 17.2 4 17 9.5 BHP Billiton BLT LN equity 34.9 194,192 9.7 23.1 19.1 5.7 12.5 10.5 Vale RIO US equity 32 168,000 10.5 43.5 35.6 7.7 21.4 17.7 Freeport McMoran FCX US equity 82.88 35,628 14.9 14.6 9.9 5.9 6 4.7 Kazakhmys KAZ LN equity 23.47 12,564 9 62.2 22.2 6.2 16.5 9.3 Lonmin LMI LN equity 32.02 4,995 20.7 0 -151.4 7.5 0 47.3 Rio Tinto RIO LN equity 60.28 77,397 23.3 7.1 15.3 7.2 10.1 9.4 Southern Peru Copper PCU US equity 31.38 26,755 15.8 189.7 25.8 8.7 41.5 12.5 Vedanta VED LN equity 41.14 11,889 44.1 0 29.6 2.3 6.5 14.1 Xstrata XTA LN equity 19.06 46,575 6.2 42.3 20.6 10.7 13.5 9.2 International peers average 4.85 30.74 19.81 6.76 14.69 12.18 Russian average (Disc)/Prem to international peers, % 198% -45% -39% 10% -45% -48%


Aluminium

EV/EBITDA, x PE, x EV/sales Ticker Local price MktCap, $ FY10E FY11E FY10E FY11E FY10E FY11E CHALCO 14.1 6.7 24.8 8.2 3.1 1.8 2600 HK 8.13 $14,161 CENTURY ALUMINIUM 8.8 8.2 29.7 18.5 1.3 1.2 CENX US 14.59 1,038 ALCOA 9.6 6.6 15.8 14 1.5 1 AA US 14.44 14,070 HINDALCO 13.4 7.6 48.2 15.3 1 0.7 HNDL IN 185 6,983 NALCO 8.6 9.8 16 17.4 3 3.6 NACL IN 409.55 5,858 NORSK HYDRO 8.7 8.1 33.1 15.8 0.7 0.7 NHY NO 45.26 9,423 UC RUSAL 9.4 7.7 11.1 5.7 1.8 1.7 486 HK 8.95 17,448 Sector 11 7.9 26.1 13.4 1.9 1.4



55

Altnets EV/Sales Sales CAGR

2008-11E EV/EBITDA EBITDA CAGR

2008-11E P/E Earnings CAGR

2008-11E EBITDA margin

2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E Russian altnets

Comstar UTS 2.2 1.6 1.3 5% 5.6 4.0 3.1 5% -10.0 8.3 5.8 26% 40% 41% 43% International altnets

Completel 1.9 1.5 1.2 21% 13.2 8.1 5.9 75% na na na na 14% 19% 21% Tiscali 1.6 1.5 na 1% 6.1 5.6 na na na 20.5 22.0 -144% 26% 27% na Maxcom Telecomicacione 1.6 1.6 1.5 5% 7.6 7.9 7.7 na na na na na 21% 20% 20% Fastweb 1.3 1.1 1.0 4% 4.2 3.8 3.4 5% 17.2 12.7 9.8 48% 30% 30% 31% Kingston Communication 0.9 0.8 0.8 -4% 5.4 4.8 4.5 4% 9.5 8.6 7.4 13% 17% 17% 18% Qwest 1.7 1.7 1.6 -4% 4.6 4.6 4.5 -2% 15.8 16.1 15.4 -4% 37% 37% 36% Tele2 1.4 1.3 1.2 4% 5.9 5.4 4.8 6% 12.6 11.5 10.0 4% 23% 24% 25% GVT Holding 4.0 3.3 na na 10.0 8.0 na na 34.1 23.6 na na 40% 40% na Axtel 1.7 1.5 1.3 2% 4.9 4.2 3.7 2% 67.1 29.5 15.9 -201% 35% 35% 35% Globe Telecom 2.5 2.4 2.5 4% 4.5 4.3 4.4 3% 10.1 9.7 10.0 1% 57% 57% 56% International Avg. 1.9 1.7 1.4 4% 6.6 5.7 4.9 13% 23.8 16.5 12.9 -40% 30% 31% 30% Premium (Discount) of Comstar to Int. Ave. 20% -3% -4% -16% -30% -35% -142% -50% -55%

Pay TV operators British Sky Broadcasting 2.1 1.9 1.7 8% 10.2 8.6 7.2 14% 19.6 15.9 12.8 22% 20% 22% 24% Cablevision 2.3 2.1 2.0 -1% 6.3 5.8 5.5 3% 12.8 10.8 9.4 30% 36% 36% 36% Cogeco Cable 1.8 1.7 1.5 6% 4.6 4.2 3.7 4% na 11.0 9.3 na 39% 40% 39% DIRECTV Group 1.6 1.5 1.4 7% 6.1 5.5 5.0 11% 15.8 13.4 11.7 22% 26% 27% 27% Echostar Communications 0.7 0.6 0.5 6% 3.0 2.6 2.2 11% 5.1 4.5 3.9 20% 22% 23% 23% Net Servicos 1.1 0.9 0.9 18% 3.9 3.2 2.9 na 9.7 7.7 6.2 8% 29% 30% 30% Shaw Communications 3.1 2.9 2.8 7% 6.8 6.4 6.1 9% 14.6 13.1 12.0 9% 46% 45% 45% International Avg. 1.8 1.6 1.5 7% 5.8 5.2 4.7 9% 12.9 10.9 9.3 18% 31% 32% 32% Premium (Discount) of Comstar to Int. Ave. 24% -1% -12% -5% -23% -32% -177% -24% -38%

Source: Thomson, Bloomberg, Renaissance Capital estimates


56

RTOs EV/Sales Sales CAGR




2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E Russian Regional Fixed-line Operators

Center Telecom 1.9 1.6 1.4 -1% 4.2 3.5 3.4 0% 8.6 7.5 7.7 6% 46% 44% 42% Far East Telecom 1.2 1.0 0.9 1% 3.4 2.6 2.4 1% 6.1 4.6 4.3 9% 37% 36% 36% North-West Telecom 1.5 1.2 1.0 -1% 3.5 2.8 2.4 -1% 14.9 10.6 8.2 0% 42% 42% 41% Siberia Telecom 1.4 1.1 1.0 -2% 3.8 3.0 2.7 -1% 14.7 9.5 6.0 38% 36% 36% 36% South Telecom 1.8 1.5 1.5 -1% 5.1 4.3 4.1 7% 20.2 12.4 9.8 na 35% 35% 35% Uralsvyazinform 1.6 1.4 1.3 -3% 4.6 4.0 3.8 -3% 15.0 12.5 10.1 10% 36% 35% 35% Volga Telecom 1.4 1.1 0.9 -1% 3.4 2.7 2.4 0% 11.0 7.9 7.1 10% 40% 40% 39% RTO Avg. 1.5 1.3 1.1 -1% 4.0 3.3 3.0 0% 12.9 9.3 7.6 12% 39% 38% 38%

International Fixed-line Operators Emerging Markets

Bezeq 2.7 2.7 2.7 1% 6.7 6.5 6.3 5% 12.6 12.0 11.4 4% 40% 41% 43% Chunghwa 2.6 2.6 2.5 na 5.5 5.5 5.3 na 13.4 13.6 13.6 na 47% 47% 47% Hellenic 1.5 1.4 1.4 -1% 4.2 4.0 3.8 na 9.3 8.4 7.7 5% 35% 36% 36% Magyar Telecom 1.8 1.8 1.9 -2% 4.6 4.7 4.8 -2% 10.9 11.0 11.4 -3% 39% 39% 39% Telecom Indonesia 2.7 2.5 2.2 8% 4.8 4.3 3.9 8% 13.9 12.5 11.4 11% 57% 57% 57% TPSA 1.7 1.7 1.7 -2% 4.4 4.3 4.3 -1% 16.6 15.7 14.3 5% 38% 38% 38% Telecom Malaysia 1.8 1.7 1.6 3% 5.2 5.0 4.6 1% 23.2 21.5 19.9 -1% 34% 34% 35% Telefonica O2 CR 2.4 2.4 2.5 -2% 5.5 5.5 5.7 na 12.9 12.3 12.2 0% 43% 44% 43% Telefonos di Mexico 1.5 1.5 1.6 -1% 3.5 3.6 3.7 -3% 4.7 5.1 5.1 -4% 43% 43% na Telkom South Africa 0.7 0.7 0.7 3% 2.6 2.5 2.4 -1% 5.6 4.7 4.8 -9% 28% 29% na EM Avg. 1.9 1.9 1.9 1% 4.7 4.6 4.5 1% 12.3 11.7 11.2 1% 41% 41% 42% Premium (Discount) of RTOs to EM -21% -34% -39% -15% -28% -33% 5% -21% -32%

Developed Markets BT 0.9 0.9 0.9 -6% 3.4 3.2 3.2 9% 9.1 7.5 7.4 67% 27% 28% 27% DT 1.3 1.3 1.3 -1% 4.2 4.1 4.1 -1% 14.2 13.5 13.3 -1% 32% 32% 32% France Telecom 1.6 1.6 1.5 1% 4.7 4.6 4.5 -1% 9.8 9.5 9.4 1% 34% 34% 34% KPN 2.3 2.2 2.2 1% 5.6 5.6 5.6 2% 10.8 10.7 10.7 7% 40% 40% 40% Portugal Telecom 1.8 1.7 1.6 3% 5.0 4.8 4.5 4% 13.7 12.0 11.1 -1% 36% 36% 36% Swisscom 2.3 2.3 2.2 0% 6.0 5.9 5.8 0% 10.1 10.2 10.3 0% 39% 39% 38% Telecom Italia 1.8 1.7 1.6 -3% 4.4 4.2 4.0 -1% 7.7 6.9 6.6 -1% 41% 41% 41% Telefonica 2.2 2.1 2.1 1% 5.6 5.5 5.4 na 10.1 9.6 9.3 4% 39% 39% 39% Telenor 1.6 1.5 1.3 4% 5.6 5.0 4.5 5% 12.5 10.6 8.9 18% 28% 29% 30% DM Avg. 1.8 1.7 1.6 0% 5.0 4.8 4.6 2% 10.9 10.1 9.7 10% 35% 35% 35% Premium (Discount) of RTOs to DM -13% -26% -31% -19% -31% -34% 19% -8% -21%



57

Mobiles EV/Sales Sales CAGR




2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E Russian Mobile Operators

MTS 2.8 2.3 2.0 3% 6.1 4.8 4.1 2% 12.8 10.0 8.4 -1% 45% 47% 48% VimpelCom 2.8 2.2 1.8 5% 5.7 4.4 3.6 4% 16.4 8.8 7.0 28% 49% 50% 50% Russian Mobiles Avg. 2.8 2.2 1.9 4% 5.9 4.6 3.8 3% 14.6 9.4 7.7 13% 47% 48% 49% Premium (Discount) of MTS to VimpelCom -1% 4% 9% 7% 10% 15% -22% 13% 19%

International Mobile Operators Emerging markets

America Movil 2.6 2.4 2.3 8% 6.4 6.0 5.7 8% 13.1 12.1 11.0 12% 40% 40% 41% China Mobile 2.3 2.1 1.8 6% 4.7 4.4 3.7 6% 11.4 11.4 10.0 5% 49% 47% 48% Zain 3.2 2.8 2.5 12% 7.6 6.9 6.2 20% 19.0 15.5 14.0 10% 42% 41% 41% Millicom 2.6 2.3 1.9 11% 5.9 5.1 4.2 10% 15.3 13.4 11.4 -1% 44% 45% 45% Vodacom 1.6 1.5 1.3 7% 5.0 4.5 4.0 10% 10.3 9.3 8.4 18% 32% 33% 33% MTN 1.8 1.5 1.2 9% 4.4 3.6 2.8 10% 11.5 9.4 8.2 21% 41% 42% 42% Orascom Telecom 1.7 1.5 1.4 7% 4.1 3.6 3.2 6% 10.9 9.2 7.9 26% 43% 43% 42% Partner 2.6 2.6 2.5 2% 6.9 6.7 6.4 4% 11.2 10.5 10.0 4% 37% 38% 39% Turkcell 1.9 1.7 1.7 4% 5.5 4.9 4.7 7% 10.3 9.7 9.6 7% 34% 35% 36% EM Avg. 2.3 2.0 1.8 7% 5.6 5.1 4.6 9% 12.5 11.2 10.1 11% 40% 40% 41% Premium (Discount) of Russian Mobiles to EM 23% 8% 1% 5% -9% -16% 16% -16% -24%

Developed Markets AT&T Wireless 1.8 1.7 1.6 1% 5.2 4.9 4.7 na 11.9 11.0 10.2 na 34% 35% 35% Elisa 2.2 2.2 2.2 0% 6.5 6.4 6.3 1% 14.0 13.6 13.1 3% 34% 35% 35% Sonaecom 1.0 1.0 1.0 0% 5.5 5.1 4.7 4% na na na na 19% 19% 21% Taiwan Mobile 3.4 3.3 3.2 5% 8.0 7.7 7.5 6% 14.4 13.3 12.9 9% 43% 42% 43% Telefonica Moviles 2.2 2.1 2.1 1% 5.6 5.5 5.4 na 10.1 9.6 9.3 4% 39% 39% 39% Verizon 1.3 1.2 1.1 2% 3.8 3.5 3.2 3% 12.9 12.1 11.3 4% 33% 34% 34% Vodafone 2.5 2.4 2.4 4% 7.4 7.4 7.2 -7% 9.4 9.5 9.2 -2% 33% 33% 33% DM Avg. 2.1 2.0 1.9 2% 6.0 5.8 5.6 1% 12.1 11.5 11.0 3% 34% 34% 34% Premium (Discount) of Russian Mobiles to DM 35% 12% -4% -2% -20% -31% 20% -19% -30%



