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7/29/2019 Russia Are You Contrarian Enough ?
1/40
September 2013
Russia are youcontrarian enough?
1
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2
Important Information
Every effort has been made to ensure the accuracy of the information in this document but it may bebased on unaudited or unverified figures or sources. The information in this document should not beused as the sole basis for an investment.(DVW&DSLWDOVVHUYLFHVDQGLQYHVWPHQWSURGXFWVPD\QRWEHDYDLODEOHWRDOOSHRSOHLQDOOMXULVGLFWLRQV(DVW&DSLWDOVVHUYLFHVDQGLQYHVWPHQWSURGXFWVPD\QRWEHRIIHUHGVROGRUGLVWULEXWHGLQDQ\FRXQWU\unless such offer, sale or distribution is made in accordance with local registrations or any applicableexemptions from any registration requirements provided by the local laws and regulations.Information about our services, investment products, prospectuses, financial reports, distributors and
where the funds are registered for sale can be obtained at East Capital (www.eastcapital.com).Investment in funds always involves some kind of risk. Past performance is no guarantee for futureperformance. Fund units may go up or down in value and may be affected by changes in exchangerates. Investors may not get back the amount invested. As East Capital invests in foreign markets,FXUUHQF\IOXFWXDWLRQVFDQDIIHFWWKHIXQGVYDOXHV
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East Capital in brief
Leading asset manager dedicated toEastern Europe and East Asia, founded in 1997
USD 4.7 billion in AUM in public and private equity
Offices in Stockholm, Moscow, Kyiv,Hong Kong, Tallinn, Paris, Oslo and Shanghai
35 investment professionals in publicand private equity, in total 140 employees from 25countries
Broad international client base, from direct retailinvestors to leading third party distributors and first tierinstitutions
14 year track record, highly awarded funds
Independently owned and managed with founders andowners active at senior management level
AUM per Segment
All figures as of 31 July 2013
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Long term approach with focus onconvergence and domestic themes
Fundamentals matter over time(valuation and growth)
Active stock-picking without indexWUDFNLQJLQGH[DJQRVWLF
Strong local presence and in-houseresearch based on frequentcompany visits
Broad portfolio diversification on alllevels (country, sector, company)
Corporate governance (includingsocial and environmentalresponsibility)
Investment Style
4
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Awards
http://www.eastcapital.com/sv/node/1402http://www.eastcapital.com/sv/node/1406http://www.eastcapital.com/sv/node/1408http://www.eastcapital.com/sv/node/1409http://www.eastcapital.com/sv/node/1410http://www.eastcapital.com/sv/node/1411http://www.eastcapital.com/sv/node/1412http://www.eastcapital.com/sv/node/1413http://www.eastcapital.com/sv/node/1414http://www.eastcapital.com/sv/node/1415http://www.eastcapital.com/sv/node/1416http://www.eastcapital.com/sv/node/1417http://www.eastcapital.com/sv/node/1418http://www.eastcapital.com/sv/node/1419http://www.eastcapital.com/sv/node/1420http://www.eastcapital.com/sv/node/1421http://www.eastcapital.com/sv/node/1422http://www.eastcapital.com/sv/node/1423http://www.eastcapital.com/sv/node/1424http://www.eastcapital.com/sv/node/1425http://www.eastcapital.com/sv/node/1426http://www.eastcapital.com/sv/node/1427http://www.eastcapital.com/sv/node/1428http://www.eastcapital.com/sv/node/1429http://www.eastcapital.com/sv/node/3014http://www.eastcapital.com/sv/node/6160http://www.eastcapital.com/sv/node/3153http://www.eastcapital.com/sv/node/6161http://www.eastcapital.com/sv/node/11880http://www.eastcapital.com/sv/node/17067http://www.eastcapital.com/sv/node/170687/29/2019 Russia Are You Contrarian Enough ?
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East Capital RussianFund Performance since Inception
6
Note: In USD as of 30 June, 2013. RTS Index until 30.06.2010, MSCI Russia Index Total Return (net) from 01.07.2010
Since inception (USD)Fund 1123,3%
Index 528,2%
0
500
1000
1500
2000
2500
East Capital Russian Fund MSCI Russia TR Net
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EMs lagging
EMs led byBrazil and Indiahave performed
the worst, whileDMs had decentreturns
Reasons may befear of lower
growth in EMs,but also generalrisk aversionand taperingfears
Source: Bloomberg, East Capital estimates, 2012-12-31 2013-08-28
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Russia a macroeconomic haven?
