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Leading Russian IPO experience

Structuring your company for the public market Varun Gupta, Partner London Stock Exchange Real Estate Conference. M.video Retail Deutsche Bank, Renaissance Capital. Bank Saint-Petersburg Financial Institution Deutsche Bank, Renaissance Capital.

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Leading Russian IPO experience

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  1. Structuring your company for the public market Varun Gupta, PartnerLondon Stock Exchange Real Estate Conference

  2. M.videoRetail Deutsche Bank, Renaissance Capital Bank Saint-PetersburgFinancial Institution Deutsche Bank, Renaissance Capital Sitronics*Technology Credit Suisse, Goldman Sachs International, Renaissance Capital, HSBC Sistema-Hals*Real EstateDeutsche UFG, Nomura International, UBS Investment Bank, Aton Capital Group, Dresdner Kleinwort Comstar*TelecommunicationsDeutsche UFG, Goldman Sachs International, Renaissance Capital, Dresdner Kleinwort Wasserstein, ING Bank November 2007 November 2007 Initial Public Offering of Shares on RTS/MICEX Initial Public Offering of Shares on RTS/MICEX and Synthetic GDRs February 2007 November 2006 February 2006 Initial Public Offering of Shares and GDRs on London Stock Exchange Initial Public Offering of Shares and GDRs on London Stock Exchange Initial Public Offering of Shares and GDRs on London Stock Exchange US$365 million US$274 million US$432 million US$1.06 billion US$402 million AFK Sistema*Diversified HoldingCredit Suisse First Boston, Morgan Stanley, Deutsche UFG, ING Bank, Renaissance Capital, Troika Dialog Novatek*Natural GasMorgan Stanley, UBS Investment Bank, Credit Suisse First Boston, Troika Dialog, Alfa Capital Markets, Vnesheconombank Mechel*Mining and SteelUBS Investment Bank, JPMorgan, Morgan Stanley, Troika Dialog February 2005 Initial Public Offering of GDRs on London Stock Exchange July 2005 November 2004 Initial Public Offering of Shares and GDRs on London Stock Exchange Initial Public Offering of ADRs on New York Stock Exchange US$1.56 billion US$966 million US$335 million Leading Russian IPO experience * Transactions led by Varun Gupta at his previous firm

  3. A lot needs to be done! Strategy and Business Plan Capital/ Funding Structure Shareholder/ Corporate/ Business Structure Management Reporting and Internal Control Systems Corporate Image & Brand Awareness Corporate Governance & Company Culture Investor Relations/ Education Minimize Historical Risks/ Due Diligence Management Team & Incentive Plans Financial Statements/ Appraisal of Properties Credit Ratings Hire Advisors!

  4. Key objectives of corporate restructuring • Achieve a simple, tax-efficient, transparent and consolidated corporate structure of ownership and operation of the group's assets • Consolidate assets under new holding company • Improve shareholders’ control • Optimize internal management and reporting, financing and cash flows between entities • Increase tax efficiency of the business and distribution of profits • Spin off non-core businesses • Identify and minimise historical legal / tax risks – perform full due diligence of the group’s business • Improve corporate governance • Structure should be flexible to attract strategic investors pre and post IPO

  5. Holding Company (Issuer) Development Russian Project Companies 100% 100% Sub-holding Company Sub-holding Company 100% 100% Project holding Companies Project holding Companies 100% 100% Russian Project Companies Target structure of a real estate company • HOLDING COMPANY • Newly formed; should have no operations or creditors • Consider shareholders’ agreement between owners • SUBHOLDINGS • For main business segments: Development / Construction / Property Management + Management / Financing companies • Corporate veil protection, allocation of risks • Flexibility to attract financing and give security • Flexibility to spin-off/sell completed projects Asset management

  6. Scope of work of tax advisors and legal counsel • Tax advisors • Based on tax, financial and business considerations, propose corporate structures and jurisdictions for holding company, sub-holdings and operating companies • Assist in implementing offshore shareholder structure • Assist in implementing corporate formalities to protect tax position • Legal counsel • Comment on jurisdictions proposed by tax advisors from regulatory, investor and listing perspectives • Analyze the client’s current corporate structure and structures proposed by tax advisors • Limited due diligence • Identify and address legal issues in the migration from current to future corporate structures; propose alternatives and solutions • Prepare an action plan / timeline for restructuring steps and, if requested, assist in implementation

  7. Key issues to be addressed in restructurings • Choice of jurisdiction of holding company • Creditor consent for disposal of assets (encumbrances, requirement under credit / suretyship / guarantee agreements) • Reorganizations may trigger creditors’ rights of early termination / performance • Licenses & permits may not be transferable • Governmental consents / approvals (i.e., FAS) • Major and interested party transaction approvals • Minority shareholders • Elimination of historical legal / tax risks • Pricing of inter-group transactions when moving assets/shares • Material disputes / litigations

  8. Jurisdiction of holding company • Onshore vs. offshore • Tax driven • Political considerations • Positioning • Onshore (i.e., Russian OAO) • 70/30 rule • GDRs limited up to 35% of issued capital • Russian listing and FSFM permission required • Offshore • Tax driven (Cyprus, Guernsey, Jersey, BVI, Cayman, etc.) • Investor perception • Listing considerations / GDRs vs. shares • RDR program • Cyprus: most popular, availability of numerous GDR precedents, prospectus can be registered directly with UKLA • Guernsey/Jersey: direct listing option, stricter reporting and corporate governance requirements

  9. Anti-monopoly clearance process • Issues • Previous acquisitions not cleared / disclosed • Group shareholdings not transparent • Use of “nominee” shareholders • Solutions • Resolving outstanding regulatory issues/inconsistencies before listing • Group disclosure pre/post IPO • Receiving official letters of the Regulator confirming company’s position

  10. Restructuring mechanics • Sale and purchase of shares / assets • Purchase price should be supportable for tax purposes and for minority shareholders • Establishment of new companies, charter capital contributions • Legal reorganisation of companies within the group • Merger/accession, division, spin off, “combined” reorganisation by way of spin off and immediate accession to another entity • Dividends / liquidation

  11. Completed Russian real estate IPOs

  12. Questions? These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP's affiliated undertakings. MS-#569167-v1-V__Gupta_Presentation_--_Structuring_your_company_for_the_public_market.PPT

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