58

Media and IT

Company Country Bloomberg ticker Currency Target

price Target price

MktCap, $mn

P/E EV/EBITDA EV/Sales 2010E 2011E 2012E 2010E 2011E 2012E Russia Rambler Media Russia RMG LN USD 87 486.2 3.5 0 0 0.3 RBC Russia RBCI RM USD 35.62 7.7 174 3.4 0 0 0 0 Cap-weighted average 164.33 0.00 0.00 1.17 0.00 0.00 0.10 International Internet Companies Amazon.Com USD 60,178 37.0 27.9 23.2 21.7 16.9 12.9 1.7 Digital River USD 1,183 38.3 23.4 17.4 11.9 8.4 7 2.2 eBay USD 35,375 16.0 14.4 12.7 9.2 8.4 7.3 3.4 Google USD 180,673 20.3 17.4 15.0 12.2 10.5 8.9 7.5 Interactive Data Corp USD 325 15.7 15.8 10 9.3 1.8 Netease USD 4,693 12.8 11.0 11.4 8.3 7.1 7 4.5 Sina Corp USD 713 6.5 5.4 6.8 6 4.7 4.7 2.9 Yahoo Japan USD 212 24.0 21.8 19.8 12.2 11.1 10.3 6.8 Yahoo! USD 23,089 26.6 21.9 17.1 11.7 10.2 9.3 3.9 Cap-weighted average 23.48 19.35 16.43 13.60 11.42 9.48 5.53 International IT Companies ACP USD 1,525 12.1 11.3 10.9 7.5 7 6.8 1.6 Anite Group USD 145 21.9 11.2 9.1 5.1 4 3.6 0.9 Axon Group USD 0 16.3 9.4 9.9 0 0 1.4 Logica CMG USD 3,300 11.9 10.8 9.9 7.5 7.2 6.6 0.7 Cap-weighted average 12.25 10.97 10.18 7.43 7.05 6.57 0.98 International Media Companies Pearson USD 12,627 15.3 14.1 13.2 9.6 9.1 8.6 1.7 Wilmington USD 163 15.3 13.5 11.6 8.2 7.7 7.1 1.6 Cap-weighted average 15.30 14.09 13.18 9.58 9.08 8.58 1.70 International TV Companies British Sky Broadcasting USD 15,793 19.8 16.0 12.8 10.5 9.1 7.9 2.1 Central European Media USD 1,841 2,395 809.8 386.1 Mediaset USD 10,108 20.0 16.8 14.0 7 6.3 6.3 2.2 Modern Times USD 3,779 17.0 13.7 11.1 13 10.9 9.6 2 Societe Television Francaise-1 USD 3,887 33.6 18.0 14.6 17.5 11.5 10.3 1.5 TV Azteca USD 1,685 13.6 12.7 11.1 5.9 5.8 5.2 2.4 TV Today Network USD 144 13.0 11.1 9.4 8.3 6.8 2 Cap-weighted average 138.13 55.27 31.51 9.80 8.17 7.35 1.96 Russian average (Disc)/Prem to International Internet Companies 600.0 -100.0 -100.0 -91.0 -100.0 -100.0 -98.0 Russian average (Disc)/Prem to International IT Companies 1241.0 -100.0 -100.0 -84.0 -100.0 -100.0 -90.0 Russian average (Disc)/Prem to International Media Companies 974.0 -100.0 -100.0 -88.0 -100.0 -100.0 -94.0 Russian average (Disc)/Prem to International TV Companies 19.0 -100.0 -100.0 -88.0 -100.0 -100.0 -95.0



59

Electricity generators

Country P/E EV/EBITDA EV/Sales EBITDA margin Net margin EV/IC, $/kW 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E Russian wholesale generation companies

OGK1

Russia

- - - 0.8 0.9 1.1 6.4 7.3 5.5 16% 18% 22% 9% 11% 12% 219 OGK2 22.3 17.0 11.4 10.2 9.4 8.6 1.2 1.2 1.4 12% 13% 16% 4% 4% 5% 231 OGK3 8.7 5.7 4.9 1.2 (2.7) (1.0) 0.2 (0.4) (0.1) 17% 13% 14% 25% 34% 35% 143 OGK4 16.2 9.4 8.8 10.5 6.2 5.5 2.0 1.6 1.5 19% 26% 27% 16% 20% 19% 461 OGK5 50.4 27.4 10.4 16.0 12.0 7.0 2.7 2.3 1.9 17% 19% 27% 4% 6% 14% 446 OGK6 (8.5) (2.6) (2.1) 14.0 24.4 17.2 1.3 1.7 2.0 9% 7% 12% -6% -17% -19% 162 RusHydro 8.9 5.0 3.0 6.1 4.1 2.5 2.3 2.0 1.9 38% 49% 75% 16% 24% 40% 463 Average (ex. RusHydro) 8.3 10.7 6.0 8.8 8.4 6.4 2.3 2.3 2.0 15% 16% 20% 9% 10% 11% 277

Fossil-fuel generation Emerging markets

Huadian Power International China 32.6 26.0 24.0 11.4 9.7 8.0 2.5 2.2 1.9 22% 22% 24% 3% 3% 3% 1,025 Huaneng Power International China 20.6 18.0 16.9 9.8 8.9 8.2 2.1 1.9 1.8 22% 22% 22% 5% 5% 5% 773 Kot Addu Power Company (KAPCO) Pakistan 338 Zorlu Enerji Elektrik Uretim Turkey 7.1 14.0 7.5 18.8 8.0 5.8 4.0 2.5 1.9 21% 31% 33% 22% 7% 10% n/a Datang International Power Gneration China 57.5 48.4 35.0 14.6 12.7 10.4 4.5 3.8 3.3 31% 30% 32% 4% 4% 5% 1,344 China Resources Power China 14.0 11.8 10.5 10.5 8.5 7.3 3.2 2.7 2.3 31% 32% 32% 13% 13% 13% 1,392 Average 26.4 23.6 18.8 13.0 9.6 7.9 3.3 2.6 2.3 25% 27% 29% 9% 6% 7% 975

Developed markets Drax Group UK 6.1 7.3 7.5 3.8 4.5 5.1 1.1 1.1 1.0 28% 24% 21% 17% 14% 13% 543 TransAlta Canada 17.5 15.9 n/a 8.8 8.2 7.8 3.0 2.8 2.6 34% 35% 34% 9% 9% n/a 1,208 International Power UK 11.1 10.5 9.8 8.2 8.0 7.7 3.0 3.0 2.9 37% 38% 38% 13% 14% 14% 807 Dynegy US (5.1) (7.6) (10.8) 12.2 10.7 10.1 2.7 2.4 2.5 22% 22% 24% -7% -4% -3% 325 Average 7.4 6.5 2.2 8.3 7.8 7.6 2.4 2.3 2.3 30% 30% 29% 8% 8% 8% 721

Integrated Utilities Emerging markets

CEZ Czech Republic 9.9 9.6 8.9 6.9 6.6 6.1 3.2 3.1 2.9 47% 47% 47% 25% 25% 25% 2,283 CEMIG Brazil 8.1 7.5 6.6 5.2 4.8 4.4 1.9 1.7 1.6 36% 36% 35% 16% 16% 17% 1,975 COPEL Brazil 9.8 8.6 7.3 5.6 5.0 4.5 1.8 1.6 1.5 32% 32% 33% 18% 18% 20% 1,123 KEPCO South Korea 16.5 11.3 13.9 5.3 4.7 4.3 1.3 1.2 1.1 23% 25% 25% 4% 5% 4% 672 Endesa Chile Chile 12.9 13.4 n/a 8.5 8.9 8.2 4.3 4.3 3.9 50% 48% 48% 24% 23% 20% 1,513 Average 11.4 10.1 9.2 6.3 6.0 5.5 2.5 2.4 2.2 0.4 0.4 0.4 0.2 0.2 0.2 1,513

Developed markets EDP Portugal 11.2 10.4 8.9 7.9 7.4 6.7 2.0 1.9 1.8 25% 26% 27% 7% 7% 8% 2,986 Southern Co USA 14.1 12.9 11.9 8.7 8.0 7.4 2.8 2.7 2.5 32% 33% 34% 12% 12% 12% 1,117 Duke Energy USA 12.9 12.4 12.0 7.5 7.2 7.0 2.7 2.6 0.9 36% 36% 13% 12% 12% 4% 5,656 Endesa Spain 10.5 10.4 9.8 6.5 6.5 6.3 2.0 2.0 1.8 31% 31% 29% 10% 10% 9% 1,310 Enel Italy 9.3 9.1 8.8 7.0 6.9 6.7 1.8 1.7 1.7 25% 25% 25% 7% 7% 7% 2,025 EDF France 18.5 16.0 13.6 7.1 6.6 6.1 1.8 1.8 1.7 26% 27% 27% 6% 6% 7% 1,260 E.ON Germany 9.8 9.6 9.5 6.5 6.3 6.2 1.1 1.0 1.0 16% 16% 16% 6% 6% 6% 5,529 Fortum Finland 13.0 13.0 11.8 9.8 9.7 9.0 4.1 4.0 3.8 42% 41% 41% 23% 22% 23% 564 Iberdola (+Scottish Power) Spain 12.4 11.5 10.4 8.6 7.9 7.4 2.3 2.2 2.1 27% 28% 29% 10% 10% 11% n/a Average 12.4 11.7 10.7 7.7 7.4 7.0 2.3 2.2 1.9 29% 29% 27% 10% 10% 10% 2,556



60

Banks

Country Company Bloomberg ticker Currency Price on

29-Mar-10 MktCap,

$mn P/E, x EPS growth, % P/BV, x ROE

2008 2009 2010E 2011E 2009 2010E 2011E 2008 2009 2010E 2011E 2008 2009 2010E 2011E Russia Sberbank SBER RU USD 2.89 62,386 16.7x n.m. 10.2x 7.3x n.m. 754.4 39.0 2.6x 2.5x 2.0x 1.6x 15.3 3.0 22.4 24.8 Russia VTB (GDRs) VTBR LI USD 5.48 28,662 n.m. n.m. 19.8x 8.4x n.m. n.m. 136.6 1.4x 1.6x 1.5x 1.3x 1.5 n.m. 7.7 16.2 Russia Bank Vozrozhdenie VZRZ RU USD 42.32 1,005 8.4x 33.4x 8.8x 6.1x n.m. 278.6 45.3 2.0x 1.9x 1.5x 1.2x 24.8 5.8 19.0 22.0 Russia Bank St Petes STBK RU USD 3.51 992 7.8x n.m. 9.5x 4.9x n.m. 473.2 91.7 1.7x 1.5x 1.3x 1.1x 17.9 2.7 14.9 23.6 Kazakhstan Halyk Bank (GDRs) HSBK LI USD 10.92 3,383 24.3x 41.1x 11.3x 6.8x n.m. 265.1 66.5 1.9x 2.3x 1.7x 1.4x 8.3 5.5 17.5 22.7 Kazakhstan KKB (GDRs) KKB LI USD 9.71 3,780 18.6x 34.1x 9.3x 5.4x n.m. 265.7 72.6 1.3x 1.8x 1.5x 1.1x 6.0 4.8 17.3 23.9 Kazakhstan Bank CenterCredit CCBN KZ KZT 750.00 737 18.6x 32.5x 7.6x 4.1x n.m. 329.3 82.5 1.2x 1.1x 1.1x 0.9x 7.0 3.5 16.2 22.7 Georgia Bank of Georgia BGEO LI USD 10.55 330 n.m. n.m. 8.0x 6.2x n.m. n.m. 28.8 0.8x 1.1x 1.0x 0.9x 0.6 n.m. 13.1 14.9 Nigeria Access Bank ACCESS NL NGN 10.18 1,099 6.4x 7.8x 4.7x 3.3x n.m. 67.4 42.4 1.0x 0.9x 0.8x 0.7x 18.3 11.8 18.2 22.5 Nigeria Diamond Bank DIAMONDB NL NGN 9.80 944 9.5x 27.6x 5.3x 3.6x n.m. 419.8 48.3 1.2x 1.2x 1.0x 0.8x 15.1 19.0 19.1 24.8 Nigeria ETI ETI NL NGN 18.00 1,188 9.5x 12.9x 7.9x 6.0x n.m. 62.3 32.5 1.1x 0.9x 0.9x 0.8x 11.1 6.2 11.6 14.4 Nigeria FCMB FCMB NL NGN 9.00 975 7.7x 36.7x 5.5x 5.5x n.m. 562.1 1.5 1.1x 1.1x 0.9x 0.8x 18.3 3.0 17.3 16.0 Nigeria First Bank FIRSTBAN NL NGN 15.91 3,071 10.2x 36.7x 7.8x 4.7x n.m. 367.9 67.1 1.3x 1.4x 1.2x 1.1x 16.9 5.9 16.2 24.7 Nigeria GTB GUARANTY NL NGN 20.94 2,600 13.3x 13.0x 8.0x 6.1x 1.7 63.7 29.9 2.2x 2.0x 1.8x 1.5x 16.3 23.7 26.8 29.9 Nigeria Oceanic Bank OCEANIC NL NGN 2.02 329 5.1x n.m. 0.4x 5.9x n.m. n.m. n.m. 0.2x -0.3x 3.8x 2.6x 4.4 NM 111.9 51.6 Nigeria Skye Bank SKYEBANK NL NGN 8.30 640 5.0x n.m. 3.3x 2.6x n.m. n.m. 26.0 1.0x 1.1x 0.8x 0.7x 25.5 3.7 27.2 29.3 Nigeria UBA UBA NL NGN 14.91 2,139 7.8x n.m. 7.2x 4.4x n.m. n.m. 62.7 1.7x 1.7x 1.4x 1.2x 22.9 1.3 21.3 29.3 Nigeria Union Bank UBN NL NGN 6.09 548 3.2x n.m. 4.1x 12.5x n.m. n.m. n.m. 0.7x -0.4x 6.0x 4.4x 23.2 NM n.m 40.5 Nigeria Zenith Bank ZENITHBA NL NGN 19.01 3,178 5.2x 24.5x 7.7x 5.7x n.m. 216.0 36.6 0.9x 1.4x 1.2x 1.1x 25.7 7.7 16.5 20.6 Region (averages) CIS 15.7x 35.3x 10.5x 6.2x n.m. 394.4 70.4 1.6x 1.7x 1.4x 1.2x 10.2 4.2 16.0 21.3 CEE 12.2x 16.5x 11.1x 9.3x 25.4 51.7 21.4 2.0x 1.7x 1.6x 1.4x 19.6 11.7 14.5 15.6 EMEA 11.9x 14.8x 8.5x 7.3x 37.6 76.5 25.2 2.0x 1.5x 1.6x 1.4x 19.2 13.7 19.7 20.5 LATAM 14.0x 11.6x 9.9x 8.6x 42.6 16.7 15.2 3.0x 2.3x 2.1x 1.8x 24.8 21.7 22.0 21.6 ASIA 17.3x 13.7x 11.4x 9.4x 38.7 20.6 20.9 2.8x 2.2x 1.9x 1.6x 19.0 18.1 18.1 18.7 BRIC 17.5x 16.4x 11.0x 8.9x 41.0 56.1 26.8 2.7x 2.2x 1.9x 1.6x 18.8 17.2 18.7 19.9 GEM 15.2x 14.1x 10.2x 8.5x 40.0 42.5 22.0 2.6x 2.1x 1.9x 1.6x 20.5 17.7 19.6 20.2 Country (averages) Russia 10.9x 33.4x 12.1x 6.7x n.m. 502.0 78.2 1.9x 1.9x 1.6x 1.3x 14.9 3.8 16.0 21.6 Kazakhstan 20.5x 35.9x 9.4x 5.4x n.m. 286.7 73.9 1.4x 1.7x 1.4x 1.1x 7.1 4.6 17.0 23.1 Georgia n.a. n.a. 8.0x 6.2x n.m. n.m. 28.8 0.8x 1.1x 1.0x 0.9x 0.6 n.a. 13.1 14.9 Austria 8.5x 17.4x 8.4x 6.3x n.m. 110.5 33.5 1.0x 1.0x 0.9x 0.8x 13.8 5.8 10.7 12.5 Czech Republic 11.1x 12.7x 11.1x 9.9x n.m. 14.4 12.5 2.4x 2.1x 1.9x 1.8x 23.6 17.3 18.5 19.4 Hungary 7.5x 12.5x 8.8x 7.3x n.m. 42.6 19.9 1.7x 1.4x 1.3x 1.1x 24.9 12.0 14.9 15.9 Poland 14.3x 17.8x 12.0x 10.0x 25.4 48.9 20.5 2.2x 1.8x 1.6x 1.5x 17.2 11.3 14.3 15.4 Romania 6.9x 11.2x 10.7x 9.2x n.m. 5.1 15.3 2.6x 2.3x 2.0x 1.7x 43.1 21.3 19.8 19.4 Turkey 15.3x 9.8x 8.0x 6.6x 42.7 19.8 20.3 2.5x 1.6x 1.3x 1.1x 18.2 17.7 17.9 18.6 South Africa 9.8x 11.4x 9.0x 7.2x n.m. 27.3 25.8 2.1x 1.8x 1.6x 1.4x 23.1 16.4 18.7 21.6 Egypt 16.0x 10.1x 8.4x 7.6x 59.0 20.2 9.8 3.3x 2.5x 2.1x 1.8x 26.9 25.6 24.8 26.5 China 15.5x 13.3x 11.0x 9.3x 28.3 20.7 17.5 3.0x 2.3x 2.0x 1.7x 21.3 18.9 19.2 19.3 India 19.1x 14.3x 11.9x 9.5x 50.6 20.4 24.6 2.6x 2.1x 1.8x 1.6x 16.7 17.3 16.9 18.1 Brazil 14.0x 11.6x 9.9x 8.6x 42.6 16.7 15.2 3.0x 2.3x 2.1x 1.8x 24.8 21.7 22.0 21.6 Nigeria 7.5x 22.7x 5.6x 5.5x 1.7 251.3 38.6 1.1x 1.0x 1.8x 1.4x 18.0 9.2 28.6 27.6