Government debt at only 11% (and mostly in rubles) and forex reserves at over$500 bln (27% of GDP)
Current account surplus
Flexible currency absorbs oil price vulnerability, while CBR targets inflation
Inflation down from 14% in 2008 to less than 6% expected for 2013
Budget balanced thanks to newly introduced fiscal rule
Even with oil price at $80/bbl fiscal deficit would be less than 3% of GDP
Oil is a more resilient commodity
Low consumption per capita in China and India
Half of global oil exports come from the Middle East
Elevated cost curve (deep-sea oil, oil sands and shale oil all believed to requiremedium term prices of over $80/bbl)
Oligopoly is still strong and powerful unlike on most other commodity markets
GDP growth has slowed (as with other EMs) but should rebound
Current fears forthe effects oftapering shouldbe much less of a
problem forRussia due toboth soliddomestic macroand relativecurrency
resilience in EMclass thanks tostrong linkage tooil
Source: Sberbank, East Capital estimates
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Highest discount everto oil price-based fair
valueRTS is currentlytrading around1300 points,
while a
regressionanalysis of oilprice andRussian equitymarket showsaround 650
points discountto theoretical fairvalue (similar tothe situation inlate 2008/early2009)
Source: Bloomberg, East Capital estimates
RTS Discount/Premium to oil price-based fair value
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Highest discount everto oil price-based fair
YDOXHFRQWG*LYHQWRGD\Voil price, Russiashould trade
above 1950points on RTSwhile currentlytrading around1300, implyingan oil price of
merely $78(today at $115)
Source: Bloomberg, East Capital estimates
RTS and oil price, (r=0,88 and r^2=0,78)
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Post-crisis de-correlationof performance and
earnings growth
Source: Bloomberg as of 2013-07-28, East Capital estimates
Implied earnings for selected markets since 2003-08-01 Performance for selected markets since 2003-08-01
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Post-crisis de-correlationof performance and
earnings JURZWKFRQWG
Source: Bloomberg as of 2013-07-28, East Capital estimates
Performance for selected markets since 2010-01-01Implied earnings for selected markets since 2010-01-01
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Large upside tohistorical average
Source: Bloomberg, East Capital estimates, 2003-08-30 2013-08-27
-8,0%
52,3%
98,6%
24,1%
35,3%
-20%
0%
20%
40%
60%
80%
100%
120%
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,0
20,0
Brazil China Russia India Turkey
Upsid
e/Downsidefroma
verage,%
P/E
Average P/E Current P/E Upside/Downside to average P/E, RHS
Current vs. average P/E (LHS) and upside/downside (RHS)7RGD\VYDOXDWLRQVare mainly caused
by low globalallocations toRussia (as foreign
investors controlfree float)
For example,current ETF assetsfor Brazil are aboutfive times the sizeof ETF assets forRussia
This implies thatdownside should
be limited at theselevels
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Reasons behind theearnings growth
Structurally high ROEs
Due to large entry barriers, a lack of capital andlow cost structures, prices and margins are and hasbeen high for many companies, especially inunregulated, domestic sectors
Low penetration
Due to early stage capitalism, large businesses cangrow organically as penetration is starting from a
low base
High-quality labor force
Unlike many other petro states, Russia has a largeand highly educated population (140m people)
Magnit, todaythe leading foodretailer by salesin Russia, withover 7 400stores andoperating inmore than 1 700locations,
opened its firstVWRUHLQ
Source: Sberbank, East Capital estimates
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Consumption growing faster thanoverall economy
Supportive long termfundamentals for
domestic growth
Source:Federal State Statistic Service (RosStat)
Unemployment at record low
15
Source:Federal State Statistic Service (RosStat)
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Supportive long termfundamentals for
domestic JURZWKFRQWG
Source: Sberbank, East Capital estimates
Improving demographics
Thousand people
-1000
-800
-600
-400
-200
0
200
400
Balance of migration
Natural population growth
Total population growth
16
Source: RosStat
Inflation at historically low levels
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How to play thedomestic theme
Russia has alarge middleclass thatdemands morefinancialservices as wellas betterinfrastructure,housing, health
care andtransport
Source: Bloomberg, East Capital estimates
5XVVLDVSHQHWUDWLRQFXUYHRI(8DYHUDJH
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East Capital RussianFundRelative Sector Allocation vs.
