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It may be assumed that the very fact of a company being included into the List irrespective of receiving real financial aid provided for decreasing the risk ratings for this particular entity - on behalf of both banks and suppliers. Besides, inclusion into the List could force regional governments to be more attentive to the situations at particular enterprises providing for immediate organization support and other types of assistance.

5.2.3. Key areas and instruments of government support to strategic companies: specifics, challenges and practical implementation progress A number of official documents1 declared the following instruments to be used for government support of strategic companies:

debt financing;

government guarantees;

subsidies from the budget;

additional capitalization;

tax arrears restructuring;

Ref. RF Government Anti-Crisis Program for 2009 (approved by the RF Government on June 19, 2009), presentation by E. Nabiullina, RF Minister for Economic Development at the ministerial board meeting 2008 Performance of the RF Ministry for Economic Development and Key Objectives for 2009 on March 24, (http://www.economy.gov.ru/minec/press/news/doc1237883863610), Press Release by the RF Government about publication of the List of Strategic Companies (http://premier.gov.ru/events/messages/2883/) RUSSIAN ECONOMY IN trends and outlooks government procurement;

change of import and export duties.

In this sub-section we will review the instruments actually applied to strategic companies (and having impacted their situations), their coverage and industry focus. Three comments need to be made for this purpose.

The first one: many measures listed as possible government support instruments were not really focused predominantly on strategic companies (e.g., partial interest rate subsidies).

The second one: one of the key measures to support strategic companies was refinancing of the external debt of major companies by Vnesheconombank, even though this particular mechanism had been in use before the List of Strategic Companies was in place.

And the third one: a significant portion of anti-crisis measures were not de-targeted at strategic companies and was not listed among government support instruments; rather, it was focused on a number of particular industries and sectors (automotive, oil-and-gas); however, due to high plant concentration in such sectors these measures had a focused impact mainly on respective strategic companies. In particular, such measures included partial interest rate subsidies to citizens for purchasing new cars, raising the non-taxable limit for MET assessment.

Direct and indirect anti-crisis measures to support strategic companies may be grouped by key areas of support:

(1) assuring financing resources accessibility:

loans by Vnesheconombank to major companies to settle their external debt, government guarantees for loans, partial interest rate subsidies, expanding the Lombard List of the Central Bank, budget subsidies to prevent bankruptcy (recipients strategic companies of defense industry), compensation of shortfalls in income (OJSC Russian Railways), increase of share capital, additional capitalization;

(2) incentives for domestic demand:

additional government procurement programs (cars for federal executive authorities, public vehicles fleet renewal at regional and municipal levels), partial interest rate subsidies to citizens for purchasing new cars;

additional capitalization of OJSC RosAgroLeasing to increase procurement of agricultural vehicles, equipment, etc.;

increasing import customs duties (for used and new cars, buses, grain harvesters, pipes, rolled metal, etc.), decreasing import quotas (poultry)1;

(3) decreasing burdens for businesses:

reducing oil-and-gas sector tax burden (raising the non-taxable limit for MET assessment, changing the procedure for accruing the expenses for acquisition subsoil use licenses, introducing tax holidays for developing some of the fields);

mandatory payments arrears restructuring for some of automotive companies;

changing the calculation methodology and decreasing export duties (price monitoring period decreased, respectively period for fixing crude and products export duties de Big number of government measures in this sphere does not allow for detailed review within this Section. We can only note that most of them were focused on supporting automotive industry, agricultural engineering, metallurgy and agriculture/food processing.

Section Institutional Problems creased, export duties cancelled for unalloyed nickel and copper cathodes, nitrogen and mixed fertilizers, etc.)1.

We believe it is necessary to focus on a detailed review of the following three mechanisms and the ways they were implemented:

loans to companies to refinance their external debt;

government guarantees to borrowing companies;

providing budget subsidies to partially compensate interest rates.