61

Russian consumer and agriculture Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker

P/E EV/EBITDA EV/Sales 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

X5 Retail Group 36.9 10,021 12,008 FIVE LI 33.7 25.1 17.6 13.7 10.2 8.3 1.1 0.8 0.7 Magnit (MktCap based on GDRs only) 19.2 8,537 8,790 MGNT LI 22.2 16.5 13.1 13.0 9.8 8.0 1.2 0.9 0.7 7 Continent 8.0 600 942 SCON RU 12.3 6.8 5.1 6.3 4.6 3.7 0.6 0.4 0.3 Dixy 10.8 925 1,188 DIXY RU 46.3 18.6 12.5 9.2 6.4 5.1 0.6 0.4 0.3 Rosinter 12.5 150 213 ROST RU 20.9 12.4 6.1 6.0 5.1 3.6 0.6 0.5 0.4 Pharmacy Chain 36.6 4.2 40 391 APTK RU neg neg neg 13.4 8.2 5.5 0.4 0.4 0.3 M.video 5.4 965 953 MVID RU 15.3 10.6 9.4 7.2 5.2 4.6 0.4 0.3 0.2 WBD (MktCap based on ADRs only) 22.5 3,967 4,131 WBD US 28.0 20.5 17.7 12.4 9.6 8.5 1.6 1.4 1.2 CEDC 34.9 1,984 3,216 CEDC US 11.2 9.5 8.2 9.4 8.1 7.3 1.6 1.4 1.3 Synergy 29.0 519 685 SYNG RU 9.7 6.6 4.9 5.9 4.8 3.9 0.9 0.8 0.7 Baltika 30.0 4,921 4,824 PKBA RU 6.3 5.6 5.0 4.4 4.0 3.6 1.3 1.1 1.0 EBI 13.0 550 1,026 EBID LI 8.8 6.7 5.1 5.3 4.4 3.9 0.9 0.8 0.7 Pharmstandard (GDRs only) 24.0 3,624 3,375 PHST LI 16.2 13.2 11.3 11.2 9.3 8.0 4.2 3.6 3.2 Veropharm 36.8 368 370 VRPH RU 8.0 6.3 5.3 5.7 4.6 3.9 1.8 1.5 1.2 Kalina 24.5 239 339 KLNA RU 10.5 6.6 4.9 5.8 4.5 3.7 0.6 0.5 0.5 Razgulay 1.8 285 1,563 GRAZ RU neg neg neg 20.2 16.3 17.6 1.1 1.0 0.9 Black Earth Farming 3.8 458 453 BEFSDB SS neg neg neg 45.1 42.8 27.8 4.9 3.6 3.5 Russian Grain 390 149 247 RUGR RU neg neg neg neg 12.5 20.3 2.7 2.2 2.0 Cherkizovo 16.0 1,034 1,656 CHE LI 8.8 5.8 5.5 7.4 5.5 5.3 1.3 1.0 1.0 Russian consumer sector average 17.8 11.8 9.0 8.6 6.6 5.4 1.2 1.0 0.9 Russian agriculture sector average 8.8 5.8 5.5 24.2 19.3 17.7 2.5 1.9 1.9 Consumer and agriculture average 17.2 11.4 8.8 11.2 9.3 8.0 1.5 1.2 1.1 Retailers 26.0 15.5 11.5 9.9 7.3 5.5 0.7 0.5 0.4 Alco 10.5 8.1 6.5 7.7 6.5 5.6 1.2 1.1 1.0 Beer 7.5 6.1 5.0 4.9 4.2 3.7 1.1 0.9 0.9 Pharma 12.1 9.8 8.3 8.5 6.9 6.0 3.0 2.5 2.2



62

Dairy

Price, $

MktCap, $mn

EV, $mn

Bloomberg ticker


WBD (MktCap based on ADRs and locals) 22.5 2,978 3,142 WBD US 21.0 15.4 13.3 9.4 7.3 6.4 1.2 1.0 0.9 WBD (MktCap based on ADRs and locals) ex. non-cash FX loss WBD US 21.0 15.4 13.3 WBD (MktCap based on ADRs only) 22.5 3,967 4,131 WBD US 28.0 20.5 17.7 12.4 9.6 8.5 1.6 1.4 1.2 WBD (MktCap based on ADRs only) ex. non-cash FX loss WBD US 28.0 20.5 17.7 WBD (ADRs only) vs EM 32% 13% 9% -3% -10% -13% 3% -5% -11% WBD (ADRs only) vs DM 64% 29% 20% 11% -7% -12% -14% -25% -30% EM Weighted Average 21.2 18.1 16.2 12.7 10.7 9.7 1.6 1.4 1.3 DM Weighted Average 17.1 15.8 14.7 11.1 10.4 9.6 1.9 1.8 1.7 Emerging Markets Fraser & Neave 0.2 4,651 7,596 FNN SP 12.5 11.7 12.2 10.2 9.3 9.1 1.9 1.8 1.7 Tiger Brands 25.4 4,755 4,847 TBS SJ 16.4 14.5 12.5 10.2 9.3 8.5 1.7 1.5 1.4 Inner Mongolia 4.4 3,664 3,378 600887 CH 38.2 30.6 25.9 19.1 14.5 12.3 0.9 0.8 0.7 Vitasoy 0.8 810 787 345 HK 22.8 20.1 16.7 12.1 10.7 9.1 2.0 1.8 1.5 EM Weighted Average 21.2 18.1 16.2 12.7 10.7 9.7 1.6 1.4 1.3 Developed Markets Nestle 50.6 184,562 206,032 NESN VX 18.0 16.9 15.8 12.4 11.6 10.6 2.1 1.9 1.8 Unilever 29.5 88,430 97,632 ULVR LN 16.0 14.7 13.6 10.1 9.5 8.8 1.7 1.6 1.5 Danone 58.7 36,503 45,419 BN FP 17.2 15.4 14.1 11.2 10.5 9.8 2.1 2.0 1.9 General Mills 70.5 23,384 29,297 GIS US 14.8 13.8 13.1 9.5 8.9 8.4 2.0 1.9 1.8 Kellogg 53.8 20,459 25,008 K US 15.2 14.3 13.4 9.6 9.2 8.7 1.9 1.9 1.8 Campbell Soup 34.9 11,882 14,422 CPB US 14.1 13.4 12.6 8.9 8.5 8.2 1.9 1.8 1.7 Associated British Foods 14.7 11,642 13,624 ABF LN 15.5 13.8 12.5 7.8 7.1 6.7 0.9 0.9 0.8 Yakult Honsha 29.0 4,999 4,935 2267 JP 41.9 34.4 29.2 12.0 11.0 10.3 1.6 1.5 1.5 Dean Foods 15.7 2,841 7,038 DF US 10.1 9.0 8.0 7.3 6.9 6.3 0.6 0.6 0.5 Agrana Beteiligungs 96.1 1,374 2,077 AGR AV 16.7 15.9 13.5 9.1 8.3 7.7 0.8 0.7 0.7 Morinaga Milk 4.0 983 1,998 2264 JP 11.3 12.4 11.1 5.6 5.6 5.4 0.3 0.3 0.3 Bongrain 73.8 1,135 1,721 BH FP 10.4 11.6 na 7.4 6.7 na 0.5 0.5 0.5 Robert Wiseman Dairies 7.5 531 571 RWD LN 11.8 11.7 11.2 5.5 5.3 5.2 0.4 0.4 0.4 Premier Foods 0.5 1,188 3,234 PFD LN 6.4 5.5 5.5 5.6 5.4 5.4 0.8 0.8 0.8 Greencore Group 1.9 374 783 GNC LN 7.8 8.2 6.9 6.3 6.5 5.6 0.6 0.6 0.5 DM Weighted Average 17.1 15.8 14.7 11.1 10.4 9.6 1.9 1.8 1.7



63

Food retail Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


X5 Retail Group 36.9 10,021 12,008 FIVE LI 30.4 25.1 17.6 13.7 10.2 8.3 1.1 0.8 0.7 X5 Retail Group (ex. non-cash FX gain/loss) FIVE LI 33.7 25.1 17.6 Magnit (MktCap based on GDRs only) 19.2 8,537 8,790 MGNT LI 22.2 16.5 13.1 13.0 9.8 8.0 1.2 0.9 0.7 Magnit (weighted market cap) 88.5 8,015 8,268 MGNT RU 20.8 15.5 12.3 12.2 9.3 7.5 1.1 0.8 0.7 7 Continent 8.0 600 942 SCON RU 12.2 6.8 5.1 6.3 4.6 3.7 0.6 0.4 0.3 7 Continent (ex. non-cash FX gain/loss) SCON RU 12.3 6.8 5.1 Dixy 10.8 925 1,188 DIXY RU 66.0 18.6 12.5 9.2 6.4 5.1 0.6 0.4 0.3 Dixy (ex. non-cash FX gain/loss) DIXY RU 46.3 18.6 12.5 Russian food retail weighted average 26.6 20.6 15.1 12.9 9.7 7.9 1.1 0.8 0.7 DM weighted average 14.3 13.0 12.2 7.6 7.0 6.6 0.6 0.5 0.5 EM weighted average 24.8 21.2 19.6 13.9 11.5 9.9 1.3 1.1 0.9 DM Food Retail Chains Wal-Mart 55.5 211,503 247,096 WMT US 14.0 13.1 12.4 7.4 6.9 6.5 0.6 0.5 0.5 Tesco 6.5 52,283 69,183 TSCO LN 14.8 13.3 12.1 9.6 8.8 8.1 0.8 0.7 0.7 Carrefour 48.0 33,910 51,557 CA FP 15.9 13.4 11.7 7.6 6.9 6.5 0.4 0.4 0.4 Kroger 21.2 13,784 21,744 KR US 12.1 11.0 10.6 5.6 5.4 5.1 0.3 0.3 0.2 Koninklijke Ahold 13.3 15,803 17,122 AH NA 11.8 10.7 9.7 5.8 5.6 5.3 0.4 0.4 0.4 Safeway 24.4 9,502 13,932 SWY US 13.5 12.3 12.8 5.3 5.3 5.0 0.3 0.3 0.3 Sainsbury 4.9 9,147 11,837 SBRY LN 14.6 13.2 11.7 6.9 6.4 5.9 0.4 0.4 0.3 Colruyt 244.3 8,182 7,859 COLR BB 18.7 17.2 16.0 9.9 9.2 8.6 0.9 0.8 0.7 Delhaize Group 80.7 8,193 11,409 DELB BB 15.2 14.0 13.0 7.4 7.1 6.6 0.6 0.5 0.5 Axfood 30.3 1,587 1,612 AXFO SS 13.6 13.0 12.6 6.7 6.4 6.2 0.3 0.3 0.3 DM weighted average 14.3 13.0 12.2 7.6 7.0 6.6 0.6 0.5 0.5 EM Food Retail Chains Wal-Mart de Mexico 5.1 45,273 43,706 WALMEXV MM 27.7 22.6 18.3 16.3 13.3 11.3 1.6 1.4 1.2 Organizacion Soriana SAB de CV 3.1 5,576 6,130 SORIANAB MM 21.4 18.6 16.8 10.5 9.5 8.8 0.8 0.7 0.7 Cia Brasileira de Distribuicao Grupo Pao de Acucar 35.8 4,560 5,290 CBD US 10.7 7.9 6.6 4.3 3.6 3.0 0.3 0.2 0.2 Shoprite Holdings 10.6 5,564 5,150 SHP SJ 18.3 15.8 13.6 9.1 7.9 6.8 0.6 0.5 0.4 Migros Turk 15.9 2,628 3,453 MGROS TI 24.2 45.2 95.8 13.5 12.2 11.8 0.9 0.9 0.8 BIM Birlesik Magazalar 51.9 4,065 3,957 BIMAS TI 25.5 21.2 18.0 16.8 14.0 12.2 0.9 0.7 0.6 Wulmart Stores 1.9 2,310 na 8277 HK 30.4 24.6 20.5 na na na na na na Super SOL 1.4 5,638 6,527 606 HK 19.9 15.9 13.5 14.9 11.7 10.0 1.2 1.0 0.8 EM weighted average 24.8 21.2 19.6 13.9 11.5 9.9 1.3 1.1 0.9



64

International grain and edible oils producers Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


Kernel 20.4 1,400 1,472 KER PW 10.6 9.1 9.5 7.6 7.1 6.1 1.4 1.2 1.1 International grain producers Archer-Daniels-Midland 28.4 18,262 24,523 ADM US 9.5 9.3 8.7 6.7 6.6 6.7 0.4 0.4 0.4 Bunge 63.8 9,184 14,870 BG US 10.6 9.3 na 8.8 7.9 na 0.3 0.3 na China Agri-Industries 1.4 5,638 6,527 606 HK 19.9 15.9 13.5 14.9 11.7 10.0 1.2 1.0 0.8 Viterra 0.1 3,520 4,379 VT CN 15.8 12.4 10.7 7.8 6.7 6.1 0.5 0.5 0.4 Heilongjiang Agriculture 2.0 3,664 3,964 600598 CH 46.6 37.4 35.5 26.1 24.5 28.9 4.6 4.3 3.9 KWS Saat 172.5 1,135 1,146 KWS GR 16.4 14.2 13.3 8.3 7.5 6.9 1.2 1.1 1.0 GrainCorp 5.7 1,128 1,157 GNC AU 12.8 8.7 8.3 6.2 4.6 4.4 0.6 0.5 0.5 Agricola 8.3 824 999 SLCE3 BZ 59.6 21.8 13.3 15.4 9.0 7.2 3.0 2.4 2.0 Andersons 32.8 600 785 ANDE US 12.3 11.0 na 6.4 6.6 na 0.2 0.2 na Grain - global weighted average 15.4 12.8 8.2 9.7 8.8 6.1 0.9 0.8 0.6 Kerne vs global grain producers -31% -29% 15% -22% -19% -1% 58% 50% 81% International edilbe oil producers Wilmar 6.6 42,828 35,230 WIL SP 23.7 21.1 18.4 12.9 11.5 9.9 1.2 1.1 1.0 IOI Corporation 1.6 11,015 12,500 IOI MK 20.3 17.7 16.3 14.9 13.1 12.3 2.7 2.4 2.3 Archer-Daniels-Midland 28.4 18,262 24,523 ADM US 9.5 9.3 8.7 6.7 6.6 6.7 0.4 0.4 0.4 Bunge 63.8 9,184 14,870 BG US 10.6 9.3 na 8.8 7.9 na 0.3 0.3 na Kuala Lumpur Kepong 5.0 5,363 5,507 KLK MK 18.6 16.4 15.0 11.9 10.7 9.9 2.5 2.3 2.2 Golden Agri-Recources 0.4 4,771 5,228 GGR SP 12.6 10.7 10.4 8.2 7.0 7.0 1.9 1.7 1.6 Heilongjiang Agriculture 2.0 3,664 3,964 600598 CH 46.6 37.4 35.5 26.1 24.5 28.9 4.6 4.3 3.9 China Agri-Industries 1.4 5,638 6,527 606 HK 19.9 15.9 13.5 14.9 11.7 10.0 1.2 1.0 0.8 United Plantations 4.3 894 763 UPL MK 9.2 8.3 7.7 5.5 5.0 4.9 2.9 2.6 na IJM Plantations 0.8 620 561 IJMP MK 22.8 17.2 16.6 13.8 10.8 10.1 4.3 3.9 3.5 Agricola 8.3 824 999 SLCE3 BZ 59.6 21.8 13.3 15.4 9.0 7.2 3.0 2.4 2.0 Sipef 64.7 577 557 SIP BB 9.0 9.0 na 5.4 5.4 na 1.9 1.9 na Sarawak Oil Palms 0.9 368 391 SOP MK 10.3 10.6 na 5.9 5.8 na 2.1 1.8 na STE Internat Plant Heveas 65.1 329 373 SIPH FP 21.2 6.0 5.9 11.6 4.0 3.8 1.5 1.0 1.0 TSH Resources 0.6 258 451 TSH MK 11.5 10.4 9.4 10.9 9.7 8.7 1.5 1.5 1.4 TH Plantations 0.5 230 300 THP MK 10.6 9.4 9.5 7.5 6.6 6.3 3.0 2.8 3.1 Chin Teck Plantations 2.4 214 158 CTP MK 7.8 8.2 8.2 5.9 6.4 6.6 na na na Kwantas 0.6 170 379 KWAN MK 11.0 9.0 7.2 5.9 6.8 6.9 0.8 0.7 na Edible oil producers' global average 19.4 16.8 14.2 11.7 10.5 9.0 1.4 1.3 1.1 Kernel vs global edible oil average -45% -46% -33% -36% -32% -33% -1% -4% -4%



