Issue Price: 100% AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING ON PAGE 9.

Transcription

1 U.S.$77,250, % Loan Participation Notes due 2020 issued by, but with limited recourse to, USIB Finance Limited for the sole purpose of financing a subordinated loan to Open joint stock company BANK URALSIB Issue Price: 100% USIB Finance Limited, a company incorporated as a private limited liability company under the laws of Ireland (the Issuer ), is issuing an aggregate principal amount of U.S.$77,250, % Loan Participation Notes due 2020 (the Notes ) for the sole purpose of financing a subordinated loan (the Loan ) to Open joint stock company BANK URALSIB, an open joint stock company organised under the laws of the Russian Federation (the Borrower ), pursuant to a subordinated loan agreement dated 21 January 2015 (the Subordinated Loan Agreement ) between the Issuer and the Borrower. The Notes are being offered by the Issuer (the Exchange Offer ) ) to the holders of the Third Party Notes (as defined in The Exchange Offer ) ) to exchange such Third Party Notes for Notes. Third Party Notes acquired by the Issuer in the Exchange Offer will be sold by the Issuer to the Borrower. Pursuant to the trust deed (the Trust Deed ) relating to the Notes between the Issuer and Deutsche Trustee Company Limited, as trustee (the Trustee ), the Issuer will provide certain security for all payment obligations in respect of the Notes for the benefit of the Noteholders, including a first fixed charge in favour of the Trustee of all amounts paid and payable to it under the Subordinated Loan Agreement and an assignment to the Trustee of the Issuer s rights and interests under the Subordinated Loan Agreement, other than in respect of certain reserved rights (as more fully described in Description of the Transaction and the Security ). Interest on the Loan will be payable at a rate of 10.5 per cent. per annum semi-annually in arrear on the interest payment dates falling on 22 January and 22 July in each year, commencing on 22 July 2015, and, provided that the Issuer receives such payment in full, interest on the Notes will be payable on such dates at the same rate. The Notes are limited recourse obligations of the Issuer. In each case where amounts of principal, interest, premium (if any) and additional amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest, premium (if any) and additional amounts (if any) are due, for an amount equivalent to the principal, interest, premium (if any) and additional amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer from the Borrower pursuant to the Subordinated Loan Agreement. The Issuer will have no other financial obligation under the Notes. Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on the credit and financial standing of the Borrower in respect of the obligations of the Borrower under the Subordinated Loan Agreement. Except as set forth herein under Taxation,, payments in respect of the Notes (and the Loan) will be made without any deduction or withholding for, or on account of, the taxes of any relevant jurisdiction. Except as otherwise expressly provided in this Prospectus and in the Trust Deed, no proprietary or other direct interest in the Issuer's rights under or in respect of the Subordinated Loan Agreement, (or in any rights that the Trustee may receive by way of assignment in respect of the Loan), exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will be entitled to enforce any provisions ions of the Subordinated Loan Agreement or have direct recourse to the Borrower. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING ON PAGE 9. The Notes and the Loan (together, the Securities ) have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the Securities Act ), and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act ( Regulation S )). The Prospectus has been approved by the Central Bank of Ireland (the CBI ) as competent authority under Directive 2003/71/EC (the Prospectus Directive ). The CBI only approves this Prospectus as meeting the requirements imposed under Irish and European Union law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange plc (the Irish Stock Exchange ) for the Notes to be admitted to the official list of the Irish Stock Exchange (the Official List ) ) and trading on its regulated market (the Main Securities Market ). The Main Securities Market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments. There is no assurance that a trading market in the Notes will develop or be maintained.

