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November 11, 2004

Moscow. November 11, 2004. OECD roundtable task force on implementation of IFRS in RUSSIA. Elena Krasnitskaya. Incentives and market drivers for IFRS conversion. Market drivers Stock price performance Access to cheap long term capital

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November 11, 2004

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  1. Moscow • November 11, 2004 OECD roundtable task force on implementation of IFRS in RUSSIA Elena Krasnitskaya

  2. Incentives and market drivers for IFRS conversion • Market drivers • Stock price performance • Access to cheap long term capital • Role of the market practitioners, analyst community, rating agencies • Exchanges: listing admission rules and reporting requirements • Role of activist shareholders Role of the state, as a shareholder Role of the state, as a regulator • Incentives • External financing need • Access to international markets • Lower risk perception • Listing on reputable exchanges • From voluntary to statutory • Future: • Compliance with state policy and statutory requirements

  3. NO 22% NO 35% YES YES 78% 65% The incentives that prompt companies to pursue better corporate governance Planning to improve corporate governance: 78% of votes Planning to attract debt or equity finance:65% of votes Source: 2003, public survey by the RSPP Corporate governance committee

  4. Accounting reform from the bottom up Number of companies reporting to international standards is growing 100 100% 80 80% 65% 60 60% 51% 42% 40 40% 39 29 23 20 20% 0 0% 2002 2003 2004 Companies with effective ADR programs Percentage of these reporting to international standards

  5. Well governed companies show higher correlation between corporate governance and price performance

  6. Corporate governance and price performance Company Relative price performance, y-o-y Corporate governance risk category Surgutneftegaz 40% High risk GAZ –12% High risk Bashkirenergo –7% High risk Purneftegaz 223% High risk AvtoVAZ –19% High risk Kuzbassenergo 4% High risk Novosibirskenergo 18% High risk Megionneftegaz 36% High risk FESCO 153% High risk OMZ –60% High risk RosBusinessConsulting 47% Low risk Central Telecom –1% Low risk Kalina 3% Low risk Far Eastern Telecom 15% Low risk Wimm-Bill-Dann 22% Low risk Ural SI 27% Low risk Sun Interbrew 112% Low risk Golden Telecom –6% Low risk MTS 59% Low risk VimpelCom 71% Low risk Risk grows

  7. Corporate governance and price performance:top 10 best governed vs. top 10 worst governed 16 250 14 200 12 150 10 100 8 50 6 0 4 –50 2 –100 GAZ MTS OMZ Kalina Ural SI FESCO AvtoVAZ VimpelCom Purneftegaz Sun Interbrew Bashkirenergo Surgutneftegaz Kuzbassenergo Megionneftegaz Golden Telecom Central Telecom Wimm-Bill-Dann Novosibirskenergo Far Eastern Telecom RosBusinessConsulting

  8. Market forces: role of analyst community

  9. 2004: Russia’s best and worst governed companies Worst governed Best governed Surgutneftegaz VimpelCom Bashkirenergo Golden Telecom AvtoVAZ MTS GAZ Sun Interbrew Purneftegaz Ural SI Source: Troika Dialog

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