Index
18All data as per 2013-07-31
-20.5%
-3.6%
-1.8%
0.8%
2.7%
3.6%
7.3%
9.2%
-25% -20% -15% -10% -5% 0% 5% 10% 15%
Energy
Materials
Financials
Consumer Staples
Telecommunication Services
Utilities
Industrials
Consumer Discretionary
RelativeDomestic sectors
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Most sectors cheaperthan other EMs
Source: Sberbank, East Capital estimates, August 2013
5XVVLDLVRQO\FKHDSEHFDXVHRILWVHQHUJ\VHFWRU not true anymore
A wide set of domestic sectors,
preferred by East Capital, are trading atsignificant discounts to other EMs, inparticular
Banks
Air transport
Utilities
Automotive
Consumer electronics
Real estate
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Reasons behind5XVVLDVZHDNHTXLW\
market performance
Free-float controlled by foreign investors(due to absence of local savings base)
Inefficient stock market trading practices
Fear that cash flow is not shared withminority investors
Low standards of corporate governancecompared to other emerging markets
High and persistent corruption
Political protests
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Russian equities: lowfree-float, few local
institutional investors Less than 30% of Russian equity capital is a free
float, and only 2% of the latter is owned bypension funds
The outlook onRussian equitieshas historically
been established
mainly byforeign investorsin the absence ofa local investor
base
Only 2% of localstock market freefloat is funded bypension savings,
but one canexpect this shareto increase
Source: Sberbank CIB, Goldman Sachs, EC Estimates
30%
15%
14%
5%9%
55%
2%
13%
30%27%
State
Oligarch
Businessmen
Foreign strategicinvestorsOthers
Free float:foreignersFree float: pensionfundsFree float: banks
Free float: others
Ownership structure ofRussian equities:
Free-float detailed:
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But pension savingsare on impressive
growth path Mandatory accumulated pensions savings
(Pillar II) will increase from current 3.8% ofGDP up to at least 6.7% of GDP in 2020
Pillar II pensionassets will grow
by 15-25%annually till
2020 dependingon actualallocation
between public(2% of payrollcontributed) and
private (6%) PFsOn top of thatPillar III assets
will amount to1.8% of GDP in2020 (1.2% now)
Source: EC estimates, SocGen, RenCap, Ministry of Economic Development, investfunds.ru
3,8
6,7
9.1
0
1
2
3
4
5
6
7
8
9
10 Optimistic scenario
Conservative scenario
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Pension Funds (PFs) maybecome important players
on Russian equity market ,I5XVVLDFORVHVWKHJDSYV2(&'DYHUDJHLQ3)V
equity holdings, the latter may increase up to 67bln USD in 2020 (Pillars II and III)
Why we expectPFs to allocatemore AUM intoequity?
Because ofrecent changesin regulation (norestrictions on
yearly negativereturns) andmore active
inflows intoprivate (morerisky) PFscompared topublic manager
VEB
Source: EC estimates, SocGen, RenCap
3%
18%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Russia OECD Average
RISHQVLRQIXQGV$80invested in equities
3,0
66,5
0
10
20
30
40
50
60
70
Equity holdings
now
Potential equity
holdings
3HQVLRQIXQGVHTXLW\investments, bln USD
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24
Local stock exchangeadopting Western
standards Russia's two main stock exchanges, MICEX and RTS, merged in
late 2011 as part of a Kremlin-backed strategy to promote Moscowas an international financial center
A mandatory central securities depository (the National SettlementDepository) was created in 2012
Meeting the requirements of Rule 17f-7 of the United States InvestmentCompany Act of 1940, allowing US funds to invest directly in Russiansecurities
Both Clearstream and Euroclear were admitted to the market, startingwith settlement of local debt instruments to be followed by local equities
Settlement for bonds and equities in in process of moving fromsettled on execution (pre-payment) to T+2 (the norm in US andGermany for example)
Removal of the limit for international circulation of Russian sharesexpected in 2014
Current regulations limit depositary receipts conversions, creatingspreads between local shares and ADRs
Trading localsecurities inRussia has beenfamous for itsinefficiency, high
costs andcomplexity,especially forinternationalinvestors
Lower trading
costs and higherpost-tradetransparency will
bring moreliquidity onto thelocal market
Source: Citi, East Capital
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25
,QWURGXFLQJ1RYR0HUFDGRLQ5XVVLDQ
The Moscow Exchange is planning to launch the Novy5\QRN1HZ0DUNHW,QGH[ZLWKLQPRQWKV
A premium segment for companies adhering to highercorporate governance standards
)ROORZLQJWKHVXFFHVVRI%UD]LOV1RYR0HUFDGRZKHUHof Brazilian firms trading on Bovespa nowadays are listed(initially no Brazilian companies complied with the rules)
A recent case study analyzing the largest 25 companiesin Russia, India, China, South Africa and Turkey to seehow many would qualify to enter the Novo Mercado