2 The Notes are not intended to be sold and should not be sold to retail clients in the EEA (as defined in the rules set out in the Temporary Marketing Restriction (Contingent Convertible Securities) Instrument 2014, as amended or replaced from time to time) other than in circumstances that do not and will not give rise to a contravention of those rules by any person. Prospective investors are referred to Important Information about this Prospectus Restrictions on Marketing and Sales to Retail Investors on page iv of this Prospectus for further information. It is expected that the Notes will be rated B by Fitch Ratings Ltd. ( Fitch ). The Borrower's current foreign senior unsecured debt rating by Moody's Investors Service Ltd. ( Moody's ) is B2 (negative outlook) and the Borrower's current long term foreign currency issuer default rating by Fitch is B+ (negative outlook). The Borrower's long term counterparty default rating by Standard & Poor's Credit Market Services Europe Limited ( Standard & Poor's ) is B+ (stable outlook). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating agency. Fitch, Moody's and Standard & Poor's are established in the European Union and registered under Regulation (EC) No 1060/2009, as amended (the CRA Regulation ). As such, Fitch, Moody's and Standard & Poor s are included in the list of credit rating agencies published by the European Securities and Markets Authority ( ESMA ) on its website in accordance with the CRA Regulation. In general, European regulated investors are restricted from using a rating for regulatory purposes if such rating is not issued by a credit rating agency established in the European Union and registered under the CRA Regulation. The Notes will be offered and sold in the minimum denomination of U.S.$200,000 and higher integral multiples of U.S.$1,000. The Notes will initially be represented by interests in a global note certificate in registered form (the Global Note Certificate ), without interest coupons, which will be deposited with a common depositary for Euroclear Bank SA/NV ( Euroclear ) and Clearstream Banking, société anonyme ( Clearstream, Luxembourg ), and registered in the name of a nominee, on or about 22 January 2015 (the Issue Date ). Beneficial interests in the Global Note Certificate will be shown on, and transfers thereof will be effected only through records maintained by Euroclear or Clearstream, Luxembourg (as the case may be) and their respective participants. See Clearing and Settlement. Individual note certificates in registered form ( Definitive Note Certificates ) will only be available in certain limited circumstances as described herein. The date of this Prospectus is 21 January ii

3 IMPORTANT INFORMATION ABOUT THIS PROSPECTUS This Prospectus comprises a prospectus for the purposes of Directive 2003/71/EC (the Prospectus Directive ) for the purpose of giving information with regard to the Issuer, the Borrower and the Borrower and its subsidiaries taken as a whole (the Bank or the Borrower s Group ) which, according to the particular nature of the Issuer, the Borrower, the Borrower s Group, the Notes and the Loan, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer, the Borrower and the Borrower s Group and of the rights attaching to the Notes. Each of the Issuer (whose registered office address is set out on page 110 of this Prospectus) and the Borrower (whose registered office address is set out on page 163 of this Prospectus) accepts responsibility for the information contained in this Prospectus. To the best of the knowledge of each of the Issuer and the Borrower (each of whom has taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. In addition, the Borrower, having made all reasonable enquiries, confirms that (i) this Prospectus contains all information with respect to the Borrower, the Loan and the Notes that is material in the context of the issue and offering of the Notes; (ii) the statements contained in this Prospectus relating to the Borrower, the Loan and the Notes are in every material particular true and accurate and not misleading; (iii) the opinions, expectations and intentions expressed in this Prospectus with regard to the Borrower, the Loan and the Notes are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no other facts in relation to the Borrower, the Loan or the Notes the omission of which would, in the context of the issue and offering of the Notes, make any statement in this Prospectus misleading in any material respect; and (v) all reasonable enquiries have been made by the Borrower to ascertain such facts and to verify the accuracy of all such information and statements. Accordingly, save as set out in the immediately preceding sentence and below, the Borrower accepts responsibility for the information contained in this Prospectus. This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer, the Borrower, the Exchange Advisers (as defined in The Exchange Offer ) or the Trustee to subscribe for or purchase any Notes in any jurisdiction where it is unlawful to make such an offer or invitation. The distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, the Borrower, the Exchange Advisers and the Trustee to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of Notes and distribution of this Prospectus, see Transfer Restrictions. No person is authorised to provide any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, the Borrower, the Exchange Advisers or the Trustee. The delivery of this Prospectus at any time does not imply that the information contained in it is correct as at any time subsequent to its date. Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer or the Borrower since the date of this Prospectus. To the fullest extent permitted by law, the Exchange Advisers accept no responsibility whatsoever for the contents of this Prospectus or for any other statement, made or purported to be made by an Exchange Adviser or on its behalf in connection with the Issuer, the Borrower or the offering of the Notes pursuant to this Prospectus. Each Exchange Adviser accordingly disclaims all and any liability, whether arising in tort or contract or otherwise (save as referred to above), which it might otherwise have in respect of this Prospectus or any such statement. None of the Issuer, the Borrower, the Exchange Advisers, the Trustee or any of its or their respective representatives or affiliates makes any representation to any offeree or purchaser of the Notes offered hereby regarding the legality of an investment by such offeree or purchaser under applicable legal, investment or similar laws. Each investor should consult with its own advisers as to the legal, tax, business, financial and related aspects of the purchase of the Notes. Prospective purchasers must comply with all laws that apply to them in any place in which they buy, offer or sell any Notes or possess this Prospectus. Any consents or approvals that are needed in order to purchase any Notes must be obtained. The Issuer, the Borrower, the Exchange Advisers and the Trustee are not responsible for compliance with these legal requirements. The appropriate characterisation of the Notes under various legal investment restrictions, and thus the ability of investors subject to these restrictions to purchase the Notes, is subject to significant interpretative uncertainties. No representation or warranty is made as to whether, or the extent to which, the Notes constitute a legal investment for investors whose investment authority is subject to legal restrictions, and investors should consult their legal advisers regarding such matters. The contents of the Borrower s website do not form any part of this Prospectus. No representation or warranty, express or implied, is made by the Exchange Advisers, the Trustee or any of its or their affiliates or any person acting on their behalf as to the accuracy or completeness of the information set forth in this Prospectus. Nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation, whether as to the past or the future. iii

4 Each person receiving this Prospectus acknowledges that such person has not relied on the Exchange Advisers, the Trustee or any of its or their affiliates or any person acting on their behalf in connection with its investigation of the accuracy or completeness of such information or its investment decision. Each person contemplating making an investment in the Notes from time to time must make its own investigation and analysis of the creditworthiness of the Borrower and the Borrower s Group and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience, and any other factors which may be relevant to it in connection with such investment. Restrictions on Marketing and Sales to Retail Investors * * * * * The Notes discussed in this Prospectus are complex financial instruments and are not a suitable or appropriate investment for all investors. In some jurisdictions, regulatory authorities have adopted or published laws, regulations or guidance with respect to the offer or sale of securities such as the Notes to retail investors. In particular, in August 2014, the U.K. Financial Conduct Authority (the FCA ) published the Temporary Marketing Restriction (Contingent Convertible Securities) Instrument 2014 (as amended or replaced from time to time, the TMR ) which took effect on 1 October Under the rules set out in the TMR (as amended or replaced from time to time, the TMR Rules ), certain contingent write-down or convertible securities, such as the Notes, must not be sold to retail clients in the EEA and nothing may be done that would or might result in the buying of such securities or the holding of a beneficial interest in such securities by a retail client in the EEA (in each case within the meaning of the TMR Rules), other than in accordance with the limited exemptions set out in the TMR Rules. The Exchange Advisers are required to comply with the TMR Rules. In addition, by exchanging for or by making an offer to exchange for any Notes from the Issuer and/or the Bank, each prospective investor represents, warrants, agrees with and undertakes to the Issuer, the Bank and each of the Exchange Advisers that: 1. it is not a retail client in the EEA (as defined in the TMR Rules); 2. whether or not it is subject to the TMR Rules, it will not sell or offer the Notes to retail clients in the EEA or do anything (including the distribution of this Prospectus) that would or might result in the buying of the Notes or the holding of a beneficial interest in the Notes by a retail client in the EEA (in each case within the meaning of the TMR Rules), other than (i) in relation to any sale or offer to sell Notes to a retail client in or resident in the United Kingdom, in circumstances that do not and will not give rise to a contravention of the TMR Rules by any person and/or (ii) in relation to any sale or offer to sell Notes to a retail client in any EEA member state other than the United Kingdom, where (a) it has conducted an assessment and concluded that the relevant retail client understands the risks of