The reasons we are especially focused on these three mechanisms are, firstly, their scale (at least, the planned scale), and secondly the fact of them not being limited to one or two priority sectors.

Assuring financial resources accessibility for strategic companies Loans by Vnesheconombank to major companies to settle their external debt The legal framework for this mechanism of Vnesheconombank refinancing the external obligations of the real sector companies was defined in mid-October 20092 approximately two months prior to approving the List of Strategic Companies. The bank was granted the right to issue foreign currency loans to Russian companies for the purposes of redemption and servicing of previously received loans from foreign credit institutions, as well as to purchase receivables from foreign creditors. The minimal interest rate for loans issued was set at the level of 5 points LIBOR spread (in USD for 1 year). The ceiling was set for overall amount of loans issued by Vnesheconombank and of the acquired receivables at the level of not higher than $50 bn.

At the same day Vnesheconombank Supervisory Board approved the Procedure for refinancing the external debt of Russian companies3, setting the following key criteria for application of this mechanism:

economic security of the Russian Federation is jeopardized, significant assets of the borrower may be lost leading to its business reduction or bankruptcy;

refinanced obligations were formed as a result of raising funds for major investment projects or for purchasing assets to significantly expand the borrowers operations in the territory of the Russian Federation.

The refinanced obligations should be no less than $100 mln. The maximum loan to a single company (or to interrelated companies) was also capped $2.5 bn. Besides, co-financing on behalf of the borrower was stipulated at the level of at least 25% of the overall refinanced obligations amount (unless otherwise prescribed by Vnesheconombank Supervisory Board). The borrower was also to provide the loan security to Vnesheconombank equal to security provided to foreign creditors (and in case it was insufficient additional security).

Just like in the case of changing import duties we will refrain from detailed review of such measures, and limit ourselves with the most meaningful ones (in our opinion, those are measures targeted at exporters in oil-and-gas sector, non-ferrous metals, chemical and petrochem industries.

Federal Law No.173-FZ of October 13, 2007 On Additional Measures to Support the Finance System of the Russian Federation.

The procedure for the State Corporation Development and Foreign Economic Activity Bank (Vnesheconombank) to implement measures stipulated by Articles 1 and 2 of the Federal Law No.173-FZ of October 13, 2008, On Additional Measures to Support the Finance System of the Russian Federation (approved by Vnesheconombank Supervisory Board on October 13, 2008, Minutes No. 11).

RUSSIAN ECONOMY IN trends and outlooks To receive such loan a real sector company had to provide a package of several dozens documents to Vnesheconombank (as a rule, it comprised at least 40). The requests had to be reviewed in sequence by Investment Operations Development Committee, Credit Committee, Management Board, Special Committee for Review of Requests and finally by Vnesheconombank Supervisory Board. Requests having successfully passed the Investment Operations Development Committee review had to undergo comprehensive expert review.

Just one week after defining the legal framework for external debt refinancing Vnesheconombank Supervisory Board approved the internal regulatory framework for practical implementation of this measure1. Prior to the end of October the Supervisory Board made its first decisions about external debt refinancing. y early December Vnesheconombank received requests for external debt refinancing for the total amount of $78 bn, including requests from real sector companies for about $50 bn2. At the same time, it is worth noting, that only 32 requests for the total amount of $27.1 bn were able to successfully pass through all the stages and reviews and reach the final one review by the Supervisory Board. Out of them only requests from 12 organizations were approved for the total amount of $14.3 bn (without cofinancing)3 comprising less than 30% $50 bn allocated by central Bank for these purposes.

Out of 11 real sector companies4, the requests of which were approved by Vnesheconombank Supervisory Board, 7 were included into the List of Strategic Companies in December (Rosneft, Rusal, Russian railways, PIK Group, Sitronix, Gazprom, Mechel), and the remaining 4 had direct links to the companies from the List (Evraz Group S.A., Gazpromneft, En+ Group Limited, ECO Telecom Ltd.).