65

International sugar producers Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


Astarta Holding 19.0 476.0 551.4 AST PW 6.6 7.4 5.3 7.0 7.7 5.8 2.5 2.2 1.8 International sugar producers Suedzucker 22.1 4,213 7,241 SZU GY 15.4 12.9 11.5 8.6 7.6 7.3 0.9 0.9 0.9 Cosan 12.3 5,018 7,730 CSAN3 BZ 11.4 11.6 16.5 7.7 5.8 6.6 0.9 0.8 0.8 Tate & Lyle 6.9 3,165 4,661 TATE LN 13.3 11.2 10.0 7.5 7.1 6.7 0.9 0.9 0.8 Ebro Puleva 18.7 2,854 3,654 EVA SM 13.4 12.3 11.7 8.4 7.9 7.7 1.2 1.2 1.1 Danisco 75.7 3,602 4,966 DCO DC 20.3 17.8 15.9 12.5 11.0 10.1 2.1 1.9 1.8 Illovo Sugar 4.1 1,843 2,034 ILV SJ 19.7 16.1 12.2 8.2 6.7 5.9 1.7 1.5 1.3 Agrana Beteiligungs 96.1 1,374 2,077 AGR AV 16.7 15.9 13.5 9.1 8.3 7.7 0.8 0.7 0.7 Acucar Guarani 2.7 761 1,156 ACGU3 BZ 13.2 10.5 17.4 6.1 4.5 5.4 1.5 1.2 1.2 Nanning Sugar Manufacturing 2.9 843 1,061 000911 CH 18.4 21.8 na na na na 1.7 1.6 na Bajaj Hindusthan 3.0 592 1,475 BJH IN 5.8 10.0 8.7 5.7 7.9 7.4 1.4 1.9 1.8 Balrampur Chini Mills 2.1 539 697 BRCM IN 7.4 7.1 6.9 5.4 5.4 5.5 1.3 1.3 1.3 Greencore 1.9 374 783 GNC LN 7.8 8.2 6.9 6.3 6.5 5.6 0.6 0.6 0.5 Jutrzenka 1.6 226 na JTZ PW 17.3 13.5 na na na na na na na Mieszko 1.0 43 61 MSO PW 12.9 9.4 na 6.1 6.0 na 0.7 0.6 na Sugar - global weighted average 14.3 13.4 12.5 8.2 7.2 7.0 1.2 1.1 1.1 Astarta vs sugar peers -54% -45% -58% -15% 7% -18% 107% 89% 69%



66

Cosmetics and toiletries Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


Kalina 24.5 239 339 KLNA RU 10.5 6.6 4.9 5.8 4.5 3.7 0.6 0.5 0.5 Kalina (adjusted for non-cash gains/losses) 10.5 6.6 4.9 Developed Market Peers Procter & Gamble 63.7 184,994 212,564 PG US 16.5 15.1 14.1 10.7 10.0 9.3 2.7 2.6 2.4 L'Oreal 105.7 63,449 68,383 OR FP 21.3 19.4 17.7 14.1 13.0 12.2 2.8 2.6 2.5 Colgate - Palmolive 84.4 41,692 44,415 CL US 16.5 15.2 13.8 10.3 9.5 8.5 2.7 2.6 2.4 Beiersdorf 60.3 15,118 13,033 BEI GR 24.4 21.8 19.6 12.0 10.9 9.9 1.6 1.5 1.4 Avon Products 33.3 14,214 15,389 AVP US 17.4 14.4 12.7 9.8 8.6 7.9 1.4 1.3 1.3 Shiseido 22.0 8,879 8,711 4911 JP 27.8 25.7 22.6 10.4 9.1 8.2 1.3 1.2 1.1 Oriflame 61.8 3,379 3,588 ORI SS 17.4 13.9 11.7 12.2 10.1 8.6 1.7 1.5 1.4 Fancl 19.7 1,265 915 4921 JP 30.6 23.2 20.7 7.0 5.6 5.1 0.8 0.7 0.7 Revlon 14.5 747 1,941 REV US 8.7 7.6 na 7.2 6.8 na 1.5 1.4 na Elizabeth Arden 18.0 521 778 RDEN US 28.1 17.2 12.1 10.0 8.3 na 0.7 0.7 na Ales Groupe 15.2 218 235 PHY FP 18.2 15.0 na 8.3 7.3 na 1.0 1.0 na Developed Markets Weighted Average 18.2 16.5 15.1 11.3 10.5 9.6 2.5 2.4 2.3 Emerging Market Peers Natura Cosmeticos (Brazil) 19.7 8,498 8,610 NATU3 BZ 20.7 17.9 15.1 13.1 11.3 9.7 3.1 2.7 2.3 Colgate-Palmolive (India) 15.5 2,057 1,979 CLGT IN 23.8 21.7 19.0 20.5 17.5 15.7 4.5 3.9 3.4 Emerging Markets Weighted Average 21.3 18.6 15.9 14.6 12.5 10.9 3.4 2.9 2.5 Kalina vs DM average -42% -60% -68% -48% -57% -62% -75% -78% -79% Kalina vs EM average -51% -64% -69% -60% -64% -66% -81% -82% -81% Kalina vs Russian consumer sector average -41% -44% -46% -32% -31% -32% -46% -46% -45%



67

Pharmaceuticals Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


Pharmacy Chain 36.6 4.2 40 391 APTK RU neg neg neg 13.4 8.2 5.5 0.4 0.4 0.3 Pharmstandard (GDRs and locals, weighted) 24.0 3,168 2,919 PHST LI 14.1 11.5 9.9 9.7 8.0 6.9 3.7 3.1 2.7 Pharmstandard (locals only) 79.8 3,016 2,767 PHST RU 13.5 11.0 9.4 9.2 7.6 6.6 3.5 3.0 2.6 Pharmstandard (GDRs only) 24.0 3,624 3,375 PHST LI 16.2 13.2 11.3 11.2 9.3 8.0 4.2 3.6 3.2 Veropharm 36.8 368 370 VRPH RU 8.0 6.3 5.3 5.7 4.6 3.9 1.8 1.5 1.2 International Pharmacy Chains CVS Corp 36.8 51,157 61,278 CVS US 13.5 12.4 11.5 7.5 7.0 6.5 0.6 0.6 0.6 Walgreen 36.8 36,245 35,499 WAG US 16.3 13.9 12.1 7.6 6.7 6.0 0.5 0.5 0.5 Euromedica 42.7 9,276 10,805 SC CN 14.8 14.3 12.6 8.8 8.5 7.6 1.0 1.0 0.9 Mediq 18.4 1,083 1,332 MEDIQ NA 10.9 9.8 9.4 7.2 6.8 6.4 0.4 0.4 0.4 China Nepstar 7.2 752 665 NPD US 32.0 27.0 20.6 19.7 16.6 14.3 1.8 1.6 1.5 DM pharmacy chains weighted average 14.8 13.2 11.9 7.8 7.1 6.5 0.6 0.6 0.6 Emerging Markets - Pharma Producers Teva 64.2 59,802 63,203 TEVA IT 14.4 12.8 11.5 11.1 9.6 na 4.0 3.6 3.3 KRKA 93.8 3,294 3,488 KRKG SV 14.6 13.1 12.0 8.2 7.5 7.0 2.5 2.3 2.2 Gedeon Richter 214.6 4,020 3,481 RICHT HB 15.5 14.2 13.9 10.1 9.4 9.1 2.6 2.4 2.3 Aspen 10.7 4,633 5,142 APN SJ 17.9 14.4 12.8 11.8 9.6 8.5 3.6 2.9 2.5 Hikma Pharmaceuticals 6.3 1,201 1,924 HIK LN 12.5 10.5 8.8 11.5 10.1 9.2 2.7 2.4 2.2 Stada Arzneimittel 40.8 2,408 3,774 SAZ GR 17.3 14.9 13.8 10.2 9.6 9.2 1.8 1.7 1.6 EM pharmaceutical producers weighted average 14.7 13.0 11.8 10.9 9.5 8.5 3.7 3.4 3.1 Developed Markets - Pharma Producers Roche 160.0 139,568 163,970 ROG VX 13.2 11.8 10.9 9.2 8.5 8.0 3.5 3.4 3.2 Novartis 57.6 150,213 138,051 NOVN VX 14.0 12.5 11.8 9.4 8.3 7.8 2.8 2.5 2.4 Pfizer 17.1 138,285 161,471 PFE US 7.8 7.4 7.9 5.2 5.1 5.4 2.4 2.4 2.6 GlaxoSmithKline 19.1 97,930 112,254 GSK LN 10.9 10.5 9.8 7.2 6.9 6.5 2.6 2.6 2.6 Sanofi Aventis 75.1 98,725 77,648 SAN FP 11.6 11.7 12.8 6.3 6.5 6.8 2.6 2.6 2.7 DM pharmaceutical producers weighted average 11.6 10.8 10.6 7.6 7.1 6.9 2.8 2.7 2.7 VRPH vs EM peers -46% -51% -55% -48% -52% -54% -51% -56% -60% VRPH vs DM peers -31% -41% -50% -25% -35% -44% -35% -46% -54% VRPH vs PHST -51% -52% -53% -49% -50% -52% -57% -59% -61% PHST (weighted) vs EM peers -4% -11% -16% -11% -16% -18% -2% -7% -12% PHST (weighted) vs DM peers 22% 7% -6% 28% 13% 0% 31% 15% 1% PHST (weighted) to Russian food retailers -47% -44% -34% -25% -17% -12% 238% 283% 308% PHST (weighted) to WBD (weighted) -49% -44% -44% -21% -17% -18% 125% 131% 129%



68

Poultry and meat producers Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


Developed markets Tyson Foods 18.7 7,042 9,190 TSN US 12.5 12.2 13.8 5.4 5.4 6.3 0.3 0.3 0.3 Sanderson Farms 56.0 1,142 1,245 SAFM US 11.4 10.5 na 6.0 5.6 na 0.7 0.6 na L.D.C. 96.2 785 723 LOUP FP 15.0 15.1 13.2 5.1 4.8 4.6 0.3 0.3 0.3 HKScan 13.1 706 1,300 HKSAV FH 16.3 13.8 12.5 10.1 9.3 8.9 0.6 0.6 0.6 Atria Group 16.6 469 997 ATRAV FH 16.2 10.8 9.7 7.6 6.6 6.4 0.6 0.5 0.5 DM weighted average 13.0 12.3 13.5 5.8 5.7 6.4 0.4 0.4 0.3 Emerging markets Cherkizovo (pro-forma from 2010) 16.0 1,034 1,656 CHE LI 8.8 5.8 5.5 7.4 5.5 5.3 1.3 1.0 1.0 MHP 13.3 1,468 1,693 MHPC LI 4.8 4.1 4.1 4.5 3.8 3.5 1.9 1.6 1.5 Brazil Foods 24.4 10,658 13,164 BRFS3 BZ 28.9 17.0 12.4 11.2 8.3 6.8 1.1 0.9 0.8 China Yurun Food Group 3.1 5,291 5,547 1068 HK 19.1 14.8 na 15.6 11.3 na 1.7 1.2 na Charoen Pokphand Foods PUB 0.5 3,393 4,486 CPF TB 10.7 10.3 9.5 8.2 7.7 7.3 0.8 0.8 0.7 Universal Robina Corp 0.5 1,131 1,275 URC PM 10.7 10.9 10.6 5.9 5.8 5.7 1.1 1.0 1.0 Rainbow Chicken 2.2 738 692 RBW SJ 57.5 33.9 7.5 6.2 5.5 5.0 0.7 0.6 0.6 GFPT Public 1.7 215 293 GFPT TB 7.4 6.5 na 5.3 na na 0.8 na na Astral Foods 14.9 625 653 ARL SJ 6.5 4.6 na 5.3 4.4 4.0 0.5 0.5 0.5 EM weighted average 21.3 14.2 10.5 10.6 8.2 6.3 1.2 1.0 0.8 Cherkizovo vs EM -59% -59% -47% -30% -33% -17% 7% 4% 16% Cherkizovo vs DM -33% -52% -59% 26% -3% -17% 224% 173% 187% MHP vs EM -78% -71% -61% -57% -54% -45% 61% 61% 72% MHP vs CHE -45% -30% -26% -38% -31% -34% 50% 55% 48%



