Company registration number 41051: 0 ALFA BOND ISSUANCE ... · STATEMENT OF CASH FLOW ... ALFA BOND...

Company registration number: 410510

ALFA BOND ISSUANCE PUBLIC LIMITED COMPANY

DIRECTORS' REPORT AND FiNANCIAL STATEWENTS

F O R T H E Y E A R ENDED

31 D E C E M B E R 2013


CONTENTS

Page

COMPANY INFORMATION 2

DIRECTORS' REPORT 3 - 6

STATEMENT OF DIRECTORS' RESPONSIBILITiES 7

INDEPENDENT AUDITORS' REPORT 8 - 9

STATEMENT OF COMPREHENSIVE INCOME 10

STATEMENT OF FINANCIAL POSITION 11

STATEMENT OF CASH FLOW 12

STATEMENT OF CHANGES IN EQUITY 13

NOTES TO THE FINANCIAL STATEMENTS 1 4 - 2 7


DIRECTORS

COMPANY REGISTRATION NUMBER

COMPANY INFORMATION

Ronan Reilly Jacqueline O'Rourke

410510

COMPANY S E C R E T A R Y AND R E G I S T E R E D O F F i C E

TMF Administration Services Limited 53 Merrion Square Dublin 2 Ireland

B A N K E R S Bank of New York Mellon One Canada Square, Canary Wharf London E l 4 SAL United Kingdom

Bank of Ireland La Touche House, Customs House Dock International Financial Services Centre Dublin 1 Ireland

INDEPENDENT AUDITORS

L E G A L ADVISORS

PRINCIPAL PAYING AGENT

T R U S T E E

BORROWER

PricewaterhouseCoopers Chartered Accountants and Statutory Audit Firm One Spencer Dock North Wail Quay Dublin 1 Ireland

Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2 Ireland

JP Morgan Chase Bank, N.A Trinity Tower 9 Thomas More Street London E I W 1YT United Kingdom

BNY Mellon Corporate Trustee Services Limited One Canada Square London E l 4 SAL United Kingdom

Open Joint^Stock Coinpany "ALFA-BANK" Corporate Head Office 27 Kalanchyovskaya Street Moscow, 107078 Russian Federation

2


DIRECTORS' R E P O R T {CONTINUED)

The directors present their annual report on the affairs of Aifa Bond Issuance Public Limited Company (the "Company") together with the financial statements and auditors' report, for the year ended 31 December 2013,

NATURE OF BUSINESS AND PRINCIPAL ACTIVITIES

The Company is a bankruptcy-remote special purpose entity which was incorporated on 8 November 2005, in accordance with the laws of Ireland,

The main purpose of the Company is to enter into a Loan Participation Notes transaction with Open Joint-Stock Company "ALFA-BANK" ("Alfa-Bank"). whereby the Company issues notes (the "Notes") and utilises the proceeds to provide loans (the "Loans") to Alfa-Bank, Each series of Notes is linked to the respective Loan which is funded by its issuance. The Notes are listed on the Irish Stock Exchange and London Stock Exchange.

The Company has issued the following Notes since inception:

• On 22 February 2007, the Company issued Notes of an aggregate principal amount of USD 300,000,000 with interest payments of 8.635% p.a, paid semi-annually. The Notes are due to mature on 22 February 2017, Under the terms of the loan agreement the fixed interest rate on the USD 300.000.000 Note and Loan changed from 8.635% to 6.300% on 22 February 2012.

• On 24 September 2010, the Company issued Notes of an aggregate principal amount of USD 1,000,000.000 with interest payments of 7.875% p.a. paid semi-annually. The Notes are due to mature on 25 September 2017.

• On 28 April 2011, the Company issued Notes of an aggregate principal amount of USD 1,000,000,000 with interest payments of 7.75% % p.a. paid semi-annually. The Notes are due to mature on 28 April

» On 26 September 2012, the Company issued Notes of an aggregate principal amount of USD 750,000,000 with interest payments of 7.5% p.a. paid semi-annually. The Notes are due to mature on 26 September 2019.

• On 26 April 2013, the Company issued Notes of an aggregate pnncipai amount of RUB 10,000.000,000 with interest payments of 8.625% p.a, paid semi-annually. The Notes are due to mature on 26 April 2016,

BUSINESS REVIEW AND FUTURE DEVELOPMENTS

During the year under review/ the Company issued Notes of an aggregate principal amount of RUB 10,000,000,000. The proceeds from the issuances of the aforementioned Notes were used to provide Loans to Alfa-Bank

The key performance indicators for the Company are as follows:

2021,

2013 USD

2012 USD

Change %

(a) Profit before taxation (b) Income receivable and similar income (c) Interest payable and similar expense (d) Loans granted (e) Notes issued

253.601,069 (253,601,069) 3,335,587.393 3.335.587.3i3

5,670 193.338,366

(193,338,366) 3,028,412,338 3,028.412.338

4,370 29,75 31,17 31,17 10.14 10,14

l a l O r r t f i t h.afnro

of USD 1,300 between 2012 and 2013 is due to the impact of a foreign


DIRECTORS' R E P O R T (CONTINUED)

(b) Income receivable and sinnilar income: The increase in interest income earned of USD 60,262,703 between 2012 and 2013 is due to the issuance of a new Loan in April 2013.

(c) Interest payable and s imilar expense: The increase in interest expense paid of USD 60,262.703 between 2012 and 2013 is due to the issuance of a new Note in April 2013.

(d) Loans granted The increase in the balance of Loans of USD 307,175,055 between 2012 and 2013 is mainly due to the issuance of a new Loan in April 2013 for USD 304.271,852.

