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The first period for the active placementof Russian Eurobonds happened in 1997-1998, when the aggregate value of foreign bondsissued by companies andbanks amounted to $2.5 bln. At the time of default on some of the banksecurities (i.e. SBS-AGRO, the Rossiyski Kredit), the restructuring of theUNEXIMBank's bonds, mostissues were redeemed on or ahead of time (Table 41).

Thesecond phase of the market development began in the autumn of 2001. InNovember, virtually simultaneously with the Eurobond issue by the Moscowauthorities, Rosneft floated bonds worth of $150 mln. In December 2001, twomore companies made successful bond issues – MTS ($250 mln.) and Gazprombank(200 mln. Euro). At the same time, the Magnitogorski integrated metallurgicalworks and Sibneft completed the preparatory stage for the issue of bonds to theextent of 100 mln. Euro and $250 mln. respectively.35

The cost of external loans went down due tothe upgraded credit ratings of the Russian Federation and the VaZ Company, +according to Standard&Poor's and Moody’s respectively, which also boosted the credit ratings of thecorporate securities. (Table 42).

Table 42

International credit ratings by Standard& Poor's

Russia: international ratings

Issuer

Date of latest rating assignment (latest ratingchange)

In foreign currency / Outlook

In local currency / Outlook

Sovereign rating

Russian Federation

22.02.2002

B+/Positive

B+/Positive

Corporations

ALROSA

19.12.2001

B-/Positive

B-/Positive

Vympelkom

21.12.2001

B/Stable

B/Stable

Gazprom

20.12.2001

B+/Stable

B+/Stable

Irkutskenergo

28.06.2001

CCC+/Stable

CCC+/Stable

LUKOIL

19.12.2001

B+/Stable

B+/Stable

MGTS

14.12.2001

CCC+/Stable

--/--

MMK

14.11.2001

B/Positive

B/Positive

Mosenergo

28.06.2001

B-/Stable

B-/Stable

MTS

21.12.2001

B+/Stable

B+/Stable

OMZ

29.01.2002

CCC+/Positive

CCC+/Positive

Rosneft

23.10.2001

B/Stable

B/Stable

Rostelekom

28.07.2000

CCC/Stable

CCC/Stable

North-Western Telekom

11.12.2001

CCC/Stable

CCC/Stable

Tatneft

04.10.2001

B-/Stable

B-/Stable

Uralsvyazinform

17.12.2001

B-/Stable

B-/Stable

Tsentr Telekom

14.12.2001

CCC/Stable

CCC/Stable

YuTK

27.12.2001

CCC+/Stable

CCC+/Stable

Financial institutions

Alba Alians Bank

29.05.2001

CCC-/Stable

CCC-/Stable

Alfa-Bank

13.02.2001

CCC+/Stable

CCC+/Stable

BankMFK

26.02.2002

CCC-/Positive

CCC-/Positive

Table 42 (cont’d)

Issuer

Date of latest rating assignment (latest ratingchange)

In foreign currency / Outlook

In local currency / Outlook

BankPetrokommerts

08.11.2001

CCC+/Stable

CCC+/Stable

Bashkreditbank

31.08.2001

CCC+/Stable

CCC+/Stable

Impexbank

04.02.2002

CCC-/Stable

CCC-/Stable

Investment banking corporation

15.03.2001

CCC-/Stable

CCC-/Stable

Infobank

04.05.2001

D/--

D/--

MDM-Bank

05.12.2001

CCC/Positive

CCC/Positive

International Moscow Bank

31.01.2002

B-/Stable

B-/Stable

International Industrial Bank

23.01.2002

CCC+/Stable

CCC+/Stable

Insurance companies

AIG Russia

04.01.1999

AAA/--

--/--

Investment and brokerage companies

Renaissance Capital Holdings Ltd.

08.11.2001

CCC/Positive

CCC/Positive

Data source: Standard&Poor's

Some of the Russian Eurobond issues involve"indirect" placement schemes, when the Russian borrower acts as the founder ofa non-resident company registered abroad, which "formally" becomes thesecurities issuer. Under this scheme, bonds areactually secured by the guarantees of the Russian parent company, which can nowfreely and fully dispose of the acquired loan proceeds.

For instance, the MTS subsidiarynon-resident company Mobile TeleSystems Finance S.A.acted as borrower under theMTS Eurobond issue, and the Gazprombank subsidiaryDutch company Gazinvest Finance B.V. became the borrower under the Gazprombank Eurobond issue.

Under the above scheme, the Russiancorporate borrower saves in tax payments up to 0.8% of the issued value; thebond issue need not be registered with the FSCM; no license to perform foreignexchange operations is required from the RF Central Bank; and matterspertaining to the double taxation of the investors' incomes are resolved in asimplified manner. The procedure for receiving and repaying the loan proceedsraised under the "indirect" eurobond placement schemes was simplified byInstruction # 1030-Y of the RF Central Bank adopted on 10 of September 2001, which replaced the discretionary procedurefor attracting long-term loans from non-resident investors with a notificationprocedure.

At the same time, Russian investors findit difficult to enter the market of Eurobonds floated by Russian issuersthrough the aforementioned "indirect" scheme, because resident entities mayonly engage in the purchase and sale of Eurobonds, if they have a license ofthe RF Central Bank to engage in capital-flowoperations. Regulation # 152- of the RF Central Bank, dated 17 of September2001, provides for an exception to that rule and allows for "the acquisitionand alienation by residents in the organized securities market, throughauthorized banks and for foreign currency, of resident-issued securitiesdenominated in a foreign currency.

This exception applies to Russiangovernment Eurobonds and corporate bonds in the instances where a residentcompany acts as direct borrower, but leaves out the Russian Eurobonds issued byway of the "indirect" schemes. Given the cautious liberalization of the foreignexchange market, it would be expedient to make sure that domestic investors getaccess to the entire range of Russian Eurobonds.


1 The real rouble to Euro exchange rate grew in fact by the samevalue. But as far as there is no unified consumer price index value for Euro,we calculate the real rouble exchange rate value compared to the Germanmark.

2 Volume of accounts payable isnaturally bigger than that of accounts receivable due to the fact that therange of financial relations with contracting parties that are referred to inthat column is wider; in addition to settlement of suppliers’ accounts (buyers are in thecolumn with accounts receivable) the accounts payable also include debts tobudgets, non-budget funds, arrears of wages. As per December 1st, 2001 post-due receivableaccounts consist 82% ofbuyers’ debts,accounts payable consist 49% of debts to suppliers, by 20% and 19% of debts tobudgets of all levels and state non-budget funds accordingly.

3 Note: Writing off a debt charged to loss due insolvency of adebtor is not viewed as a repudiation. This debt shall be shown off-balance for five years sincethe day it is written off to make it possible to monitor the possibility tocollect the debt should the debtor’s financial status get better.(Order of the Ministry of Finance of 07.29.98 Nr. 34n., altered on03.24.00)

4 Pursuant to the government regulation Nr. 817 of August18th, 1995 On measuresof ensuring law and orderin settlement of payments under contracts of delivery of goods (performance of works or services), par.1, written off sums of debts do not decrease the financial result that is taken in accountin calculating the taxable profit of the organization-creditor.

5 The growth of the nominal accumulated level of debts is caused bynew post-due debts for shipments less debts collected and old debts writtenoff. In this way if new debts are equivalent to writing off old debts and theircollection the nominal level gets stabilized.

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