an investment in the Notes and is able to bear the potential losses involved in an investment in the Notes and (b) it has at all times acted in relation to such sale or offer in compliance with the Markets in Financial Instruments Directive (2004/39/EC) ( MiFID ) to the extent it applies to it or, to the extent MiFID does not apply to it, in a manner which would be in compliance with MiFID if it were to apply to it; and 3. it will at all times comply with all applicable local laws, regulations and regulatory guidance (whether inside or outside the EEA) relating to the promotion, offering, distribution and/or sale of the Notes, including any such laws, regulations and regulatory guidance relating to determining the appropriateness and/or suitability of an investment in the Notes by investors in any relevant jurisdiction. Where acting as agent on behalf of a disclosed or undisclosed client when purchasing, or making or accepting an offer to purchase, any Notes from the Issuer and/or the Bank the foregoing representations, warranties, agreements and undertakings will be given by and be binding upon both the agent and its underlying client. * * * * * THE NOTES AND THE LOAN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. SUBJECT TO CERTAIN EXCEPTIONS, THE NOTES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ( Regulation S )). iv

5 NOTICE TO UNITED KINGDOM RESIDENTS This document is only being distributed to and is only directed at (1) persons who are outside the United Kingdom or (2) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order ) or (3) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as Relevant Persons ). The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Notes will be engaged in only with, Relevant Persons. Any person who is not a Relevant Person should not act or rely on this document or any of its contents. NOTICE TO RUSSIAN INVESTORS This Prospectus or information contained therein is not an offer, or an invitation to make offers, to sell, exchange or otherwise transfer the Notes in the Russian Federation to or for the benefit of any Russian person or entity and does not constitute an advertisement or offering of securities in the Russian Federation within the meaning of Russian securities laws. The information contained in this Prospectus is not intended for any persons in the Russian Federation who are not qualified investors within the meaning of Article 51.2 of the Federal Law no. 39-FZ On the Securities Market dated 22 April 1996, as amended ( Russian QIs ) and the Prospectus must not be distributed or circulated into the Russian Federation or made available in the Russian Federation to any persons who are not Russian QIs, unless and to the extent they are otherwise permitted to access such information under Russian law. The Notes have not been and will not be registered in Russia and are not intended for placement or circulation in Russia (each as defined in Russian securities laws) unless and to the extent otherwise permitted under Russian law. This document has been filed with and approved by the CBI. The Prospectus approved by the CBI will be filed with the Irish Companies Registration Office in accordance with Regulation 38(l)(b) of the Prospectus Regulations. Any investment in the Notes does not have the status of a bank deposit and is not within the scope of the deposit protection scheme operated by the CBI. The Issuer is not and will not be regulated by the CBI as a result of issuing the Notes. The Issuer does not intend to provide post-issuance reporting with respect to the Notes or the Loan. v

6 ENFORCEABILITY OF JUDGMENTS The Borrower is a joint stock company incorporated under the laws of the Russian Federation. All the Borrower s directors and executive officers named in this Prospectus reside outside the United Kingdom. Moreover, the majority of the assets of the Borrower and substantially all of the assets of its directors and officers are located in the Russian Federation. As a result, it may not be possible for the Noteholders to: effect service of process within the United Kingdom upon any of the Borrower s directors or executive officers named in this Prospectus; or enforce, in the English courts, judgments obtained outside England against the Borrower or any of its directors and executive officers named in this Prospectus in any action. In addition, it may be difficult for the Noteholders to enforce, in original actions brought in courts in jurisdictions located outside the United Kingdom, liabilities predicated upon English laws. Courts in the Russian Federation will generally recognise judgments rendered by a court in any jurisdiction outside the Russian Federation if an international treaty providing for the recognition and enforcement of judgments in civil cases exists between the Russian Federation and the country where the judgment is rendered and/or a federal law is adopted in the Russian Federation providing for the recognition and enforcement of foreign court judgments. No such treaty for the reciprocal recognition and enforcement of foreign court judgments in civil and commercial matters exists between the Russian Federation and certain other jurisdictions (including the United Kingdom), and no relevant federal law on enforcement of foreign court judgments has been adopted in the Russian Federation, as a result of which new proceedings may have to be brought in the Russian Federation in respect of a judgment already obtained in any such jurisdiction against the Borrower or its officers or directors. In