(e) Notes issued The increase in the balance of Notes of USD 307.175,055 between 2012 and 2013 is mainly due to the issuance of a new Note in April 2013 for USD 304,271.852.

R E S U L T S AND DIVIDENDS FOR THE Y E A R

The results for the year and the Company's financial position at the end of the year are set out on page 10 and page 11 respectively. The profit before taxation for the year was USD 5.670 (2012: USD 4.370). The directors do not recommend the payment of a dividend (2012: nil). The changes in the financial position and financial results for the year arose due to the issuance of Notes as discussed in the business review and future developments section of this report.

DIRECTORS AND COMPANY S E C R E T A R Y

The directors and company secretary of the Company are listed on page 2 and except where indicated, have served for the entire year. The directors and company secretary had no material interest in any contract of significance in relation to the business of the Company other than that disciosed below. The directors and company secretary who held office on 31 December 2013 did not hold any shares, debentures or loan stock of the Company on that date or during the year.

R E L A T E D PARTY TRANSACTIONS

TMF Administration Services Limited (the "Administrator") provides corporate administration services to the Company at arm's iength commercial rates. Jacqueline O'Rourke and Ronan Reilly, both directors of the Company, were aiso directors of the Administrator during the year and in that capacity had a material interest in transactions conducted with the Company. There were no other contracts of any significance in relation to the business of the Company in which the directors had any interest, as defined in the Companies Act, 1990, at any time during the year.

The Company is managed and controlled by the board of directors. Aifa Bank Holding Financial Limited is a related party of the Company as they have significant influence as open joint stock company and as borrower. Alfa Bank does not hold any direct or indirect shareholding in the company.

During the year, the cempany earned interest income of USD 253,801,069 (2012; USD 193,338.366) payable to the Noteholders in accordance wiih the various loan agreements. At the year end the carrying value and fair value of the loans was USD 3,335,587,393 (2012; USD 3.028,412,338) and USD 3.587,527.299 (2012: USD 3,317,189,000) respectively. These loans were provided on an arm's length basis.

SIGNIFICANT S U B S E Q U E N T EVENTS

There were no significant subsequent events sinee the end of the year until the date of signing of this report that would require an adiustment to or disclosure in the financiai statements.

The directors expect the current level of business activity to continue in the future.

4


DIRECTORS' REPORT (CONTINUEDI

FINANCIAL RISK MANAGEMENT

The operations of the Company are subject to various risks. Information about the financiai risk management objectives and policies of the Company, along with exposure of the Company to market risk, credit risk, and liquidity risk, are disclosed in Note 10 to the financial statements.

CORPORATE GOVERNANCE REVIEW

The Board of Directors of the Company (the "Board") is responsible for establishing and maintaining adequate internal controls and risk management systems of the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of failure to achieve the Company's financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board has estabiisned processes regarding internal controls and risk management systems to ensure its effective oversight of the financial reporting process. These include appointing the Administrator to maintain the accounting records of the Company independently. The Administrator is contractually obliged to prepare for review and approval by the Board the annual report including financial statements intended to give a true and fair view of the Company. The Board evaluates and discusses significant accounting and reporting issues as the need arises.

From time to time the Board also examines and evaluates the Administrator's financial accounting and reporting routines and monitors and evaluates the external auditors' performance, qualifications and independence. The Administrator has operating responsibility for internal controls in relation to the financial reporting process and the reports to the Board.

The Administrator is obliged to design and maintain control structures to manage the risks which tne Board judges to be significant for internal controls over financial reporting. These control structures include appropriate division of responsibilities and specific control activities, aimed at detecting or preventing the risk of significant deficiencies in financial reporting for every significant account in the financial statements and the related notes in the Com.pany's annual report.

The Company's policies and the Board's instructions with relevance for financial reporting are updated and communicated via appropriate channels, such as e-mail, correspondence and meetings to ensure that all financial reporting information requirements are met in a complete and accurate manner. The Board has an annual process to ensure that appropriate measures are taken to consider and address any measures recommended by the independent auditors.

Given the contractual obligations on the Administrator, the Board has concluded that there is currently no need for the Company to have a separate audit committee or internal audit function in order for the Board to perform effective monitoring and oversight of the internal controls and risk management systems of the Company in relation to the financial reporting process. Under regulation 91 (9) (d) European Communities (Statutory Audits) (Directive 3006/43/EC) Regulations 2010 the Company has availed of the exemption from the requirement to establish an audit committee.

No director has a significant direct or indirect holding of securities in the Company. No person has any special rights of control over the Company's share capital.

There are no restrictions on voting rights.

With regard to the appointment and replacement of directors, the Company is governed by its Articles of Association wrhich empower the existing directors to appoint and (if necessary) replace the directors. The Articles of .Association them-selves may be amended by special resolution of the shareholders.

.5


DIRECTORS' R E P O R T (CONTINUEDI

POWER OF DiRECTORS

The Board is responsibie for managing the business affairs of the Company in accordance with the Articles of Association, The directors may delegate certain functions to the Administrator and other parties, subject to the supervision and direction by the directors. The Board of directors consists of two directors.

SHAREHOLDERS' MEETINGS

The shareholders' rights and operations of shareholders' meetings are defined in the Articles of Association and comply with the Companies Acts, 1963 to 2013. The Company holds various general meetings and its annual general meeting in the year. The annual general meeting is spec rfi ed in the notice sent out in advance of the meeting.

BOOKS OF ACCOUNT

The directors are responsible for ensuring that proper books and accounting records, as outlined in Section 202 of the Companies Act, 1990, are kept by the Company. The measures taken by the directors to ensure compliance with the Company's obligation to keep proper books of account are the use of appropriate systems and procedures and by ensuring that a competent service provider is responsible for the preparation and maintenance of the books of account. The books of account are held at 53 Merrion Square, Dublin 2.