69

Restaurants Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


Rosinter 12.5 150 213 ROST RU 20.9 12.4 6.1 6.0 5.1 3.6 0.6 0.5 0.4 Emerging markets Cafe de Coral Holdings 2.4 1,357 1,238 341 HK 20.4 17.8 15.3 11.7 10.2 8.8 1.9 1.7 1.5 Jollibee Foods Corp 1.3 1,357 1,214 JFC PM 20.5 17.9 15.3 8.7 7.8 7.3 1.0 0.9 0.8 Ajisen China Holdings 1.0 1,030 927 538 HK 23.7 18.9 14.7 12.8 9.8 7.5 3.0 2.3 1.8 Amrest Holdings 25.8 364 499 EAT PW 15.8 12.0 8.8 6.8 5.7 5.0 0.7 0.6 0.5 Famous Brands 3.5 339 355 FBR SJ 14.9 12.3 10.4 8.5 7.3 6.3 1.5 1.4 1.2 Weighted average for Emerging markets 19.8 16.7 13.8 10.1 8.5 7.3 1.7 1.4 1.2 Western Europe Sodexho Alliance 61.2 9,635 11,679 SW FP 19.2 16.9 15.1 9.1 8.3 7.7 0.6 0.6 0.5 Autogrill 12.5 3,178 5,827 AGL IM 20.5 17.4 14.7 6.9 6.5 6.2 0.7 0.7 0.7 Restaurant Group 3.6 710 814 RTN LN 19.7 18.0 16.0 9.8 9.1 8.5 1.8 1.7 1.6 Flo Groupe 5.7 218 398 FLO FP 22.0 17.2 na 10.1 9.2 na 1.0 1.0 na Prezzo 54.3 124 103 PRZ LN 11.0 12.3 11.2 4.6 4.9 4.3 0.8 0.7 0.7 Carluccio's 1.3 79 75 CARL LN 14.4 11.9 na 6.9 6.1 5.5 0.7 0.6 0.5 Weighted average for Western Europe 19.4 17.0 14.7 8.6 7.9 7.2 0.7 0.7 0.6 North America Darden Restaurants 44.3 6,193 7,625 DRI US 14.9 13.6 12.0 8.1 7.4 6.8 1.1 1.0 1.0 Brinker International 19.6 2,007 2,488 EAT US 14.4 13.4 12.8 6.7 6.5 6.3 0.8 0.8 0.8 Weighted average for North America 14.8 13.5 12.2 7.7 7.2 6.6 1.0 1.0 0.9 Rosinter vs EM 6% -26% -56% -40% -40% -51% -66% -64% -65% Rosinter vs Amrest 32% 3% -31% -11% -11% -28% -12% -14% -21% Rosinter vs Russian food retail average 35% -40% -60% -53% -47% -54% -46% -37% -37% Simple average for restaurants (all markets) 17.8 15.4 13.3 8.5 7.6 6.7 1.2 1.1 1.0



70

Consumer electronics Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


M.video 5.4 965 953 MVID RU 15.3 10.6 9.4 7.2 5.2 4.6 0.4 0.3 0.2 M.video vs international CE retailers -8% -20% -17% -10% -23% -22% -28% -39% -39% CE retailers Best Buy 43.2 18,042 18,523 BBY US 12.1 11.2 10.8 5.4 4.9 4.6 0.4 0.3 0.3 Cia Brasileira de Distribuicao Grupo Pao de Acucar 35.8 4,560 5,290 CBD US 10.7 7.9 6.6 4.3 3.6 3.0 0.3 0.2 0.2 Gome Electrical 0.3 5,061 5,843 493 HK 27.8 20.6 17.0 21.4 16.4 13.8 1.1 0.9 0.8 DSG International 0.5 1,931 2,164 DSGI LN 41.2 23.4 15.8 8.0 7.0 5.9 0.3 0.2 0.2 Kesa Electricals 1.9 1,017 926 KESA LN 21.4 15.8 12.8 5.0 4.4 3.9 0.2 0.2 0.2 RadioShack Corp 23.7 2,962 2,723 RSH US 13.3 12.7 13.7 5.6 5.4 6.1 0.6 0.6 0.6 JB Hi-Fi 18.5 2,020 1,968 JBH AU 18.3 14.8 12.6 10.7 8.8 7.6 0.8 0.6 0.6 JD Group 6.2 1,010 1,111 JDG SJ 12.8 8.7 6.5 7.6 5.7 4.6 0.7 0.6 0.5 Grupo Famsa 2.0 866 1,045 GFAMSAA MM 25.8 17.9 na 8.0 7.1 na 0.8 0.7 na Elektroniki Athinon 2.4 43 42 ELATH GA 76.0 11.6 16.8 3.8 2.6 2.8 0.2 0.1 0.1 Weighted average for CE retailers 16.6 13.2 11.4 8.0 6.7 5.9 0.5 0.4 0.4 Mobile phones retailers Carphone Warehouse Group 2.2 990 1,138 CPW LN 8.1 5.7 4.7 6.2 4.8 4.2 0.5 0.4 0.4 Mobilezone Holding 8.5 303 277 MOB SW 14.1 13.1 12.4 8.0 7.6 7.0 1.0 0.9 0.8 Jaymart 0.05 16 42 JMART TB 6.8 6.4 6.1 7.0 6.9 6.9 0.3 0.3 na Weighted average for mobile phone retailers 9.7 8.4 7.7 6.6 5.9 5.5 0.4 0.4 0.4



71

Alcohol companies Price,

$ MktCap,

$mn EV, $mn

Bloomberg ticker


Synergy 29.0 519 685 SYNG RU 9.7 6.6 4.9 5.9 4.8 3.9 0.9 0.8 0.7 CEDC 34.9 1,984 3,216 CEDC US 11.2 9.5 8.2 9.4 8.1 7.3 1.6 1.4 1.3 Developed markets Diageo 16.7 41,808 53,979 DGE LN 15.7 14.1 12.9 11.9 11.3 10.6 3.8 3.6 3.5 Pernod-Ricard 83.5 22,053 35,953 RI FP 16.5 14.6 13.0 13.9 13.0 12.1 3.9 3.7 3.5 Constellation Brands 16.0 3,553 7,600 STZ US 9.7 8.9 8.2 8.0 7.6 7.5 2.2 2.2 2.1 Davide Campari-Milano 11.0 3,268 3,721 CPR IM 16.4 15.2 13.9 10.7 9.9 9.5 2.7 2.5 2.4 C&C Group 4.2 1,424 1,655 GCC ID 15.8 13.9 12.4 11.5 8.9 8.5 2.3 1.7 1.7 Laurent-Perrier 82.2 483 893 LPE FP 34.2 24.4 17.3 19.6 16.4 13.7 4.0 3.8 3.5 Grand Marnier 4.9 412 394 MALA FP 105.5 90.0 39.7 23.8 21.4 14.4 2.4 2.4 2.3 Weighted average for DM 16.3 14.6 13.0 12.4 11.6 10.9 3.7 3.5 3.3 Emerging markets United Spirits 29.8 3,736 5,296 UNSP IN 44.2 28.8 21.6 19.4 16.2 14.8 3.8 3.2 2.9 Dynasty Fine Wines Group 0.3 374 257 828 HK 18.3 15.5 12.9 7.9 7.0 5.8 1.4 1.2 1.1 Weighted average for EM 41.9 27.6 20.8 18.4 15.3 14.0 3.5 3.1 2.7



72

Real estate

Company Ticker Price,$ Shares, $mn

MarCap, $mn

EV, $mn

BV, $mn

NAV, $mn P/NAV P/BV EV/EBITDA PE FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E

Russia, CIS AFI Development AFID LI Equity 2.3 524 1,210 1,538 1,896 1,981 1,981 2,047 0.6x 0.6x 0.6x 0.6x -72.2x 20.0x 9.8x 3.4x 8.1x 3.9x LSR Group Limited LSRG LI Equity 9.2 468 4,285 5,640 1,276 na na na na na na 3.4x 12.3x 14.4x 9.4x 50.1x 59.8x 17.8x SISTEMA HALS HALS LI Equity 1.7 224 381 1,995 192 na na na na na na 2.0x -48.9x 26.9x 17.3x -4.4x -8.6x 62.2x Raven Russia RUS LN Equity 0.7 511 383 875 546 545 486 669 0.7x 0.8x 0.6x 0.7x -9.1x -133.3x 3.5x -2.7x -6.5x 2.1x PIK LI Equity PIK LI Equity 5.1 493 2,521 4,030 486 988 1,010 1,010 2.6x 2.5x 2.5x 5.2x 20.1x 65.2x 13.6x -13.6x -17.3x 108.3x RGI International RGI LN Equity 1.8 126 223 355 431 486 458 451 0.5x 0.5x 0.5x 0.5x -6.5x -28.0x 18.4x -6.6x -14.6x 72.7x KDD Group KDDG LN Equity 0.7 163 122 266 219 224 225 225 0.5x 0.5x 0.5x 0.6x -221.3x -225.2x -229.4x 53.2x 284.3x 1750.0x Mirland development Corp MLD LN Equity 3.2 100 315 486 319 na na na na na na 1.0x 37.0x 12.5x 10.2x 58.1x 12.0x 5.2x Middle East Aldar Properties ALDAR UH Equity 1.3 2,578 3,299 10,475 4,533 4,694 -5,476 4,711 0.7x -0.6x 0.7x 0.7x -339.9x 46.9x 20.8x 8.0x 7.0x 4.6x DEYAAR DEVELOPMENT DEYAAR UH Equity 0.1 5,778 787 545 1,838 2,277 2,277 na 0.3x 0.3x na 0.4x 6.8x 5.3x 4.8x 8.4x 7.0x 7.2x EMAAR Properties EMAAR UH Equity 1.1 6,091 6,634 7,468 7,863 7,995 8,603 9,225 0.8x 0.8x 0.7x 0.8x 9.0x 6.3x 9.3x 25.1x 6.4x 8.7x RAK Properties RAKPROP UH Equity 0.1 2,000 294 266 856 901 901 na 0.3x 0.3x na 0.3x 11.2x 4.5x 8.1x 9.4x 4.7x 9.5x SOROUH Real Estate SOROUH UH Equity 0.7 2,625 1,780 1,399 1,667 1,760 1,827 1,961 1.0x 1.0x 0.9x 1.1x 10.3x 6.3x 6.7x 11.3x 7.6x 7.9x UNION Properties UPP UH Equity 0.1 3,367 458 1,639 1,493 1,545 1,907 1,730 0.3x 0.2x 0.3x 0.3x 9.0x 5.6x 10.2x -34.2x 2.5x 4.1x China (Including Hong Kong) AGILE PROPERTY 3383 HK Equity 1.4 3,586 4,860 6,142 2,021 na 2,781 3,007 na 1.7x 1.6x 2.4x 10.2x 7.4x 5.9x 16.2x 11.3x 8.9x Cheung Kong HLDGS 1 HK Equity 13.2 2,316 30,520 33,360 30,387 na 33,284 35,322 na 0.9x 0.9x 1.0x 22.1x 19.2x 18.4x 13.5x 12.9x 11.1x CHINA RESOURCES LAND 1109 HK Equity 2.2 5,034 11,035 13,339 5,030 6,586 6,586 6,084 1.7x 1.7x 1.8x 2.2x 18.6x 11.4x 9.4x 26.1x 18.5x 14.9x CHINA VANKE - B SHARES 200002 CH Equity 1.2 1,315 14,950 17,498 6,651 6,148 6,148 7,184 2.4x 2.4x 2.1x 2.2x 10.2x 7.7x 6.4x 21.0x 15.4x 12.7x COLI 688 HK Equity 2.2 8,169 18,077 19,353 5,392 6,356 6,356 7,352 2.8x 2.8x 2.5x 3.4x 13.2x 10.2x 8.4x 21.5x 16.3x 13.3x COUNTRY GARDEN HOLDINGS 2007 HK Equity 0.4 16,451 5,997 8,268 2,839 na 3,492 3,938 na 1.7x 1.5x 2.1x 11.6x 9.5x 7.8x 17.7x 13.9x 11.2x FRANSHION 817 HK Equity 0.3 9,161 3,139 4,424 1,797 3,970 3,970 2,410 0.8x 0.8x 1.3x 1.7x 11.1x 9.7x 10.6x 22.2x 19.1x 19.5x GREENTOWN CHINA 3900 HK Equity 1.4 1,656 2,338 4,432 1,506 na 1,601 1,958 na 1.5x 1.2x 1.6x 12.2x 8.2x 4.1x 14.3x 8.7x 5.5x GUANGZHOU R&F 2777 HK Equity 1.6 1,015 5,230 7,308 2,493 2,888 2,888 3,317 1.8x 1.8x 1.6x 2.1x 9.2x 7.1x 5.8x 12.6x 9.2x 7.4x HENDERSON LAND DEV. CO. 12 HK Equity 7.3 2,147 15,720 18,739 16,422 18,476 18,476 19,239 0.9x 0.9x 0.8x 1.0x 39.3x 25.2x 26.4x 31.2x 20.3x 19.9x NEW WORLD DEV. 17 HK Equity 2.0 3,901 7,828 11,554 12,578 11,765 11,765 11,974 0.7x 0.7x 0.7x 0.6x 20.4x 10.0x 11.8x 23.5x 8.9x 11.0x SHANGHAI FORTE LAND 2337 HK Equity 0.3 1,056 792 2,166 857 986 986 1,130 0.8x 0.8x 0.7x 0.9x 18.1x 8.2x 6.7x 14.1x 5.7x 5.5x SHK PROPERTIES LTD 16 HK Equity 15.3 2,564 39,273 43,793 29,280 34,072 34,072 32,261 1.2x 1.2x 1.2x 1.3x 23.8x 20.2x 17.6x 25.6x 20.3x 18.7x SHUI ON LAND LTD 272 HK Equity 0.5 5,023 2,530 3,403 2,808 na 3,229 3,779 na 0.8x 0.7x 0.9x 7.7x 9.9x 8.5x 10.3x 13.9x 14.7x SINO LAND CO 83 HK Equity 1.9 4,885 9,476 11,018 7,780 8,238 8,238 8,156 1.2x 1.2x 1.2x 1.2x 19.7x 23.5x 28.1x 20.4x 22.3x 20.1x ZHONG AN REAL ESTATE LTD 672 HK Equity 0.3 1,943 603 904 592 628 694 774 1.0x 0.9x 0.8x 1.0x 8.8x 7.4x 5.8x 11.5x 9.1x 7.6x India DLF DLFU IN Equity 6.8 1,697 11,622 14,440 4,886 na 5,328 5,867 na 2.2x 2.0x 2.4x 11.7x 18.6x 15.0x 11.8x 26.1x 19.1x INDIABULLS REAL ESTATE IBREL IN Equity 3.5 402 1,388 687 1,375 na 1,798 1,827 na 0.8x 0.8x 1.0x -859.6x 97.0x 12.8x 78.8x 65.4x 27.9x PURAVANKARA PROJECTS PVKP IN Equity 2.2 213 465 670 269 na 323 468 na 1.4x 1.0x 1.7x 20.9x 19.4x 16.5x 15.4x 15.6x 13.7x SOBHA DEVELOPERS SOBHA IN Equity 6.2 98 605 897 219 na 373 401 na 1.6x 1.5x 2.8x 13.7x 14.7x 10.7x 20.8x 22.0x 14.4x UNITECH UT IN Equity 1.6 2,387 3,902 5,097 1,031 na 2,718 2,589 na 1.4x 1.5x 3.8x 14.0x 17.5x 12.6x 18.0x 22.0x 14.7x Europe BOVIS BVS LN Equity 6.1 133 807 710 1,118 1,069 1,069 1,088 0.8x 0.8x 0.7x 0.7x 28.4x 23.1x 15.5x 98.7x 54.6x 29.6x Bellway PLC BWY LN Equity 11.6 121 1,399 1,467 1,611 1,482 1,482 1,527 0.9x 0.9x 0.9x 0.9x 19.4x 18.9x 13.1x 45.3x 27.7x 18.7x Berkeley Group BKG LN Equity 12.3 135 1,657 1,219 1,184 1,331 1,331 1,446 1.2x 1.2x 1.1x 1.4x 5.7x 7.5x 6.9x 11.6x 14.8x 13.5x Persimmon PSN LN Equity 6.9 301 2,089 2,282 2,621 2,377 2,377 2,552 0.9x 0.9x 0.8x 0.8x 24.8x 14.0x 10.6x 902.3x 27.3x 17.9x JM AB JM SS Equity 17.0 83 1,414 1,312 513 na 663 777 na 2.1x 1.8x 2.8x 16.6x 10.3x 7.9x 30.0x 16.6x 12.2x Nexity NXI FP Equity 39.2 54 2,102 2,301 2,718 2,814 2,814 na 0.7x 0.7x na 0.8x 8.1x 9.0x 6.8x 23.3x 15.8x 10.8x Carillion Plc. CLLN LN Equity 5.0 397 1,967 1,997 1,255 1,257 1,257 1,356 1.6x 1.6x 1.5x 1.6x 6.7x 6.8x 6.5x 9.0x 9.0x 8.7x Atrium European Real Estate ATRS AV Equity 6.5 372 2,415 2,290 3,041 2,898 2,898 2,927 0.8x 0.8x 0.8x 0.8x -25.2x 125.8x 14.7x -4.5x -31.3x 117.8x Global trade Center GTC PW Equity 8.4 219 1,835 3,490 1,450 1,738 1,738 2,032 1.1x 1.1x 0.9x 1.3x 123.6x 21.5x 13.3x -117.2x 15.9x 7.2x Immofinanz IIA AV Equity 3.7 477 1,760 8,195 6,030 na na na na na na 0.3x 19.8x 14.1x 12.7x -1.3x 5.9x 4.1x