addition, Russian courts have limited experience in the enforcement of foreign court judgments. The limitations described above, including the general procedural grounds set out in Russian legislation for the refusal to recognise and enforce foreign court judgments in the Russian Federation, may significantly delay the enforcement of such judgment or deprive the Issuer and/or the Noteholders of effective legal recourse for claims related to the investment in the Notes or under the Loan. In the absence of an applicable treaty, enforcement of a final judgment rendered by a foreign court may still be recognised by a Russian court on the basis of reciprocity, if courts of the country where the foreign judgment is rendered have previously enforced judgments issued by Russian courts. While Russian courts have recently recognised and enforced English court judgments on these grounds, the existence of reciprocity must be established at the time the recognition and enforcement of a foreign judgment is sought, and it is not possible to predict whether a Russian court will in the future recognise and enforce on the basis of reciprocity a judgment issued by a foreign court, including an English court. The Subordinated Loan Agreement and any non-contractual obligations arising out of or in connection with the Subordinated Loan Agreement will be governed by English law and will provide for disputes, controversies and causes of action brought by any party thereto to be settled by arbitration in accordance with the rules of the LCIA (formerly the London Court of International Arbitration) (the LCIA Rules ). The place of such arbitration shall be London, England. The Russian Federation and the United Kingdom are parties to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention ). Consequently, Russian courts should generally recognise and enforce in the Russian Federation an arbitral award from an arbitral tribunal in the United Kingdom on the basis of the rules of the New York Convention (subject to qualifications provided for in the New York Convention and compliance with Russian procedural regulations and other procedures and requirements established by Russian legislation). The Arbitrazh Procedural Code of the Russian Federation (the Arbitrazh Procedural Code ) sets out the procedure for the recognition and enforcement of foreign arbitral awards by Russian courts. The Arbitrazh Procedural Code also contains an exhaustive list of grounds for the refusal of recognition and enforcement of foreign arbitral awards by Russian courts, which grounds are broadly similar to those provided by the New York Convention. The Arbitrazh Procedural Code and other Russian procedural legislation could change, and other grounds for Russian courts to refuse the recognition and enforcement of foreign courts judgments and foreign arbitral awards could arise in the future. In practice, reliance upon international treaties may meet with resistance or a lack of understanding on the part of a Russian court or other officials, thereby introducing delay and unpredictability into the process of enforcing any foreign judgment or any foreign arbitral award in the Russian Federation. Furthermore, any arbitral award pursuant to arbitration proceedings in accordance with the LCIA Rules and the application of English law to the Subordinated Loan Agreement and any non-contractual obligations arising out of or in connection with the Subordinated Loan Agreement may be limited by the mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding up or liquidation of Russian companies and credit organisations in particular. vi

7 Presentation of Financial Information PRESENTATION OF FINANCIAL AND OTHER INFORMATION The financial information of the Bank (including its consolidated subsidiaries) set forth herein has, unless otherwise indicated, been extracted, without material adjustment, from the Bank s audited consolidated financial statements for the years ended 31 December 2013, 2012 and 2011 (the 2013 Annual Financial Statements, 2012 Annual Financial Statements and 2011 Annual Financial Statements, respectively, and together, the Annual Financial Statements ) and the Bank s unaudited consolidated condensed financial statements for the six months ended 30 June 2014 (the Interim Financial Statements and, together with the Annual Financial Statements, the Financial Statements ) set forth on pages F-l through F-259 of this Prospectus. The Financial Statements in each case have been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board ( IFRS ). The Annual Financial Statements have been audited and the Interim Financial Statements have been reviewed. The Ruble is the presentation currency for the Financial Statements. The Financial Statements and financial information included elsewhere in this document have, unless otherwise noted, been presented in Rubles. The accounts used by the Bank s management to plan, manage and monitor the performance of the business on a day-to-day basis are based on information prepared in accordance with Russian Accounting Standards ( RAS ). In addition, the Bank analyses financial information relating to its subsidiaries based on RAS. The Bank s Independent Auditors The 2013, 2012 and 2011 Annual Financial Statements have been audited in accordance with International Standards on Auditing by ZAO KPMG ( KPMG ), independent auditors, who have expressed an unqualified opinion on those financial statements, as stated in their reports appearing herein. The Interim Financial Statements have