INDEPENDENT AUDITORS

PricewaterhouseCoopers. Chartered Accountants and Statutory Audit Firm, have expressed their willingness to continue in office in accordance with section 160(2) of the Companies Act 1963.

This report was approved by the Board and authorised for issue on 14 April 2014 and signed on its behalf by:

Jacqueline 0*Roi.''Ke Director

ALFA BOND ISSUANCE PUBLIC LIIVIITED COMPANY

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Directors' Report and the financial statements in accordance with International Financial Reporting Standards (the "IFRS") and the International Financia! Reporting Interpretations Committee (the "IFRIC") interpretations endorsed by the European Union (the "EU") and with those parts of the Companies Acts, 1963 to 2013 applicable to companies reporting under IFRS.

Irish company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing those financial statements, the directors are required to:

* select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state that the financial statements comply with IFRS; and

* prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors confirm that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements are prepared in accordance with IFRS and IFRIC interpretations endorsed by the EU and with those parts of the Companies Acts, 1963 to 2013 applicable to companies reporting under IFRS. They are aiso responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

This report was approved by the Board and authorised for issue on 14 April 2014 and signed on its behalf by:

Jaequeline O'Rourke Director

7

INDEPENDEMT AUDITORS' REPORT To the members of Alfa Bond Issuance plc

We have audited the financial statements of Mfa Bond Issuance plc for the year ended 31 December 2013 which comprise the statement of comprehensive income, the statement of financial position, the statement of changes in etpity, the statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Respective responsibilities o f directors and auditors

As explained more fully in the statement of directors' responsibilities set out on page 7, the directors are responsible for the preparation of the financial statemeats giving a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Section 193 ofthe Companies Act, 1990 and for no other purpose. We do not, in gi\'ing these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed b>- our prior consent in wi'iting.

Scope o f the audit o f the financial statements

An audit ini'olves obtaining e\ddence about the amounts and disclosures in the financial statements sutficient to give reasonable assurance that the finaneial statements are free from material misstatement, whether caused by fraird or error. This includes an assessment of: whether the aecounting policies are appropriate to the company's circumstanees and have been consistently applied and adequately disc osed; the reasonableness of significant accounting estim:ates made by the directors and the cwerall presentation of the financial statem.ents. In addition, we read all the financial aod non-financial information in the directors' report to identify' material inconsistencies with the audited financial statements and to identity' any information that is apparently materiaiiy incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications Ifir our report.

Opin ion on f inancia l stateinents

In our opinion the financia! statements:

« gQe a true and fair view, in accordance with IFRSs a.s adnpted hy the European Union, of the .state ofthe cfimpany's affairs as at 31 December 2013 and ofits profit and ca-sh flow.s for the year then ended; and

« have been properly prepared in accordance with the reqirirements of thc Cnmpan ie.'? Acts, 196.3 to 20l;J.

D.E. Box No. ij7

8

t JL

INDEPENDENT AUDITORS' REPORT To the members o f AUB Bond Issuance plc - cont imied

Matters on which we are required to repor t by the Companies Acts, 1963 to 2013

• We have obtained all the information and explanations which we consider necessan' for the purposes of our audit.

• In our opinion proper books of accoimt have been kept by the company. • The financial statements are in agreement with the books of account. • In our opinion the information given in the directors' report is consistent with the finaneial

statements. • The net assets of the company, as stated in the statement of finaneial position, are more than

half of the amount of its cahed-up share eapital and, in our opinion, on that basis there did not exist at 31 December 2013 a financial situation which under Section 40(1) of the Companies (Amendment) Act, 1983 would rec}uire the convening of an extraordinary^ general meeting of the company.

Matters on which we are requi red to repor t by exception

We have nothing to report in respect of the provisions in the Companies Acts, rgbs to 2013 which require us to report to you if, in our opinion, the disclosures of directors' remuneration and transaetions specified by law are not made.

John Bligh f o r and on behalf o f PricewaterhouseCoopers Chartered Accountants and Statutory Audi t F i r m DubMn

/ 5 A p r i l 2014

I

9


STATEMENT OF COMPREHENSIVE INCOME FOR THE Y E A R ENDED 31 D E C E M B E R 2013

Notes

Year ended 31 Deceniber

2013 USD

Year ended 31 December

2012 USD

Income Interest receivable and similar income Interest payable and similar expense Net Interest Income

253,601,069 (253,601,069)

193,338.366 _,_(193,338j366]^

Other income and expenses Unrealised foreign exchange gain/(!oss) on cash and cash equivalents Issuer benefit fee Administration expenses incurred 3 Administration expenses recovered

2.709 3,000

(149,055) 149,016

1,384 3,000

(157,178) 157,164

5,670 4,370

Profit on ordinary activities before taxation Corporation tax 4 Profit on ordinary activities after taxation Other comprehensive income

5,670

(885) 4,785

4,370

{1.092L 3,278

Totai comprehensive Income for the year 4,785 3,278

The Company has no recognised gains or losses in the financial year other than those dealt with in the Statement of Comprehensive Income. All amounts relate to continuing operations.

The accompanying notes on pages 14 to 27 form an integral part of the financia! statements.