73

Ports EV/Sales Sales CAGR




2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E NCSP 5.4 4.7 4.0 8% 8.3 7.6 6.5 13% 13.9 13.9 12.0 48% 66% 62% 62%

Emerging Markets International Container Term Services Inc 2.7 2.5 2.7 10% 6.3 5.7 5.9 na 16.4 13.3 12.6 12% 44% 44% 46% Shanghai International Port Group Co Ltd 6.4 6.3 4.8 14% 14.9 13.9 11.6 2% 28.2 27.6 26.0 -1% 43% 45% 41% Cosco Pacific 14.5 11.7 10.9 10% 21.9 19.6 17.5 13% 18.9 12.8 13.9 -2% 66% 60% 62% China Merchant HLD 22.9 20.5 18.5 2% 39.9 35.1 31.5 -21% 24.8 23.8 20.5 -1% 57% 58% 59% Tianjin Port 2.5 2.2 2.0 0% 14.7 12.0 8.0 8% 26.6 21.4 18.0 5% 17% 19% 25% Mundra Port na na na 32% 32.3 22.9 17.2 34% 44.4 32.7 22.5 45% 71% 70% 69% Dalian Prot 2.9 2.8 2.7 7% 5.6 4.9 4.6 na 5.3 4.8 4.4 8% 53% 57% 58% Shenzhen Chiwan Wharf 1.9 1.6 1.2 2% 3.7 2.4 2.0 1% 4.7 4.0 3.5 -3% 53% 65% 63% DP World 4.3 3.9 3.5 9% 11.1 9.7 8.6 7% 23.1 18.6 16.0 21% 38% 40% 41% EM Avg. 7.3 6.4 5.8 9% 16.7 14.0 11.9 6% 21.4 17.7 15.3 9% 49% 51% 51% Premium (Discount) of NSCP to EM -25% -26% -30% -51% -46% -45% -35% -21% -21%

Developed Markets Forth Ports 4.7 4.4 4.0 7% 14.0 13.1 11.5 10% 25.7 23.2 18.0 12% 33% 34% 35% Port of Tauranga Ltd 8.0 7.1 6.6 6% 13.3 12.3 11.3 4% 20.3 19.1 17.4 6% 60% 58% 59% Asciano Group 2.7 2.3 2.1 10% 10.8 8.9 8.0 16% 32.0 20.4 16.9 na 25% 26% 27% HHLA 2.4 2.3 2.1 -5% 9.0 7.7 6.6 na 38.2 26.8 19.4 na 27% 30% 32% DM Avg. 4.4 4.1 3.7 4% 11.8 10.5 9.3 10% 29.0 22.4 17.9 9% 36% 37% 38% Premium (Discount) of NSCP to DM 23% 17% 8% -30% -28% -30% -52% -38% -33%


Railways EV/Sales Sales CAGR




2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E Globaltrans 3.2 3.1 2.2 12% 8.7 7.5 4.6 17% 21.0 11.9 7.5 32% 37% 41% 47%

Emerging Markets America Latina Logistica 4.5 4.0 na 17% 8.8 7.6 na na 42.6 29.1 19.8 160% 52% 53% 57% Daqin Railway 5.8 5.5 5.1 6% 10.5 9.8 8.8 9% 18.3 14.4 14.1 9% 55% 56% 58% Guangshen Railway 3.3 3.1 2.9 4% 13.4 11.5 10.2 8% 30.6 26.1 22.9 11% 25% 27% 28% Container Corporation of India 3.9 3.3 2.6 14% 14.0 11.6 9.2 7% 19.8 17.0 14.5 14% 28% 28% 28% EM Avg. 4.4 4.0 3.5 10% 11.7 10.1 9.4 8% 27.8 21.7 17.8 48% 40% 41% 43% Premium (Discount) of Globaltrans to EM -27% -22% -39% -26% -26% -51% -25% -45% -58%

Developed Markets Large caps

Union Pacific Corp 2.8 2.6 2.3 9% 8.0 7.1 6.1 13% 16.8 14.2 12.3 18% 35% 36% 38% Norfolk Southern Corp 3.1 2.8 2.6 10% 8.4 7.4 6.7 13% 17.1 14.3 12.3 19% 37% 38% 39% CSX Corp 2.7 2.5 2.2 9% 7.7 6.8 6.0 11% 15.7 13.1 11.1 16% 35% 37% 37% Canadian National Railway 4.4 3.9 3.6 13% 9.6 8.5 7.5 16% 16.7 14.3 12.6 19% 46% 46% 47% DM Avg. 3.3 3.0 2.7 10% 8.4 7.4 6.6 13% 16.6 14.0 12.1 18% 38% 39% 40% Premium (Discount) of Globaltrans to large caps -2% 5% -20% 3% 1% -30% 27% -15% -38%

Small caps Kansas City Southern 3.1 2.7 2.4 11% 9.3 8.0 7.0 16% 24.6 18.1 14.8 61% 34% 34% 35% VTG Group 1.4 1.4 1.3 0% 5.4 5.4 5.2 0% 11.6 11.4 9.8 -3% 25% 25% 25% DM Avg. 2.2 2.0 1.9 6% 7.3 6.7 6.1 8% 18.1 14.7 12.3 29% 30% 30% 30% Premium (Discount) of Globaltrans to small caps 42% 52% 15% 18% 13% -24% 16% -19% -39%



74

Airlines EV/Sales Sales CAGR




2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E Aeroflot 1.2 1.0 0.8 -2% 10.6 7.9 6.0 7% 50.9 24.4 14.9 42% 11% 12% 14%

Emerging Markets Tam SA 1.1 0.9 0.8 2% 10.6 6.8 6.4 na 2.9 9.4 17.3 -150% 11% 14% 13% Turkish Airlines 0.9 0.8 0.7 18% 4.4 4.2 3.7 23% 6.8 6.1 5.5 -10% 21% 19% 18% Thai Airways International Pcl 0.9 0.8 0.8 10% 5.1 4.4 4.0 5% 6.6 5.5 8.0 -7% 18% 19% 19% Air China Ltd 3.1 2.6 2.4 10% 16.8 12.7 10.2 -278% 22.6 25.6 19.5 -181% 19% 21% 23% China Eastern Airlines Corp Ltd 1.6 1.2 1.1 15% 13.3 9.0 7.5 -204% na na 7.6 -147% 12% 14% 15% EM Avg. 1.5 1.3 1.2 11% 10.0 7.4 6.3 -113% 9.7 11.6 11.6 -99% 16% 17% 18% Premium (Discount) of Aeroflot to EM -22% -24% -28% 6% 6% -6% 424% 110% 29%

Developed Markets British Airways 0.7 0.7 0.6 0% 14.0 5.9 4.1 38% na na 13.7 -183% 5% 11% 14% AirFrance-KLM 0.5 0.5 0.4 -1% 21.8 6.2 4.0 19% -3.1 -12.6 12.9 -170% 2% 7% 10% Southwest Airlines Co 0.9 0.7 0.7 9% 6.3 5.2 4.3 na 24.4 19.6 13.5 71% 14% 14% 15% Singapore Airlines Ltd 1.3 1.1 0.9 -1% 8.7 5.4 4.1 7% 58.3 15.4 11.1 16% 15% 21% 23% Ryanair Ltd 2.1 1.8 1.4 9% 9.7 8.4 6.0 37% 19.4 16.0 11.3 66% 21% 21% 23% DM Avg. 1.1 1.0 0.8 3% 12.1 6.2 4.5 25% 24.7 9.6 12.5 -40% 12% 15% 17% Premium (Discount) of Aeroflot to DM 11% 2% 3% -12% 26% 33% 106% 155% 20%



75

Automotive EV/Sales Sales CAGR




2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E Russian Automotive

Sollers 1.3 0.7 0.5 1% 323.7 12.3 4.6 4% -3.6 -12.2 8.6 na 0% 6% 10% GAZ Group 0.8 0.6 0.5 -15% -169.7 18.0 5.7 -22% -2.7 -3.4 17.5 -47% 0% 3% 8% KAMAZ 1.3 1.0 0.9 -11% 77.2 21.9 13.1 -19% -23.5 -38.8 100.6 -24% 2% 5% 7% Avtovaz 0.8 0.7 0.6 -7% -4.9 -14.3 36.5 na -0.6 -0.8 -1.5 na -16% -5% 2% Russian Automotive Avg. 1.1 0.9 0.7 -9% 36.2 3.8 24.8 -19% -12.1 -19.8 49.5 -24% -7% 0% 4%

Passenger cars and LCVs Emerging Markets

Ford Otosan 0.6 0.5 0.5 12% 6.2 5.3 4.6 16% 10.3 8.7 7.8 13% 10% 10% 11% Hyundai Motor 0.6 0.5 0.4 na 5.9 5.0 4.3 na 8.5 7.5 11.1 na 10% 10% 10% Kia Motors 0.7 0.6 na na 9.5 7.5 na na 11.5 9.2 na na 8% 8% na Mahindra & Mahindra 1.4 1.2 1.1 15% 9.2 8.5 7.5 14% 14.4 13.1 10.8 27% 15% 14% 14% Maruti Suzuki 1.2 1.0 0.9 21% 9.5 8.0 6.4 26% 16.4 14.3 12.3 39% 13% 13% 13% Tata Motors 0.8 0.7 0.6 18% 10.4 7.2 5.5 78% na 13.0 8.3 -220% 7% 9% 10% Tofas 0.6 0.5 0.5 11% 6.3 5.2 4.6 14% 9.1 8.2 8.1 -1% 10% 10% 10% EM Avg. 0.9 0.8 0.7 16% 8.5 6.9 5.7 na 12.0 10.9 10.1 -39% 11% 11% 12% Premium (Discount) of Russian Autos to EM 46% -2% -29% na 78% -19% -130% -212% -16%

Developed Markets Daimler 0.4 0.3 0.3 7% 4.3 3.2 2.9 na 23.9 12.0 10.2 -224% 9% 11% 10% Fiat 0.3 0.3 0.3 4% 3.7 3.0 2.4 22% 34.4 10.3 6.6 -245% 9% 10% 11% Ford Motor 0.5 0.4 0.3 4% 6.2 4.6 3.2 na 14.6 8.6 6.4 866% 7% 9% 10% Honda Motor 1.1 1.0 0.9 0% 10.6 9.4 8.3 11% 20.8 15.2 11.9 54% 10% 11% 11% Mazda Motor 0.4 0.4 0.3 -2% 9.0 8.1 6.4 37% -93.4 25.6 13.5 -177% 4% 4% 5% Mitsubishi Motors 0.6 0.5 0.5 -5% 9.5 8.3 7.6 6% na 45.1 na na 6% 7% 6% Nissan Motor 0.9 0.9 0.8 0% 8.1 7.4 6.5 18% 57.1 17.2 12.6 -206% 11% 12% 12% PSA Peugeot Citroen 0.2 0.2 0.2 -1% 2.7 2.5 1.7 13% -3.9 na 4.5 27% 7% 8% 10% Renault 0.5 0.4 0.4 4% 4.8 3.8 3.1 29% 39.3 7.5 5.2 -186% 10% 11% 12% Toyota Motor 1.2 1.1 1.1 0% 18.5 14.1 11.1 24% na 27.6 16.7 -221% 6% 8% 10% Volvo 0.6 0.5 0.4 11% na 4.7 3.8 na 39.7 11.5 8.0 -197% 8% 11% 11% DM Avg. 0.6 0.5 0.5 2% 7.8 6.3 5.2 20% 14.7 18.1 9.6 -51% 8% 9% 10% Premium (Discount) of Russian Autos to DM 119% 36% -3% 4075% 96% -12% -124% -168% -11%

Trucks Isuzu Motors 0.6 0.5 0.5 -3% 14.0 9.1 6.7 13% -194.0 23.4 15.7 -200% 4% 6% 7% MAN 0.9 0.8 0.7 7% 9.8 7.5 5.6 10% 20.9 13.4 10.3 59% 9% 11% 12% Navistar 0.6 0.5 0.4 10% 7.4 5.4 4.8 8% 17.3 8.2 5.7 38% 7% 9% 9% Paccar 1.7 1.3 1.0 24% 19.3 10.8 7.3 na 50.0 21.6 14.4 115% 9% 12% 13% Scania na 0.9 0.7 11% na 6.2 4.4 39% 13.8 8.5 6.5 86% 12% 15% 16% Sinotruk 0.5 0.5 0.4 13% 7.6 7.1 5.0 na 15.8 15.8 14.0 14% 7% 8% 7% Avg. 0.9 0.8 0.6 10% 11.6 7.7 5.6 17% -12.7 15.1 11.1 19% 8% 10% 11% Premium (Discount) of Russian Autos to DM 25% 14% 24% 211% -51% 342% -5% -231% 346%



76

Fertilizers

Company Ticker Price, $

MktCap, $mn

EV, $mn

P/E EV/EBITDA EV/Sales 2008 2009 2010E 2011E 2008 2009 2010E 2011E 2008 2009 2010E 2011E

PotashCorp POT US 120.5 35674 39337 10.4 36.1 21.5 15.9 7.9 26.1 14.5 11.1 7.5 9.9 6.6 5.7 Israel Chemicals ICL IT 13.6 17209 18105 8.2 22.3 17.4 13.1 6.7 14.7 13.0 10.5 4.4 4.0 3.4 3.1 Mosaic MOS US 60.2 26808 25593 14.3 28.2 14.4 13.3 8.4 14.7 8.7 7.7 4.4 3.4 2.8 2.7 Agrium AGU US 70.7 11116 11885 8.5 30.4 15.2 12.3 5.3 11.8 8.8 7.5 2.2 1.3 1.2 1.1 K+S SDF GR 60.9 11652 12652 9.7 89.4 21.6 13.8 6.6 20.3 11.8 8.5 2.8 2.6 2.1 1.9 Yara YAR NO 42.2 12189 14948 8.1 19.1 10.9 10.3 5.8 24.0 8.8 7.9 1.5 1.5 1.2 1.2 Arab Potash APOT JR 48.8 4070 3959 11.1 21.9 13.9 13.1 8.1 13.6 10.7 9.9 9.6 7.2 5.1 4.7 Terra Industries TRA US 46.0 4608 4804 8.0 30.2 15.5 14.0 5.0 12.1 8.6 8.0 2.0 3.0 2.6 2.4 CF Industries CF US 92.9 4514 3653 6.6 12.3 13.3 12.7 3.2 4.7 5.4 5.2 1.3 1.4 1.5 1.5 International nitrogen peer average 7.8 23.0 13.7 12.3 4.8 13.2 7.9 7.1 1.8 1.8 1.6 1.5 Silvinit SILV RU 685.0 6426 7708 24.7 5.5 13.5 14.1 18.9 4.8 11.3 11.7 8.7 3.6 7.5 6.8 Akron AKRN RU 37.3 1617 1829 4.1 7.0 8.7 7.9 2.6 8.2 6.3 5.0 1.5 1.5 1.2 1.0 Dorogobuzh DGBZ RU 0.6 481 549 4.0 8.0 10.7 6.1 3.6 6.1 7.6 4.9 1.8 1.7 1.6 1.3 Uralkali URKA RU 4.1 8710 8839 9.8 25.2 17.0 13.0 5.3 15.7 10.4 8.7 7.7 8.3 5.4 4.6 Apatit APAT RU 329.0 2419 2322 7.4 11.8 7.8 5.4 4.8 6.1 5.0 3.6 3.4 2.6 1.5 1.3 Russia average 10.0 11.5 11.5 9.3 7.0 8.2 8.1 6.8 4.6 3.6 3.4 3.0