Index in their current state shows that: RI5XVVLDVDQG7XUNH\VWRSFRPSDQLHVwould
TXDOLI\WRGD\
ZKLOHRQO\RI6RXWK$IULFDVRI,QGLDVDQGRI&KLQDVWRSFRPSDQLHVZRXOGPDNHLW
Based on NovoMercado terms,the majorcorporategovernance issue
in Russia todayis the low freefloat
While currentlyat 28%, it shouldincrease toward
40% by 2018 dueto plannedprivatizations (inBrazil free floatis 69% and inChina and Indiaaround 38%)
Source: Sberbank, July 2013
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Corporate governancecomparison BRICTS
A broadercomparison showsthat another issuefor Russia is theminorityshareholder
protection (basedon the 2013 WorldEconomic Forumscore)
Neither that scoreor low free float aredirect functions of
actual corporategovernance law, butrather an effect ofcurrent equitymarket structureand less strongimplementation ofthe actual law
Source: Sberbank, World Economic Forum, Bloomberg
Brazil Russia India ChinaSouth
Africa Turkey
Independent directors 32% 41% 54% 37% 59% 34%
IFRS/US GAAP 100% 100% 16% 100% 100% 100%
Same CEO/BoD chairman 8% 12% 56% 60% 16% 16%Government control 16% 30% 30% 46% 14% 18%
Free float 39% 27% 39% 41% 55% 35%
Family, oligarch, other 45% 43% 31% 14% 31% 47%
2013 WEF minority shareholderprotection (US =100%) 83% 67% 87% 96% 95% 88%
Novo Mercado entry 48% 20% 4% 4% 8% 20%
Comparison for 25 largest companies in each country
Weaker than average minority share holder protection showsthe value of an active manager that is able to challenge
inappropriate minority treatment and engage in advancingbetter corporate governance practices
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27
Understanding corporategovernance in Russia
5XVVLDKDGWZRPDLQVWDJHVRISULYDWL]DWLRQLQV
Voucher privatization (1992-94DQG/RDQVfor VKDUHVauctions (1995)
Due to non-transparent privatization rules, low financial literacy ofpopulation and informal unions between business and stateofficials most assets were sold very cheap, for instance:
51% stake in Norilsk Nickel was sold in 1995 for 170 mln USD, now thisstake is worth 11.5 bln USD (~26% annual USD return)
40% stake in Surgutneftegas was sold for 89 mln USD, now this stake isworth 14 bln USD (~32% annual USD return)
After obtaining control over former state assets cheaply, newowners often focused on keeping control over that fallen-from-the-
sky wealth rather than investing and developing acquired assets7KHFUXFLDOLVVXHRIFRUSRUDWHJRYHUQDQFHDWSULYDWL]HGFRPSDQLHVZDVQWtaken into account when privatization mechanism was designed. New ownerfrequently had neither skills in operational and strategic management of bigFDSLWDOLVWLFEXVLQHVVQRUVXIILFLHQWEXVLQHVVFXOWXUH,WGLGQWDFWXDOO\VWLPXODWHHIILFLHQF\LPSURYHPHQWVDQGGLGQWSURPRWHVWUXFWXUDOWUDQVLWLRQRIHFRQRP\
Russian State Accounts Chamber, 2004
Privatization inVZDVVRcheap that fornew owners it
was optimal tosimply retaincontrol overacquired assetsby any means
It guaranteedenormousreturns per se,no one caredabout efficiencyand governance
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Evolution of corporategovernance in Russia
Since the first trades in Russian stocks took place in late,32VRYHUWKH\HDUVEURXJKWQHZVHFWRUVWRWKHmarket such as telecom, food retailing and real estate (asopposed to assets inherited from the Soviet times, mainlyenergy and other raw materials)
These new companies are mostly run by businessmen as opposite tooligarchs and state, often demonstrating strong management,healthy cash-flows and good governance
While companies majority-own by the state still tend to beworse run than private, government is pushing for a change
In 2011, President Medvedev ordered the removal all high rankingstate officials from boards of directors from state companies
In November 2012, the government issued a rule to state-controlledbusinesses mandating a payout equal to at least 25% of net income
All Russian companies should publish IFRS accounts starting from2013
Following theadoption of the CivilCode in 1994 and theJoint Stock Companylaw in 1995, the
Russian governmentissued a Code ofCorporate Governanceas late as 2002(ratified in 2004)
Today >60 Russian
companies are listedon LSE and dozens onNYSE, NASDAQ,)UDQNIXUWV;(75$Stockholm and HongKong stock exchangesand hence subject tostricter accounting anreporting rules
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Number of IPOs persector since 2000
Out of 64 IPOssince 2000covered byBloomberg,
only 11 haveEHHQLQROGVHFWRUV
If excludingRosneft IPO in
2005, morethan 80% of thetotal value hasFRPHIURPQHZVHFWRUV
Source: Bloomberg, East Capital estimates
Consumer Staples;
13
Consumer
Discretionary; 8
Financials; 8
Materials; 7
Industrials; 7
Telecommunication
Services; 6
Health Care; 5
Energy; 4
Utilities; 3
Information
Technology; 3
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East Capital RussianFund Top 20 Relative Positions vs.