The financial statements were approved by the Board on 14 April 2014 and signed on its behalf by:

Jacqueline O'Rourice Director

10

A L F A BOND ISSUANCE PUBLIC LIMITED COMPANY

STATEMENT OF FINANCIAL POSITION AS AT 31 D E C E M B E R 2013

Non-current assets Loans

Current assets Interest and other receivabies Cash and cash equivalents

Total assets

Non-current liabilities Loan Participation Notes issued

Current liabilities Interest and other payables Accrued expenses Corporation tax payable

Equity Share capital Retained earnings

Total equity and iiabilities

A s a t 31 Decembsr

2013

Notes USD

5 3,335,587,393

6 61,832,923 7 95,959

' 3,397,516'275

3.335,587,393

61,762,602 104,417

885

47,140 13,838

A s a t 31 December

2012 USD

3,028.412.338

56,985,134 79.412

3,028,412.338

56,951,304 57.049

47,140 9,053

3,085,476,884

The accompanying notes on pages 14 to 27 form an integral part ofthe financiai statemients-

The financial statements were approved by the Board on 14 April 2014 and signed on its behalf by:

Ronan Reiiiy / Jacqueline O'Rouriie Director / Director

11


STATEMENT OF CASH FLOW FOR THE Y E A R ENDED 31 DECEMBER 2013


2013 USD


2012 USD

Net cash from operating activities Interest and similar income received Interest and similar expense paid Administration expenses paid Administration expenses recovered Increase in other payables Issuer benefit fee received

Net cash flows from operating activities before taxation Corporation tax

Net cash flows from operating activities after taxation

232,373,664

(232,373,664) (149,055)

149,017 10,587 SjOOO

13,549

13,549

178,652,500 (178.652,500)

(157,178) 157,164

4,333

VML 7,319

7 , 3 l T

Cash flow from invest ing activities Long-term loans granted Facility fee Net cash used in investing activities

(304,271,852)

921,884

(303,349,968)

(750,000,000) 2,402,251

(747,597,749)

Net cash flow from financing activities Notes issued Issue costs

Net cash from financing activities

304,271,852

.^^J921884i_ 303,349,968

750,000,000

(2,402,251) 747,597,749

Net increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalent Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of the year

13,549 2,998

79,412

95.959

7.319 1,384

70.709

79,412

The accom.panying notes on pages 14 to 27 form an integral part of the financial statements.

12

A L F A BOND ISSUANCE PUBLIC LIMITED COMPANY

31 December 2013

STATEMENT OF CHANGES IN EQUITY AS AT 31 D E C E M B E R 2013

Share Retained capital earnings

USD USD

Totai

USD

At the beginning of the year Total comprehensive income for the year At the end of the year

49,272

49,272

9,053

2,654

11 707

58 .325

2.654^

SMIL

31 December 2012

At the beginning of the year Total comprehensive income for the year At the end of the year

Share capital

USD

Retained earnings

USD

Total

USD

47.140 5,775

3,278

52 ,915

3,278

47 ,140 9,053 ^ 5 6 ^ 9 3 ^

The accompanying notes on pages 14 to 27 form an integral part of the finanda! statements.

13


NOTES TO THE FiNANCiAL STATEMENTS FOf? THE Y E A R ENDED 31 D E C E M B E R 2013

1. G E N E R A L INFORMATION

The Company was incorporated on 8 November 2005, as a public limited company in accordance with the laws applicable in Ireland under registration number 410510. The Company is a special purpose entity with limited fiability and qualifies for the regime contained in Section 110 of the Irish Taxes Consolidation Act. 1997 (the "TCA"). This provides that a qualifying company will be liable to corporation tax at the rate of 25% under Case III of Schedule D of the TCA in respect of taxable profits.

2. ACCOUNTING POLICIES

The principal accounting policies applied to the preparation of these financial statements are set out below.

2.1 Basis of preparation

The financial statements have been prepared in aocordance with EU endorsed IFRS. IFRIC interpretations and the Companies Acts, 1963 to 2013. The financial statements have been prepared under the historical cost convention.

2.2 Use of estimates and judgements

The preparation of the financial statements requires the directors to make judgments, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual resuits may differ from these estimates.

The Company makes estimates and assumptions that affect the reported amounts of the financial assets and liabilities. Estimates and judgements are continually evaluated and are based on histoncal experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

2.3 Foreign currency transactions

Monetary assets and liabilities denominated in foreign-currency included in the Company's financial statements are measured in US Dollars denoted by the symbol "USD" which is the Company's functional and presentation currency. Foreign-currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign-exchange gains and losses resulting from the settlement of such transactions and from the re-translation at the period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

2.4 Interest income and expense

Interest income and expense are recognised in the Statement of Comprehensive Income as they accrue, using the original effective interest rate of the instrument calculated at the acquisition or origination date. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset or financial liability. Interest income and expense include the amortisation of any discount or premium, transaction costs or other differences between the initial carrying amount of an interest-bearing instrument and its amount at maturity calculated on an effective interest rate basis,

2.5 Cash and cash equivalents

Casn and cash equivalents inciudes cash in hand, deposits field at call with banks and other short term highly liquid investments with oriiginai riiaturities of three rnonths or less.

14


NOTES TO THE FiNANCiAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 (CONTINUED)

2. ACCOUNTING POLICIES (CONTiNUED)

2.6 Taxation

The tax expense represents the sum of the tax payable for the current reporting period. The tax currently payable is based on taxable profit for the year as calculated in accordance with Irish tax laws. Taxable profits differ from profit before tax as reported in the Statement of Comprehensive Income because they exclude items of income or expenses that are not taxable or deductible. The Company's liability for current tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period date. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of reporting period date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised where it is probable that future taxable profit w i be available against which the temporary differenees can be utilised.

2.7 Financial assets and liabilities

The Company classifies its financial assets as loans and receivables. Loans and receivables are recognised when cash is advanced to the borrower. Financial assets are initially recognised at fair value plus transaction costs and are subsequently measured at amortised cost using the effective interest rate method less any impairment losses. Financial assets are de-recognised when the rights to receive cash fiows from the financial assets have expired or where the Company has transferred substantially all risks and rewards of ownership. Gains and losses if any are included in the Statement of Comprehensive Income in the year in which they arise.