Evraz Group S.A. is the holder of assets operated in Russia by Evraz Holding LLC included into the List of Strategic Companies.

Gazpromneft is a subsidiary of Gazprom (which was included into the List).

En+ Group Limited is the holder of controlling interest of Rusal (in the List) and of the parent company of EvroSibEnergo (in the List).

ECO Telecom Ltd. is part of telecommunications block of Alpha Group headed by Altimo, which owns 44% of OJSC Vympelkom shares and 25.1% of OJSC Megaphone (both in the List)5.

Two companies, the requests of which were approved by Vnesheconombank Supervisory Board (Mechel and En+ Group Limited) further refused from the loans by Vnesheconombank. According to media publications, the first one did not like the security coverage requested by Vnesheconombank, and the second one was not able to provide a full set of docu Vnesheconombank 2008 Performance Report (http://www.veb.ru/common/img/uploaded/files_list/VEB_Annual_2008_rus.pdf) Briefing by V. Dmitriev, Vnesheconombank President, on the outcomes of the Supervisory Board meeting on December 1, 2009, (http://www.veb.ru/ru/about/press/ns/index.phpfrom32=3&id32=5446) From here downwards, unless otherwise specified, ref. data from the RF Government Reports about implementing measures to support capital market, banking system, labor market, Russian economy sectors and social net of citizens, and other social policy measures.

One of the companies that received refinancing represented the finance sector - OJSC VTB Bank.

It is also worth noting that ECO Telecom Ltd. raised 2 bond loans from Deutsche Bank AG in 2007 using 44% of OJSC Vympelkom shares as security. Vnesheconombank issued its loan to refinance this debt.

Section Institutional Problems ments required for closing the loan deal1. Other companies received the loans from Vnesheconombank with the total amount of $11.28 bn (less than of the initially allocated $50 bn).

The loans term did not exceed 1 year, the interest rate was 710%.

In early February 2009 it was declared that Vnesheconombank suspended accepting the requests for external debt refinancing due to the following reasons:

- Russian commercial banks having got excessive foreign currency liquidity will help the borrowers to settle with their foreign creditors;

- Companies are finding ways to settle their external debt without loans by Vnesheconombank.

At the same time Vnesheconombank management was not excluding the possibility of resuming this activity in future2.

In early June Vnesheconombank management declared the possibility of extending the 1year loans subject to implicit discharge of the borrowers obligations under initial loan agreements and under original format for redemption and servicing of the debt3.

By mid-October 2009 the borrowers redeemed part of their debt to Vnesheconombank for the total amount of $2.43 bn (the principal). 3 borrowers Rosneft, Russian railways and VTB Bank provided for pre-scheduled full redemption. Vnesheconombank Supervisory Board approved extension of the loan period for one year for 6 companies Rusal, PIK Group, Sitronix, Evraz Group S.A., Gazpromneft and ECO Telecom Ltd. with the total amount of $8.34 bn.

Finally, in December 2009 the right of Vnesheconombank to extend the loan period was de-jure confirmed4.

Overall. The following conclusions can be made with regards to specifics of practical implementation of major companies external debts refinancing mechanism:

Despite the fact that external corporate debt refinancing was not de-jure an instrument for supporting strategic companies (at least because the List of such companied was finalized 6 weeks after the first requests for such refinancing had been approved), all the companies having received loans from Vnesheconombank were either de-facto included into the List of Strategic Companies, or were directly linked with some companies from the List;

Different from many other anti-crisis measures, the external debt refinancing mechanism was promptly developed and launched: the first requests for Vnesheconombank loans were approved two weeks after creating the appropriate legal and regulatory framework (remember that the requests had to be backed by several dozens of documents, and the Procedure of their review comprised 7 stages), and the first loans with the total amount of over $10 bn were issued as early as before the end of 2009;

Request for external debt refinancing from the companies were subject to pretty strict screening: it is sufficient to say that the amount of loans issued by Vnesheconombank was several times lower the requested amount;

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