Index
30All data as per 2013-07-31
-13.2%
-7.1%
-5.6%
-3.3%
-2.8%-1.6%
1.2%
1.3%
1.4%
1.9%
2.0%
2.1%
2.3%
2.4%
2.6%
2.8%
3.4%
3.8%
4.4%
4.5%
-16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6%
Gazprom
Sberbank
Lukoil
Magnit
MTSRosneft
Surgut Ng
Globaltrans
LSR Group
Kazmunaygaz
Mostotrest
Bank Sankt-Peterburg
Cash
Aeroflot Russian Airlines Jsc
Transneft
Dixy
Sollers
Yandex
Sistema
M.Video
Relative weight, %
Main ownership by businessmen
Electronics retailer
Internet search provider
Auto producer
Food retailer
Bank
Transportation
Real estate
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31
Case study M.Video Beneficiary of the retail lendingboom under way in Russia
Consumer electronics market leader
Sales CAGR 2011-2014E 14.6% vs. 5.6% for market
Investment rationale
Strong relationships with founder
Excellent execution track record
Best in class corporate governance and sustainable dividend story
Possible market consolidator (deal with main competitor Eldorado iscurrently under discussion)
Zero debt balance sheet
Attractive valuation
(9(%,7'$ 4.4x3( 9.5x
East Capital has 6.3% stake in the company and elected oneindependent director to the board of directors
Growth 2013:16% YoY sales,20% YoY earnings
Special dividendwith implied yieldof 11.4% (in totalaround 14% yield)
2013e EV/EBITDAat 4.4x
Source: Bloomberg, East Capital estimates
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(DVW&DSLWDOVDSSURDFKto corporate governance
East Capital is an active member and currently holds the vicechairmanship of the Russian Investor Protection Association (IPA)
Established in 2000, IPA is currently the largest association of itskind in Russia: unites approx. 30 members with accumulatedinvestments in Russia exceeding USD 25bn
,3$VPDLQDFWLYLWLHV
Nominating and electing independent directors:In 2012, IPA nominated directors in a total of 84 issuers, ofwhich 31 were successfully elected
Resolve disputes: Coordinates the voice of minority investorsin specific corporate disputes
Advocate improvements in legislation:Actively cooperateswith governmental authorities and various institutions onimproving corporate governance related legislation
The IPA is the onlycorporategovernanceassociation inRussia created by
and for investors
13 years of collectiveexperience inhands-onimprovements incorporate
governance at suchcompanies as RAOUES, Rostelecom,IDGC Holding andmany others
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Dividend pay-out overtime and current yield
Cash flows not shared with minorities no longer true
MSCI Russia current yield 3.8% (vs. 2.8%
for MSCI EM) Partly function of low valuations, partly due
to increasing pay-outs
Major companies yield 5-6%
Aeroflot at 5%, Gazprom at 6.5%
Private companies increasing dividends,despite fast growth
Sollers at 8% yield for 2013e
M.Video at around 14% yield for 2013e ifspecial dividend (at 11.4% yield) repeated
Source: Bloomberg, Sberbank, East Capital estimates
Dividend pay-out-ratio for MSCI Russia
0
5
10
15
20
25
30
35
40
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
MSCI Russia
%
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34
Russia from laggard toleader
Dividend yieldfor Russia(orange line)compared torange (lightblue area) ofdividend yieldsfor Asia exJapan, Brazil,
China, GEM,India, S&P500,and World
Source: Bloomberg, East Capital estimates, 2009-08-282013-08-28
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35
Dividend pay-out in2013
Major dividendpayers will payin total USD19bn till theend of August2013
Out of these,almost USD
7bn will be paidout to free float(partly re-invested)
Source: VTB Capital, East Capital estimates
Sberbank, ord.; 850
Sberbank pref.; 98
Uralkali; 163
Norilsk Nickel; 448
Gazprom Neft; 54
Severstal; 15
Rosneft; 342
MTS; 416Bashneft, ord.; 15