Notes issued

Notes issued are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowed amounts are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the Statement of Comprehensive Income over the year of the borrowings using the effective Interest method.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

Recognition and derecognition

Financial assets and liabilities are recognised when the Company becomes party to the contractual provisions of the instrument. They are accounted for on a trade date basis. The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire or it transfers the financial asset and substantiaiiy all the risks and rewards of ownership of the asset to another entity.

15


NOTES TO THE FINANCIAL STATEMENTS FOR THE Y E A R ENDED 31 D E C E M B E R 2013 (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUEDI

2.7 Financial assets and liabilities (cont inued)

impairment of f inancial assets - Loan

The Company reviews whether there is objective evidence that the loan is impaired. Objective evidence that a financial asset is impaired includes observable data that comes to the attention of the Company about certain loss events including:

9 significant financial difficulty of the borrower; • a breach of contract, such as a default or delinquency in interest or principal payments; » the Company granting to the borrower, for economic or legal reasons relating to the borrowers

financial difficulty, a concession that the lender would not otherwise consider; • it becoming probable that the borrower will enter bankruptcy or other financial reorganisation; » the disappearance of an active market for that financial asset because of financial difficulties; • observable data indicating that there is a measurable decrease in the estimated future cash flows from

a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including adverse changes in the payment status of borrowers in the group or nationa! or loca! economic conditions that correlate with defaults on the assets in the group.

If the Company determines that no objective evidence of Impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for Impairment. Assets that are individually assessed for impairment and for which an Impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

Offsetting financial instruments

Financiai assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, the Company has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

2.8 Share capital

Ordinary shares are not redeemable, do not participate in the net income of the Company and are

classified as equity, as per the Company's Articles of Association.

2.9 Adoption of new and revised accounting standards

A brief outline of the likely impact on future financial statements of IFRSs which are issued by the •'ASB but not yet effective and have not been adopted in the financial statements are as follows:

• Amendment to IAS 32. Financiat instruments: Presentation on Offsetting financial assets and financial liabilities (effective for financial periods beginning on or after 1 January 2014) - The amendments refer to the application guidance in IAS 32 'Financial instruments; Presentation', that clarify some of the requirements for offsetting financia! assets and financial liabilities on the Statement of Financial Position. Management is continuing to monitor the impact of this adoption with reference to the financial statements in future periods.

16



2, ACCOUNTING POLiCIES (CONTINUED)

l .S Adoption of new and revised accounting standards (continued)

• IFRS 9, Financial instruments (effective for financial periods beginning on or after 1 January 2015) -The standard sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. IFRS 9 was issued in November 2009 and October 2010. it replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financiai liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the Incomie statement, unless this creates an accounting mismatch. Management is continuing to monitor the impact of this adoption with reference to the financial statements in future periods.

• IFRS 10, Investment entities, exemption from consolidation requirements (effective for financial periods beginning on or after 1 January 2014) - IFRS 10 contains special accounting requirements for investment entities. Where an entity meets the definition of an Investment entity', it does not consolidate its subsidiaries, or apply IFRS 3 Business Combinations when it obtains control of another entity. An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design. An investment entity should have (i) more than one investment, (ii) more than one investor, (iii) investors that are not related parties of the entity and (iv) ownership interests in the form of equity or similar interests. An investment entity is required to measure an investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9 Financial instruments or IAS 39 Financial Instruments: Recognition and Measurement. Management is continuing to monitor the impact of this adoption with reference to the financial statements in future periods.

ADMINISTRATION E X P E N S E S INCURRED Year ended Year ended 31 December 31 December

2013 2012 USD USD

Professional fees 33,426 53.549 Legal fees 79,946 71.626 Audit fee 20.356 19,511 Tax fee 8.481 8,130 Bank charges 39 42 Stock Exchange listing fee 2.807 320 Trustee fee 4,000 4,000

14i,055

Statutory auditor fees (Exclusive of VAT)

Audit of financial statements 16,51§ 15.863 Other assurance services _

Tax advisory services 6,883 §,610 Other non-audit services

I i i i i i

17


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 (CONTINUED)

ADMINISTRATION EXPENSES INCURRED (CONTINUED)

Included in the administration expenses are amounts payable to auditors. The Company has no employees (2012: nil) and the directors received no remuneration during the year (2012: nil). Accounting and other services have been outsourced.

CORPORATION TAX Year ended Year ended 31 December 31 December

2013 2012 USD USD

Corporation tax based on profit for the year 885 1,092

Factors affecting tax charge for the year:

The current tax charge for the year is higher than the current charge that would result from applying the standard rate of Irish corporation tax to profit on ordinary activities. The differences are explained below:

Operating profit before taxation 3,539 4.370 Operating profit before taxation for the year multiplied by the standard rate of Irish corporation tax at 12.5% Effect of: Higher rate of tax applicable under Section 110 of the TCA

(442)

(443)

(546)

(546)

Current tax charge for the year 885 1,092

The Company is a qualifying Company within the meaning of Section 110 of the TCA, 1997. As such, the profits are chargeable to corporation tax under Case III of Schedule D at a rate of 25% but are computed in accordance with the provisions applicabie to Case I of Schedule D of the TCA. There was no deferred tax during the year.

LOANS

On 22 February 2007, the Company granted a Loan to Alfa-Bank of an aggregate pnncipal amount of USD 300,000.000 with interest rate of 8.635% p.a. paid semi-annually. The Loan is due to mature on 22 February 2017. Under the terms of the agreement the fixed interest rate on the USD 300,000,000 Loan changed from 8.635% to 6.300%.