Petrochemicals


MktCap, $mn


Nizhnekamskneftekhim NKNC RU 0.55 935 20.8 29.3 11.8 9.6 4.1 6.3 4.1 3.8 0.4 0.8 0.6 0.5 Kazaorgsyntez KZOS RU 0.17 301 -2.5 -6.0 -4.5 -59.4 13.0 18.1 7.8 5.5 0.4 2.5 1.7 1.4 Russia average (adjusted) 20.8 29.3 11.8 9.6 8.6 12.2 6.0 4.6 0.4 1.6 1.1 1.0 International peers EI du Pont de Nemours & Co DD US Equity 37.7 34,093 18.1 19.4 15.8 13.9 na 12.9 8.4 7.7 1.4 1.5 1.4 1.3 Dow Chemical Co/The DOW US Equity 29.5 33,957 14.9 52.4 19.7 11.1 10.3 13.9 8.3 7.2 1.0 1.3 1.1 1.0 PPG Industries Inc PPG US Equity 65.8 10,907 14.7 32.5 17.2 15.0 7.0 9.7 8.8 8.3 0.8 1.1 1.0 1.0 BASF SE BAS GR Equity 61.6 56,588 13.3 29.7 13.7 11.8 6.2 7.2 6.0 5.5 1.0 1.1 1.0 1.0 Koninklijke DSM NV DSM NA Equity 44.4 8,445 11.2 18.5 17.1 13.7 5.6 8.2 6.7 6.1 0.8 0.9 0.9 0.8 Repsol YPF SA REP SM Equity 24.1 29,430 11.7 14.0 10.4 8.4 6.8 6.1 5.4 4.7 1.0 0.7 0.8 0.7 Lanxess AG LXS GR Equity 45.56 3,791 13.4 70.1 15.6 11.8 5.4 7.9 5.6 4.9 0.6 0.7 0.6 0.6 Petkim Petrokimya Holding AS PETKM TI Equity 5.83 1,193 -63.2 16.0 16.8 13.8 27.6 9.1 7.1 5.9 0.8 0.8 0.7 0.7 Makhteshim-Agan Industries Ltd MAIN IT Equity 4.5 2,067 9.2 63.2 16.7 11.7 6.4 13.0 8.2 7.0 1.1 1.3 1.3 1.2 Johnson Matthey PLC JMAT LN Equity 26.4 5,676 15.5 21.1 17.8 15.8 9.1 11.4 10.1 9.2 0.4 0.6 0.5 0.5 International peers average 13.0 31.6 16.3 12.8 9.4 9.9 7.4 6.6 0.9 1.0 0.9 0.9 Premium / (discount) to international peers 60% -7% -28% -25% -9% 23% 2% -16% -50% 85% 60% 55%



77

Titanium


MktCap, $mn


VSMPO-Avisma VSMO RU 113 1,303 13.1 11.8 13.8 10.3 7.7 6.4 6.7 5.7 1.6 2.0 1.7 1.4 Upside / (Downside) to international peers -34% -91% -85% -61% -35% -85% -92% -57% -8% -12% -34% -31% International peers Titanium Metals TIE US 0.17 3,086 19.7 88.7 148.1 34.7 10.6 27.6 34.4 16.0 2.5 3.8 3.9 3.2 Allegheny Technologies ATI US 0.56 5,473 10.2 172.6 35.9 18.3 6.2 26.3 13.1 9.0 1.1 1.0 1.7 1.4 RTI International Metals RTI US 32.5 977 17.7 -14.5 -88.4 40.9 7.9 74.5 208.9 14.5 1.4 2.1 2.2 1.6 Osaka Titanium Technologies 5726 JP 42.0 1,544 12.4 na na na 6.6 na na na 3.3 na na na Toho Titanium 5727 JP 24.6 1,494 38.3 -90.1 -26.5 na 18.5 67.8 40.1 28.9 4.8 8.4 7.8 6.8 International peer average 19.7 130.7 92.0 26.5 11.7 42.8 85.4 13.2 1.7 2.3 2.6 2.1


Power engineering


MktCap, $mn

EV, $mn


Power Machines SILM RU 0.210 1,829 1,634 23.0 12.1 11.3 10.2 14.1 5.9 5.3 4.9 0.8 0.8 0.8 0.8 Kaluga Turbine Plant KTYR RU Equity 58 33 51 6.4 7.9 6.3 5.3 2.9 3.4 3.0 2.7 0.3 0.4 0.3 0.3 Russia average 14.1 11.0 8.6 7.8 9.0 5.6 4.7 4.5 0.8 0.7 0.6 0.7 International peers Caterpillar Inc CAT US Equity 51.9 36,721 64,045 9.9 41.0 21.6 14.3 9.7 22.0 14.5 11.0 1.3 2.0 1.8 1.5 Danieli & C Officine Meccaniche SpA DAN IM Equity 24.2 1,586 336 9.2 9.3 9.1 8.9 0.9 1.0 1.0 1.0 0.1 0.1 0.1 0.1 Joy Global Inc JOYG US Equity 47.1 5,899 5,934 16.2 13.0 18.1 14.5 9.5 7.8 10.3 8.6 1.8 1.6 1.9 1.7 Komatsu Ltd 6301 JP Equity 0.2 21,166 27,632 19.3 55.1 26.6 18.9 9.6 15.2 11.1 9.3 1.4 1.8 1.6 1.4 Mitsui Engineering & Shipbuilding Co Ltd 7003 JP Equity 0.0 2,077 3,576 20.4 11.3 10.1 8.5 9.7 6.0 5.9 5.2 0.5 0.4 0.5 0.5 National Oilwell Varco Inc NOV US Equity 41.5 18,291 16,667 9.2 12.5 13.5 12.5 4.9 5.6 6.5 6.1 1.2 1.3 1.4 1.3 Areva SA CEI FP Equity 468.0 17,984 27,783 18.9 23.9 21.1 21.0 13.8 17.3 14.2 12.5 1.6 1.5 1.9 1.9 Siemens AG SIE GR Equity 91.1 83,896 93,140 12.2 29.4 16.2 13.2 9.9 7.9 7.8 6.9 1.0 0.9 0.9 0.9 General Electric GE US Equity 16.2 176,159 531,072 9.1 16.0 16.6 13.7 16.7 25.5 23.1 18.8 2.9 3.4 3.4 3.4 Harbin Power Equipment Co Ltd 1133 HK Equity 0.8 1,157 263 6.5 14.0 11.5 10.8 0.8 1.4 1.2 1.1 0.1 0.1 0.1 0.1 Mitsubishi Heavy Industries Ltd 7011 JP Equity 0.04 13,061 28,216 65.0 90.6 47.1 28.6 11.0 11.5 10.7 9.5 0.8 0.9 0.9 0.8 International peer average (adjusted) 23.0 33.7 21.8 16.7 9.8 10.2 9.5 8.3 1.2 1.2 1.3 1.2 Premium / (discount) to international peers 0% -64% -48% -39% 44% -42% -44% -41% -31% -33% -35% -31%

Source: Company data, RTS, Thomson, Renaissance Capital estimate


78

Defense


MktCap, $mn


Russian peers Ulan-Ude Aviation Plant UUAZ RU Equity 1.29 343 6.0 3.6 3.2 2.7 4.4 3.0 2.7 2.3 1.0 0.7 0.7 0.6 Kazan Helicopters KHEL RU Equity 1.30 200 12.9 8.3 7.0 4.0 3.8 4.3 5.0 3.7 0.5 0.5 0.4 0.4 Rostvertol RTVL RU Equity 0.036 83 4.9 10.3 3.4 2.5 3.8 6.3 3.4 2.7 0.5 0.3 0.2 0.2 RKK Energia RKKE RU Equity 325 365 28.4 64.1 10.5 4.0 4.9 6.1 3.2 2.4 0.9 1.1 0.7 0.6 Arzamas Instrumental Plant APSZ RU Equity 141 47 1.4 1.4 0.9 0.8 0.6 0.8 0.6 0.5 0.1 0.2 0.1 0.1 Russia average (adjusted) 12.1 19.4 5.0 2.8 3.5 4.1 3.0 2.3 0.6 0.6 0.4 0.4 International peers Boeing BA US Equity 74.1 56,150 17.2 42.8 19.4 17.3 9.1 15.3 9.0 8.4 0.9 0.8 0.9 0.8 Lockheed Martin LMT US Equity 84.8 31,844 10.1 10.5 11.4 11.2 5.9 6.5 6.6 6.5 0.8 0.8 0.7 0.7 EADS EAD FP Equity 20.7 16,890 10.8 neg 21.1 15.4 2.3 6.3 2.9 2.6 0.2 0.2 0.2 0.2 General Dynamics GD US Equity 78.5 30,175 12.2 12.6 12.0 11.3 7.8 7.5 7.3 7.0 1.1 1.0 0.9 0.9 Northrop Grumman NOC US Equity 65.8 19,916 11.2 11.8 11.3 10.1 5.7 6.5 5.8 5.4 0.6 0.6 0.6 0.6 Raytheon RTN US Equity 57.7 21,862 11.1 11.3 11.5 11.1 6.3 6.3 6.5 6.3 0.8 0.9 0.8 0.8 BAE SYSTEMS BA/ LN Equity 574 20,151 10.7 neg 9.0 9.0 6.2 3.7 4.8 4.8 0.8 0.6 0.6 0.6 Bombardier BBD/B CN Equity 6.00 10,525 11.0 14.4 14.9 12.9 6.4 7.4 7.3 6.7 0.6 0.6 0.6 0.6 Dassault Aviation AM FP Equity 771 7,805 18.9 21.9 18.0 14.8 12.2 13.9 14.0 12.0 2.0 2.0 1.9 2.0 Goodrich Corp GR US Equity 71.1 8,893 13.9 14.9 15.9 14.1 7.5 8.6 8.2 7.5 1.4 1.5 1.4 1.4 Saab SAABB SS Equity 15.38 1,679 13.5 18.8 11.4 10.0 5.0 5.3 4.4 4.3 0.7 0.6 0.6 0.6 International peer average (adjusted) 12.4 15.1 14.0 12.3 6.7 7.6 6.6 6.3 0.9 0.8 0.8 0.8 Premium / (discount) to international peers -2% 28% -64% -77% -48% -46% -55% -63% -30% -33% -47% -51%


Cement


MktCap, $mn


Global peers Lafarge LG FP Equity 71 20,256 8.9 20.4 13.4 10.2 7.2 9.6 7.9 7.0 1.8 2.0 1.9 1.8 Holcim HOLN VX Equity 73.5 24,046 14.5 17.3 15.9 12.5 8.4 9.1 8.0 7.1 1.8 2.0 1.8 1.7 Cemex CX US Equity 10.3 9,915 8.4 29.5 1.7 na 6.5 0.8 0.7 na 1.3 0.1 0.1 0.1 Heidelberg Cement HEI GR Equity 56 10,498 5.4 11.3 8.1 6.5 6.1 6.8 6.0 5.5 1.2 1.4 1.3 1.2 C. Portland CPL SM Equity 26.1 990 6.7 30.5 17.0 12.4 5.7 8.0 8.3 7.6 1.6 2.4 2.4 2.3 Ciments Francais CMA FP Equity 97 3,536 7.8 10.8 9.6 8.2 4.9 5.5 5.3 4.6 1.1 1.2 1.1 1.1 Cimpor CPR PL Equity 7.46 5,013 18.5 15.7 14.2 11.4 9.2 8.5 7.5 7.1 2.6 2.5 2.2 2.1 ItalCementi IT IM Equity 11.7 2,773 8.7 28.8 13.6 9.7 5.6 6.2 5.9 5.2 1.1 1.2 1.2 1.1 Titan TITK GA Equity 26.8 2,194 9.3 13.2 9.8 8.3 7.7 7.9 6.9 6.2 1.8 1.9 1.7 1.6 Ambuja Cements ACEM IN Equity 2.71 4,133 16.2 15.2 16.3 15.0 10.1 5.9 9.1 8.4 3.1 2.4 2.4 2.2 Indocement INTP IJ Equity 1.58 5,802 45.0 19.2 16.3 13.2 22.8 11.8 10.1 8.6 7.2 4.8 4.2 3.6 Associated Cement ACC IN Equity 21.5 4,038 17.4 11.3 14.0 14.0 10.3 6.4 7.7 7.6 2.5 2.1 2.0 1.8 Steppe Cement STCM LN Equity 0.95 147 7.9 neg 8.7 6.7 6.3 11.2 7.3 6.3 2.3 3.0 2.0 Sibcement SCEM RU Equity 21.0 636 2.0 -411.1 34.3 12.0 1.5 14.6 8.7 4.9 0.8 3.1 2.0 1.3


79


Analysts certification

This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the issuer or issuers (collectively, the “Issuer”) and the securities and markets that are the subject matter of this report. Each research analyst hereby certifies that with respect to the Issuer and such securities and markets, this document has been produced independently of the Issuer and all the views expressed in this document accurately reflect his or her personal views about the Issuer and any and all of such securities and markets. Each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting market information. If the date of this report is not current, the views and contents may not reflect the research analysts’ current thinking.

Each research analyst also certifies that no part of his or her compensation was, or will be, directly or indirectly related to the specific ratings, forecasts, estimates, opinions or views in this research report. Research analysts’ compensation is determined based upon activities and services intended to benefit the investor clients of Renaissance Securities (Cyprus) Limited and any of its affiliates (“Renaissance Capital”). Like all of Renaissance Capital’s employees, research analysts receive compensation that is impacted by overall Renaissance Capital profitability, which includes revenues from other business units within Renaissance Capital.

Important issuer disclosures

Important issuer disclosures outline currently known conflicts of interest that may unknowingly bias or affect the objectivity of the analyst(s) with respect to an issuer that is the subject matter of this report. Disclosure(s) apply to Renaissance Securities (Cyprus) Limited or any of its direct or indirect subsidiaries or affiliates (which are individually or collectively referred to as “Renaissance Capital”) with respect to any issuer or the issuer’s securities.

Renaissance Capital acts as adviser to Svyazinvest on the potential merger of entities of Svyazinvest, which includes North West Telecom and VolgaTelecom

A complete set of disclosure statements associated with the issuers discussed in the Report is available using the ‘Stock Finder’ or ‘Bond Finder’ for individual issuers on the Renaissance Capital Research Portal at: http://research.rencap.com/eng/default.asp

Investment ratings

Investment ratings may be determined by the following standard ranges: Buy (expected total return of 15% or more); Hold (expected total return of 0-15%); and Sell (expected negative total return). Standard ranges do not always apply to emerging markets securities and ratings may be assigned on the basis of the research analyst’s knowledge of the securities.