Bashneft, pref.; 24
E.On Russia; 140
Lukoil; 801
Gazprom; 2 101
Surgut ord.; 149
Surgut pref.; 317
Tatneft ord.; 370
Tatneft pref.; 39
VTB ; 179Megafon; 184 Sistema; 65
Dividends to free float shareholders (in total $mn)
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36
Continued stablepolitical environment
Source: Levada Center, Rasmussen Reports
Putin approval index is still impressivelyhigh in a global context, albeit comingdown slightly
$SSURYDO,QGH[RIWKRVHZKRDSSURYHSHUVRQVDFWLRQV
minus % of those who disapprove (based on polls results)
Russian society is moving towards more openand democratic standards and is becoming moremature
Partly thanks to development of modern mediaand a stronger middle class
It guarantees more balanced economic and socialpolicies in the future
Fight against corruption has become more visible(Putin publically dismissed minister of defense inlate 2012 in a $100m scandal)
6WUHHWSURWHVWVKRZHYHUGRQWQHFHVVDULO\PHDQsignificantly higher political risks (as the case
with the Arab spring) After a decade of economic prosperity, people
mainly demands higher quality of life (betterroad infrastructure, schools, medical servicesetc.)
Opposition is still very weak with few crediblealternatives to current leadership, albeit withsome exceptions (for example Alexei Navalny,Moscow mayor candidate)
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37
Corruption is highbut dynamics matter
Recent anti-corruption policies in Russia gaveclear positive results, while in other BRICcountries corruption problem aggravated
Internationalrankings ofcorruptionperception place
Russia low, butunlike otherBRICs Russia isimproving itspositions
Moreover,SHUFHSWLRQRIFRUUXSWLRQindex per se is adisputablemeasure ofcorruption
Source: Transparency International
154
143
133
7881
84
60
70
80
90
100
110
120
130
140
150
160
2010 2011 2012
Russia
BRIC ex Russia average
Worldwide rank in Corruption Perception Index
7/29/2019 Russia Are You Contrarian Enough ?
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38
Capital flight declining since 2005
)DLUPHDVXUHRIFDSLWDOIOLJKWUHYHDOVDVXEVWDQWLDOO\DQGconsistently decreasing trend in contrast to media reporting
The large offshoreownership ofRussian businesscomplicates thepicture with loanrefinancing and
overseas M&Asometimeserroneously countedas capital flight(after 2008, a lot offoreign loans hasbeen replaced withdomestic debt)
Also loans byRussiansubsidiaries offoreign banks totheir parent banksin the West, adds tocapital outflows
Source: The Bank of Russia
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
2005 2006 2007 2008 2009 2010 2011 2012 13
Fictitious transactions* in the BoP financial account, % to GDP
Log-trend
* official category in the analytical representation of the BoP by the Bank of Russia
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Russia has the leastrestrictive capital
controls among BRICs Comparisons of capital flows with other BRIC
countries are simply incorrect Russiaabandoned capital controls, others did not
Part of capitaloutflows fromRussia is due torelatively
relaxed capitalcontrols
One can onlyguess howvulnerable
RWKHU(0VBoPs would beif they loosenedtheir capitalcontrols asRussia did
Source: IMF Annual Report of Exchange Arrangements and Exchange Restrictions, 2012
Capital Transactions Brazil Russia India China
Controls on:
Capital market securities * * * *
Money market instruments * * * *
Collective investment securities * * * *
Derivatives and other instruments * * *
Commercial credits * *
Financial credits * * *Guarantees, sureties, and financial backup facilities * *
Direct investment * * * *
Liquidation of direct investment * *
Real estate transactions * * *
Personal capital transactions * *
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