On 24 September 2010. the Company granted a Loan of an aggregate principal amount of USD 1,000,000,000 with interest rate of 7.875% p.a. received semi-annually. The Loan is due to mature on 25 September 2017,

On 28 April 2011, the Company granted a Loan of an aggregate principal amount of USD 1.000,000,000 with interest rate of 7.75% % p.a. received semi-annually.'The Loan is due to mature on 28 April 2021.

On 26 September 2012, the Company granted a Loan an aggregate principal amount of USD 750.000,000 with Interest payments of 7.5% p.a. received semi-annually. The Loan is due to mature on 26 September 2019,

On 26 April 2013, the Company issued Notes of an aggregate principal amount of RUB 10,000.000.000 witb interest paymenfs of 8,625% p.a. paid semi-annually. The Notes are due to miature on 26 ,April 2016.

18


NOTES TO THE FiNANCiAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 (CONTINUEDI

5. LOANS (CONTINUED)

Fair value of the loans as disclosed in the table above has been determined using level 2 of the fair vaiue hierarchy table.

The tables beiow provide a summary of the Loans granted.

31 December 2013 Totai USD USD USD USD USD USD

Maturity 22 Feb 25 Sept 26 Sept 28 Apr i l 2S Apr i l date 2017 2017 2019 2021 2016 Nominal value 300,000,000 1,000.000,000 750,000,000 1.000,000,000 304,271,852 3,354,271,852 Unamortised transactions costs (385,848) (1,296,878) (1,926,689) (2,050,524) (614,589) (6.274,5281 Deferred interest under effective interest method (11,627.200) (319.408) (127.292) (216,919) (119.112) (12.409.931) Carrying value of Loans 287.986,952 998,385 714 47 946.019 997.732,557 303,538.151 3,335.587,393 Fair value of Loans 303,663,000 1,110,750,000 802,500,000 1,066,250,000 304,364.299 3,587,527,299

31 December 2012 Total USD USD USD USD USD

Maturity 22 Feb 25 Sept 26 Sept 28 April date 2017 2017 2019 2021 Nominal value 300,000,000 1,000,000,000 750,000,000 1,000,000,000 3,050,000,000 Unamortised transactions costs (514.465) (1.729,171) (2,312,025) (2,343,456) (6.899.117) Deferred interest under effective interest method (14,278,198) (246.709) (1g,120) (146.518) (14,688,545) Carrying value of Loans ,_285J09J37___J98^,024J2^ Fairvalueof ' " '"^ ' '""""'" " Loans 307,014,000 1,104,540,000 792.405,000 1,113,230,000 3,317 189,000

19


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 D E C E M B E R 2013 (CONTINUED)

6. INTEREST AND OTHER R E C E I V A B L E S A s a t 31 December

A s a t 31 December

2013 USD

2012 USD

Interest receivable Other receivables

61.762,602 70,321

56,951,303 33,831

61,832.923 56,985,134

All receivables are due within one year.

7. CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. The total amount of cash and cash equivalents held at 31 December 2013 was USD 95.959 (2012: USD 79.412).

8. LOAN PARTICIPATION NOTES ISSUED

• On 22 February 2007, the Company issued Notes of an aggregate principal amount of USD 300.000,000 with interest payments of 8.635% p.a. paid semi-annually. The Notes are due to mature on 22 February 2017. Under the terms of the agreement the fixed interest rate on the USD 300,000,000 Note and Loan changed from 8.635% to 6.300% on 22 February 2012.

• On 24 September 2010, the Company issued Notes of an aggregate principal amount of USD 1,000,000,000 with interest payments of 7.875% p.a. paid semi-annually. The Notes are due to mature on 25 September 2017.

• On 28 April 2011, the Company issued Notes of an aggregate principal amount of USD 1,000,000,000 with interest payments of 7.75% % p.a. paid semi-annually. The Notes are due to mature on 28 April

• On 26 September 2012, the Company issued Notes of an aggregate principal amount of USD 750,000,000 with interest payments of 7.5% p a. paid semi-annually. The Notes are due to mature on 26 September 2019.

. On 26 April 2013, the Company issued Notes of an aggregate pnncipal amount of RUB 10,000,000,000 with interest payments of 8.625% p.a. paid semi-annually. The Notes are due to mature on 26 April

2021.

2016.

20


NOTES TO THE FiNANCiAL STATEMENTS FOR THE Y E A R ENDED 31 DECEMBER 2013 (CONTINUED)

8. LOAN PARTICIPATION NOTES ISSUED (CONTINUED)

Fair value of the loans as discloseci in the table above has been determined using level 2 of the fair value hierarchy table.

The Notes issued were used to provide Loans to Alfa-Bank. The tables below provide a summary of the Notes issued.

31 December 2013 Total USD USD USD USD USD USD

M M . i r i t v riate 22 Feb 25 Sept 2§Sept 28 April 2 6 April ' 2017 2017 2019 2021 2016

Nominal value 300,000,000 1.000.000,000 750,000,000 1.000,000,000 304,271,852 3,354.271,852 Unamortised transactions costs (385,848) (1.296,878) (1.926,689) (2,050,524) (614.589) (6,274.528) Deferred interest under effective interest fTiethod (11.627,200) (319,408) (127,292) (216,919) n i 9 . ^ i 2 ; (12,409,931) Carrying value of Notes 287,986.952 998,383 ' '4 ".•47,946.019 997,732.557 303.538. • 5^ 3,335,587,393

Fair value of Notes 303,663,000 1,110,750,000 802.500,000 1,066.250.000 304,364,299 3,587.527,299