Investment ratings are a function of the research analyst’s expectation of total return on equity (forecast price appreciation and dividend yield within the next 12 months, unless stated otherwise in the report). Investment ratings are determined at the time of initiation of coverage of an issuer of equity securities or a change in target price of any of the issuer’s equity securities. At other times, the expected total returns may fall outside of the range used at the time of setting a rating because of price movement and/or volatility. Such interim deviations will be permitted but will be subject to review by Renaissance Capital’s Research Management.

Where the relevant issuer has a significant material event with further information pending or to be announced, it may be necessary to temporarily place the investment rating Under Review. This does not revise the previously published rating, but indicates that the analyst is actively reviewing the investment rating or waiting for sufficient information to re-evaluate the analyst’s expectation of total return on equity.

If data upon which the rating is based is no longer valid, but updated data is not anticipated to be available in the near future, the investment rating may be Suspended until further notice. The analyst may also choose to temporarily suspend maintenance of the investment rating when unable to provide an independent expectation of total return due to circumstances beyond the analyst’s control such as an actual, apparent or potential conflict of interest or best business practice obligations. The analyst may not be at liberty to explain the reason for the suspension other than to Renaissance Capital’s Research Management and Compliance Officers. Previously published investment ratings should not be relied upon as they may no longer reflect the analysts’ current expectations of total return.

If issuing of research is restricted due to legal, regulatory or contractual obligations publishing investment ratings will be Restricted. Previously published investment ratings should not be relied upon as they may no longer reflect the analysts’ current expectations of total return. While restricted, the analyst may not always be able to keep you informed of events or provide background information relating to the issuer.

If for any reason Renaissance Capital no longer wishes to provide continuous coverage of an issuer, investment ratings for the issuer will be Terminated. A notice will be published whenever formal coverage of an issuer is discontinued.

Where Renaissance Capital has not expressed a commitment to provide continuous coverage and/or an expectation of total return, to keep you informed, analysts may prepare reports covering significant events or background information without an investment rating (Unrated).

Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the security’s expected performance and risk.

Renaissance Capital equity research distribution ratings Investment Rating Distribution Investment Banking Relationships* Renaissance Capital Research Renaissance Capital Research Buy 129 37% Buy 10 83% Hold 50 14% Hold 1 8% Sell 14 4% Sell 0 0% UR 24 7% UR 0 0% not rated 136 39% not rated 1 8% 353 12 *Companies from which RenCap has received compensation within the past 12 months. NR – Not Rated UR – Under Review

Disclosures appendix

© 2010 Renaissance Securities (Cyprus) Limited, an indirect subsidiary of Renaissance Capital Holdings Limited ("Renaissance Capital"), which together with other subsidiaries operates outside of the USA under the brand name of Renaissance Capital, for contact details see Bloomberg page RENA, or contact the relevant office. All rights reserved. This document and/or information has been prepared by and, except as otherwise specified herein, is communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities and Exchange Commission (License No: KEPEY 053/04). The RenCap-NES Leading GDP Indicator is a model that seeks to forecast GDP growth and was developed by and is the exclusive property of Renaissance Capital and the New Economic School (e-mail: [email protected]).

This document is for information purposes only. The information presented herein does not comprise a prospectus of securities for the purposes of EU Directive 2003/71/EC or Federal Law No. 39-FZ of 22 April 1994 (as amended) of the Russian Federation "On the Securities Market". Any decision to purchase securities in any proposed offering should be made solely on the basis of the information to be contained in the final prospectus published in relation to such offering. This document does not form a fiduciary relationship or constitute advice and is not and should not be construed as an offer, or a solicitation of an offer, or an invitation or inducement to engage in investment activity, and cannot be relied upon as a representation that any particular transaction necessarily could have been or can be effected at the stated price. This document is not an advertisement of securities. Opinions expressed herein may differ or be contrary to opinions expressed by other business areas or groups of Renaissance Capital as a result of using different assumptions and criteria. All such information and opinions are subject to change without notice, and neither Renaissance Capital nor any of its subsidiaries or affiliates is under any obligation to update or keep current the information contained herein or in any other medium.

Descriptions of any company or companies or their securities or the markets or developments mentioned herein are not intended to be complete. This document and/or information should not be regarded by recipients as a substitute for the exercise of their own judgment as the information has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The application of taxation laws depends on an investor’s individual circumstances and, accordingly, each investor should seek independent professional advice on taxation implications before making any investment decision. The information and opinions herein have been compiled or arrived at based on information obtained from sources believed to be reliable and in good faith. Such information has not been independently verified, is provided on an ‘as is’ basis and no representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness, reliability, merchantability or fitness for a particular purpose of such information and opinions, except with respect to information concerning Renaissance Capital, its subsidiaries and affiliates. All statements of opinion and all projections, forecasts, or statements relating to expectations regarding future events or the possible future performance of investments represent Renaissance Capital’s own assessment and interpretation of information available to them currently.

The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors and trading in these instruments is considered risky. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. Some investments may not be readily realisable since the market in the securities is illiquid or there is no secondary market for the investor’s interest and therefore valuing the investment and identifying the risk to which the investor is exposed may be difficult to quantify. Investments in illiquid securities involve a high degree of risk and are suitable only for sophisticated investors who can tolerate such risk and do not require an investment easily and quickly converted into cash. Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or the price of, or income derived from, the investment. Other risk factors affecting the price, value or income of an investment include but are not necessarily limited to political risks, economic risks, credit risks, and market risks. Investing in emerging markets such as Russia, other CIS, African or Asian countries and emerging markets securities involves a high degree of risk and investors should perform their own due diligence before investing.

Excluding significant beneficial ownership of securities where Renaissance Capital has expressed a commitment to provide continuous coverage in relation to an issuer or an issuer’s securities, Renaissance Capital and its affiliates, their directors, representatives, employees (excluding the US broker-dealer unless specifically disclosed), or clients may have or have had interests in the securities of issuers described in the Investment Research or long or short positions in any of the securities mentioned in the Investment Research or other related financial instruments at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case as principals or as agents. Where Renaissance Capital has not expressed a commitment to provide continuous coverage in relation to an issuer or an issuer’s securities, Renaissance Capital and its affiliates (excluding the US broker-dealer unless specifically disclosed) may act or have acted as market maker in the securities or other financial instruments described in the Investment Research, or in securities underlying or related to such securities. Employees of Renaissance Capital or its affiliates may serve or have served as officers or directors of the relevant companies. Renaissance Capital and its affiliates may have or have had a relationship with or provide or have provided investment banking, capital markets, advisory, investment management, and/or other financial services to the relevant companies,

and have established and maintain information barriers, such as ‘Chinese Walls’, to control the flow of information contained in one or more areas within the Renaissance Group of companies to which Renaissance Capital belongs, into other areas, units, groups or affiliates of the Renaissance Group.

The information herein is not intended for distribution to the public and may not be reproduced, redistributed or published, in whole or in part, for any purpose without the written permission of Renaissance Capital, and neither Renaissance Capital nor any of its affiliates accepts any liability whatsoever for the actions of third parties in this respect. This information may not be used to create any financial instruments or products or any indices. Neither Renaissance Capital and its affiliates, nor their directors, representatives, or employees accept any liability for any direct or consequential loss or damage arising out of the use of all or any part of the information herein.

Bermuda: Neither the Bermuda Monetary Authority nor the Registrar of Companies of Bermuda has approved the contents of this document and any statement to the contrary, express or otherwise, would constitute a material misstatement and an offence.

EEA States: Distributed by Renaissance Securities (Cyprus) Limited, regulated by Cyprus Securities and Exchange Commission, or Renaissance Capital Limited, member of the London Stock Exchange and regulated in the UK by the Financial Services Authority (“FSA”) in relation to designated investment business (as detailed in the FSA rules). Cyprus: Except as otherwise specified herein the information herein is not intended for, and should not be relied upon by, retail clients of Renaissance Securities (Cyprus) Limited. The Cyprus Securities and Exchange Commission Investor Compensation Fund is available where Renaissance Securities (Cyprus) Limited is unable to meet its liabilities to its retail clients, as specified in the Customer Documents Pack. United Kingdom: Approved and distributed by Renaissance Capital Limited only to persons who are eligible counterparties or professional clients (as detailed in the FSA Rules). The information herein does not apply to, and should not be relied upon by, retail clients; neither the FSA’s protection rules nor compensation scheme may be applied.

Ghana: Distributed through NewWorld Renaissance Securities Ltd, a licenced broker dealer in Accra and an affiliate of Renaissance Capital.

Kazakhstan: Distributed by Renaissance Capital Investments Kazakhstan JSC, regulated by the Agency for the Regulation and Supervision of the Financial Market and Financial Organizations.

Kenya: Distributed by Renaissance Capital (Kenya) Limited, regulated by the Capital Markets Authority.

Nigeria: Distributed by RenCap Securities (Nigeria) Limited, member of The Nigerian Stock Exchange, or Renaissance Securities (Nigeria) Limited, entities regulated by the Securities and Exchange Commission.

Russia: Distributed by CJSC Renaissance Capital, LLC Renaissance Broker, or Renaissance Online Limited, entities regulated by the Federal Financial Markets Service.

Ukraine: Distributed by Renaissance Capital LLC, authorized to perform professional activities on the Ukrainian stock market.

United States: Distributed in the United States by RenCap Securities, Inc., member of FINRA and SIPC, or by a non-US subsidiary or affiliate of Renaissance Capital Holdings Limited that is not registered as a US broker-dealer (a "non-US affiliate"), to major US institutional investors only. RenCap Securities, Inc. accepts responsibility for the content of a research report prepared by another non-US affiliate when distributed to US persons by RenCap Securities, Inc. Although it has accepted responsibility for the content of this research report when distributed to US investors, RenCap Securities, Inc. did not contribute to the preparation of this report and the analysts authoring this are not employed by, and are not associated persons of, RenCap Securities, Inc. Among other things, this means that the entity issuing this report and the analysts authoring this report are not subject to all the disclosures and other US regulatory requirements to which RenCap Securities, Inc. and its employees and associated persons are subject. Any US person receiving this report who wishes to effect transactions in any securities referred to herein should contact RenCap Securities, Inc., not its non-US affiliate. RenCap Securities, Inc. is a subsidiary of Renaissance Capital Holdings Limited and forms a part of a group of companies operating outside of the United States as "Renaissance Capital". Contact: RenCap Securities, Inc., 780 Third Avenue, 20th Floor, New York, New York 10017, Telephone: +1 (212) 824-1099.

Zambia: Distributed through Pangaea Renaissance Securities Ltd, a licenced broker dealer in Lusaka and an affiliate of Renaissance Capital.

Zimbabwe: Distributed by the representative office in Harare of Renaissance Africa (Mauritius) Limited, part of the Renaissance Group.

Other distribution: The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restriction.

Additional information (including information about the RenCap-NES Leading GDP Indicator) and supporting documentation is available upon request.

Renaissance Securities (Cyprus) Ltd. Alpha Business Centre, 8th Floor 27 Pindarou Street 1060 Nicosia Republic of Cyprus T +357 (22) 505 800 F + 357(22) 676 755

Renaissance Capital Moscow City Naberezhnaya Tower, Block C 10, Presnenskaya Nab. Moscow 123317 Russia T + 7 (495) 258 7777 F + 7 (495) 258 7778 www.rencap.com

Renaissance Capital Ltd. One Angel Court Copthall Avenue London EC2R 7HJ United Kingdom T + 44 (20) 7367 7777 F + 44 (20) 7367 7778

Renaissance Capital Kazakhstan Esentai Tower 77/7 Al-Farabi Avenue Almaty 050060 Kazakhstan T + 7 (727) 244 1544 F + 7 (727) 244 1545

Renaissance Securities (Nigeria) Ltd 5th Floor, Professional Centre Plot 1B, Bank PHB Crescent Victoria Island, Lagos Nigeria T +234 (1) 448 5300 F +234 (1) 448 5353

Renaissance Capital 6th Floor, Purshottam Place Westlands Road P.O. Box 40560-00100 Nairobi, Kenya T +254 (20) 368 2000 F +254 (20) 368 2339

Renaissance Capital Ukraine Parus Business Center, 2 Mechnykova Street,14th Floor Kyiv 01601, Ukraine T +38 (044) 492-7383 F +38 (044) 492-7393

Renaissance Capital Research

Head of Research Roland Nash

+ 7 (495) 258 7916 [email protected]

Head of Equity Research Alexander Burgansky

+ 7 (495) 258 7904 [email protected]

Head of Macro/Fixed Income Research Alexei Moisseev

+ 7 (495) 258 7946 [email protected]

Head of Russia Research Natasha Zagvozdina

+ 7 (495) 258 7753 [email protected]

Head of Central Asia Research Milena Ivanova-Venturini

+ 7 (727) 244 1544 [email protected]

Head of Africa Research Kato Mukuru

+234 (1) 448 5300 [email protected]

Banking + 7 (495) 258 7748 David Nangle [email protected] Milena Ivanova-Venturini Armen Gasparyan Chemicals/Engineering/Building materials + 7 (495) 783 5653 Marina Alexeenkova [email protected] Mikhail Safin Consumer/Retail/Agriculture + 7 (495) 258 7753 Natasha Zagvozdina [email protected] Ulyana Lenvalskaya Central Asia + 7 (727) 244 1544 Milena Ivanova-Venturini Tatyana Kalachova Ekaterina Gazadze Equity Strategy + 7 (495) 258 7916 Roland Nash [email protected] Tom Mundy Ovanes Oganisian

Metals & Mining + 44 (20) 7367 7781 Rob Edwards [email protected] Boris Krasnojenov Andrew Jones

Oil & Gas + 7 (495) 258 7904 Alexander Burgansky [email protected] Irina Elinevskaya Ildar Davletshin Tatyana Kalachova (Central Asia) Dragan Trajkov (Africa) Media/Technology/Real Estate + 7 (495) 258 4350 David Ferguson [email protected] Telecoms/Transportation + 7 (495) 258 7902 Alexander Kazbegi [email protected] Ivan Kim Utilities + 44 (20) 7367 7793 Derek Weaving [email protected] Vladimir Sklyar

Ukraine +38 (044) 492-7383 Anastasiya Golovach

Macro & Fixed Income Research + 7 (495) 258 7946 Alexei Moisseev [email protected] Nikolai Podguzov Petr Grishin Maxim Raskosnov Andrey Markov Anastasiya Golovach (Ukraine) Anton Nikitin Ilya Zhila

Africa Macro & Strategy +234 1 448 5300 Samir Gadio [email protected] Africa Financials +234 1 448 5300 Kato Mukuru [email protected] Africa Oil & Gas +44 207 367 7941 x8941 Dragan Trajkov [email protected] East Africa +263 (11) 634-463 Dzika Danha [email protected] Eric Musau Southern Africa +263 (11) 634-463 Dzika Danha [email protected] Anthea Alexander West Africa + 234 1 271 91 33 Esili Eigbe [email protected]

2Q10 Outlook Russia, CIS: Taking stockCIS Strategy Equity Research 13 April 2010 2Q10 Outlook...

Documents

Transcript of 2Q10 Outlook Russia, CIS: Taking stockCIS Strategy Equity Research 13 April 2010 2Q10 Outlook...