31 December 2012 Total USD USD USD USD USD

22 Feb 25 Sept 26 Sept 28 April Maturity date 2017 2017 2019 2021

Nominal value 300,000,000 1,000,000,000 750.000,000 1,000,000,000 3,050,000,000 Unamortised Transactions costs (514,465) (1,729,171) (2,312,025) (2.343.456) (6,899,117) Deferred interest under effective interest method (14.276,198) (246,709) (19,120) (146,518) (14,688,545) Carrying value of

Notes _285;20i,'J'-' •''''* • •\„..I£!j^M^§.^^JiT,M2.'^i^.^ -««_MSMlSiI2§ Fairvalueof ^ ' " ^ ^~ ' ' ^ Notes 307,014,C- ' ^ --'i . 792,405,000 1,113,230,000 3,317,189,000

21



SHARE CAPITAL A s a t 31 December

As at 31 December

2013 USD

2012 USD

Authorised 1,000,000 ordinary shares of 1 Euro 1.317,000 1,317,000

Allotted, called up and fully paid 40,000 ordinary shares of 1 Euro 47,140 47.140

On 8 October 2005, the Company issued shares to seven shareholders. 39,994 shares of the 40,000 shares in issue are held by TMF Management (Ireiand) Limited on behalf of the Alfa Bond Issuance Trust. The remaining six shares are held by six individuals on behalf of TMF Management (Ireland) Limited, who in turn, holds them on behalf of the Alfa Bond Issuance Trust. These shares have been fully paid up.

10. FINANCIAL RISK MANAGEMENT

Capital risk management

The Company manages its capital to ensure that it Is able to continue as a going concern while maximising the retum to stakeholders through the optimisation of the debt and equity balances. There were no changes to the policies and procedures during the year with respect to the Company's approach to its capital management program. The Company does not have any externally imposed capital require.ments.

The Company's financial instruments include cash at bank, financial assets. Notes issued and other accruals that arise directly from its operations. The Company is exposed to a variety of financial risks: market risk, interest rate risk, currency risk, credit risk, liquidity risk and concentration risk.

(a) Market risk

Market risk is the potential adverse change in value caused by unfavourable movements in interest rates, foreign exchange or market prices of financial instruments. The Company's main investments are Loans to Alfa-Bank funded by the issuance of the Notes. The market risks associated with them are outlined below.

(i) interest rate risk

Interest rate risk is the risk that the value of a financial Instrument will fiuctuate due to changes in market interest rates. The table below provides an analysis of the interest rate profile of the Company's portfolio as at 31 December 2013:

22



10. FINANCIAL RISK MANAGEMENT (CONTINUED)

(a) Market risk (continued)

(I) Interest rate risk (continued)

31 Deeember 2013

Interest receivable Loans Other receivables Cash and cash equivalents

Liabilities Loan Participation Notes issued Interest and other payabies Accrued expenses

31 December 2012

Interest receivable Loans Other receivables Cash and cash equivalents

Loan Participation Notes issued Interest and other payables Accrued expenses

Fixed rate

USD

3,335,587.393

3.335,587,393

3,335,587.393

3.335,587^393

Fixed rate

USD

3,028,412,338

3.028,412,338

3,028,412,3 38

Variable rate Non - interest bearing

USD USD

61 762 602

70,321 95,959

95,959 61,832,923

61.762,602 104.417

61,867,019

Variable rate Non - interest bearing

USD USD

56.951,303

33 831 79,412

79.412 56,985,134

56,951,304

57,049

57,008,353

Interest rate sensitivity

The profits of the Company are based on a fixed fee income received on a semi-annual basis and are unaffected by the fluctuation in interest rates.

23



10. FiNANCiAL RISK MANAGEMENT (CONTINUED)

(a) Marlcet risk (continued)

(ii) Price risk

Price risk is tlie risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. The Company's overall market positions are monitored on a monthly basis by the directors. The Company is not exposed to price risk due to the limited recourse nature of the Noteholder's investment.

(iii) Currency risk

Financial assets and financial liabilities are denominated in both USD and Russian Roubles and almost completely offset each other. Therefore, the Company is not exposed to material currency fluctuations.

31 December 2013

Other C C Y deals USD

31 December 2013

USD Deals USD

31 December 2012

Other C C Y deals USD

31 December 2012

USD Deals USD

Cash and cash equivalents 72,799 23,160 64,423 14,989 Interest and other receivables 70,322 74.884,325 33,831 56,951,303 Loans 747,946.020 2,587,641.373 - 3,028.412.338

089.141 2.662,548.858 98.25' 3 085.378,630

Accrued expenses 71.883 32,534 24.831 31,126 Interest and other payables - 74,884,325 - 56,951.304 Loan Participation Notes issued 747,946,020 1.587.641.373 - 3,028.412,338

748.017.905 2,662.558,232 24.831 3,085,394,768

The year-end USD FX rates as per the European Central Bank are:

EUR GBP RUB

2013 0.72511 0.60452 32.8653

2012 0.75654 0.61850 30.4402

(b) Credit risk

Credit risk arises from the possibility of counierparties failing to meet their obligations to the Company and represents the most significant category of risk. The Company has minimised credit risk by lending to a high credit quaiity institution. The loans have been made to Alfa-Bank and are considered fully recoverable. Alfa-Bank has a short-term credit rating of B and a long-term rating of BB+ according to Standard & Poors (2012: short-term credit rating of B and long-term rating of BB*'). The on-going international situation of Q1 2014 in Ukraine, Russia and Crimea is being monitored for any possible impairment indicators. None exist at this stage

24

ALFA BOND ISSUANCE PUBLIC LIMITED GOMPANY


10. FiNANCiAL RISK MANAGEMENT (CONTiNUED)

(b) Credit risk (continued)

Tlie maximum exposure to credit risl< at the reporting date is as follows:

A s a t 31 December

2013 USD

A s a t 31 December

2012 USD

Cash and cash equivalents Interest and other receivables Loans

95,959 61,832,923

3,335.587,393

(c) Liquidity risk

79.412 56.986,134

3.028,412.338

liMIMMIl^ 3,085,476,884

The Company's primary source of funds is from the issuance of Notes. The Notes are secured directly over the Loans to Alfa-Bank. The Company expects that its cash in hand and cash flow provided by operations will satisfy its liquidity needs with respect to its obligations. The amounts in the table below are contractual undiscounted future cash flows.

31 December 2013 Within one Two to five More than five year years years USD USD USD

Interest payable 319.406.049 854,193.447 250,000,000 Accrued expenses 104.417 Loan Participation Notes issued 1,604,271,853 1,750.000,000

319.510.466 2,458.465,300 2,000,000,000

31 December 2012 Within one Two to five More than five year years years USD USD USD

Interest payable 288,351,303 925,600,000 383,750,000 Accrued expenses 57 049 -Loan Participation Notes issued 1,300.000,000 1.750,000.000

288,408,352 2,225.600.000 2,133,750,000

(d) Concentration risk

Concentration risk can arise from the type of assets held in the portfolio, the maturity of assets, the concentration of sources of funding, concentration of counterparties or geographical locations.

! he Company is a special purpose entity set up for a particular series of transactions. It is not possible to diversify the concentration risk arising from its operations.


NOTES TO THE FINANCIAL STATEMENTS FOR THE Y E A R ENDED 31 D E C E M B E R 2013 (CONTINUEDI

1 i , FINANCIAL RISK MANAGEMENT (CONTINUED)

(e) Fair Value

Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties. The fair value of the Loan Participation Notes is calculated using quoted prices from Bloomberg at the balance sheet date and are deemed to be within Level 2 of the fair value hierarchy. Given the structure of the entity, in the opinion of the directors, the fair values of loans receivable is deemed to equate to that on the corresponding notes in issue. The fair values are within level 2 of the fair value hierarchy.

Non-Current Assets

Loans

Fair Value 31 December

2013

USD

3,587,527.299

Book Value 31 December

2013

USD

3.335.587,393

Non-Current Liabilities

Loan Participation Notes issued

FairValue 31 December

2013

USD

3,587,527,299

Book Value 31 December

2013

USD

3,335.587,393

11. SEGMENT ANALYSIS

The Company does not disclose any segmental analysis as its activities and operations does not include more than one significant or material business and geographical segment, as described under the threshold conditions under IAS14 "Segmental Reporting".

12. CONTINGENT LIABILITIES AND COMMITMENTS

There were no contingent liabilities or commitments as of 31 December 2013 (2012: nil). Contingent liabilities are assessed continually to determine whether transfers of economic benefits have become probabie. Where future transfers of economic benefits change from previously disclosed contingent liabilities, provisions are recognised in the year in which the changes in probability occur.

13. R E L A T E D PARTv TRANSACTIONS

There were n it related party transactions other than those disclosed in the Directors' Report.

The Company is managed and controlled by the board of directors, Alfa Bank Holding Financial Limited is a related party of the Company as they have significant influence as open joint stock company and as borrower. Alfa Bank does not hold any direct or indirect shareholding in the company.

During the year, the company earned interest income of USD 253.601,069 (2012: USD 193,338.366) payable to the Noteholders in accordance with the various loan agreements. At the year end the carrying value and fair value of the loans was USD 3.335,587,393 (2012; USD 3,028.412.338) and USD 3,587,527.2i9 (2012: USD 3.317.180.000) respectively. These loans were provided on an arm's length basis.

26

ALFA BOND ISSUANCE PUBLIC LIIVIITED COMPANY

NOTES TO THE FiNANCIAL STATEMENTS FOR THE Y E A R ENDED 31 D E C E M B E R 2013 (CONTINUED)

14. SIGNIFICANT S U B S E Q U E N T EVENTS

There were no significant subsequent events since the end of the year until the date of signing of this report that would require an adjustment to or disclosure in the financial statements.

15. C H A R G E S

On 22 February 2007, the Company issued Notes of an aggregate pnncipal amount of USD 300,000,000. a fixed charge was created and registered with the Companies Registration Office in Ireland. The amount secured under the charge is the payment of all sums under the Trust Deed dated 22 February 2007 and the Notes.

On 24 September 2010, the Company issued Notes of an aggregate principal amount of USD 1,000,000,000, a fixed charge was created and registered with the Companies Registration Office in Ireland. The amount secured under the charge is the payment of all sums under the Trust Deed dated 24 September 2010 and the Notes. On 9 December 2010 there was a satisfaction of the charge.

On 28 April 2011, the Company issued Notes of an aggregate principal amount of USD 1,000,000,000, a fixed charge was created and registered with the Companies Registration Office in Ireland. The amount secured under the charge is the payment of all sums under the Trust Deed dated 28 April 2011 and the Notes.

On 26 September 2012, the Company issued Notes of an aggregate principal amount of USD 750,000,000, a fixed charge was created and registered with the Companies Registration Office in Ireland. The amount secured under the charge is the payment of all sums under the Trust Deed dated 26 September 2012 and the Notes,

On 26 April 2013, the Com.pany issued Notes of an aggregate principal amount of RUB 10,000,000,000. a fixed charge was created and registered with the Companies Registration Office in Ireland. The amount secured under the charge is the payment of all sums under the Trust Deed dated 17 April 2013 and the Notes.

16. APPROVAL OF FiNANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Board and signed on 14 April 2014

27

Company registration number 41051: 0 ALFA BOND ISSUANCE ... · STATEMENT OF CASH FLOW ... ALFA BOND...

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