been reviewed in accordance with the International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, but not audited by KPMG, who have expressed an unqualified conclusion on those financial statements, as stated in their report appearing herein. The address of KPMG is Naberezhnaya Tower Complex, Block C, 10 Presnenskaya Naberezhnaya, Moscow , Russian Federation. KPMG is a corporate member of the Audit Chamber of Russia (Auditorskaya Palata Rossii). In order to prevent any influence on the independence of the auditor, both the auditor and the Bank make efforts to eliminate any business relationship where the auditor would be involved in the promotion of the services of the Bank in the banking market. The auditor (or any official of the auditor) is not permitted to own any shares in the share capital of the Bank, the Bank is not permitted to lend money to the auditor or its officials and the officials of the auditor are not permitted to be members of the management bodies of the Bank. Impact of Changes in Presentation Beginning with the 2013 Annual Financial Statements, the Bank revised its approach to presentation of assets and liabilities, income and expenses related to transactions with small corporate entities and reclassified these amounts from the Retail banking operating segment to the Small business operating segment. In addition, the Bank changed the industry sector classification of certain of its corporate loans. The Interim Financial Statements reflect these changes in presentation, and the presentation of comparative information as of and for the year ended 31 December 2012 in the 2013 Annual Financial Statements has been amended to reflect these changes in presentation. However, the 2012 Financial Statements and the 2011 Financial Statements have not been changed to reflect these changes in presentation. See Notes 4 and 10 to the 2013 Annual Financial Statements. Beginning in 2014, the Bank changed its approach to the disclosure of segment information and the principles on which such disclosure is based. The Interim Financial Statements reflect these changes in presentation. However, in the Annual Financial Statements, segment information was calculated based on the approach and principles previously used by the Bank and has not been restated. For presentation purposes in this Prospectus, segment information for revenues, Net Interest Margin, net interest income and net fee and commission income for the years ended 31 December 2013, 2012, 2011 and for the six months ended 30 June 2013 and 2014 has been presented based on principles that are different from those in the Annual Financial Statements and different from those in the Interim Financial Statements (the Adjusted Segment Presentation ). The main changes in the Adjusted Segment Presentation as compared to the segment presentation in the Interim Financial Statements include: consolidating of the financial institutions and markets and treasury and asset-liability management (ALM) segments into the treasury and markets segment; separately presenting the real estate segment, which is responsible for operations with investment property; consolidating the retail banking, private banking and asset management segments into the retail banking segment; and consolidating the corporate banking and corporate investments and other transactions segments into the corporate banking segment. vii

8 Certain Definitions In this Prospectus, all references to: CBR are to the Central Bank of Russia; CIS are to the Commonwealth of Independent States and its member states (excluding Russia) as at the date of this Prospectus, being Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan; EU are to the European Union; Interest Earning Assets are to the sum of gross loans to customers, amounts receivable under reverse repurchase agreements (including reverse repurchase agreements with credit and other finance institutions up to 90 days), interest-earning financial assets at fair value through profit or loss, placements with banks and other financial institutions (including time deposits with credit institutions up to 90 days) and interest-earning available-for-sale securities; Net Interest Margin is calculated as net interest income before allowance for loan impairment, as a percentage of the average Interest Earning Assets; NPL means non-performing loan, which the Bank defines as a loan in respect of which principal and/or interest is overdue by more than 90 days; Rosstat are to the Russian Federal State Statistics Service; and Russia and Russian pertain to the Russian Federation. Certain Currencies In this Prospectus, the following currency terms are used: RUB or Rubles means the lawful currency of the Russian Federation; U.S.$ or U.S. dollar means the lawful currency of the United States; and EUR, Euro or means the lawful currency of the member states of the European Union that adopted the single currency in accordance with the Treaty of Rome establishing the European Economic Community, as amended. Unless otherwise specified, where financial information in relation to the Bank has been translated into U.S. dollars, it has been so translated, for convenience only, at the rate of U.S.$1.00 equals RUB 33.63, the approximate spot rate on 30 June 2014 as quoted by the CBR. Such translation should not be construed as a representation that the amounts in question have been, could have been or could be converted into U.S. dollars at that or any other rate. References to billions are to thousands of millions. Rounding Certain figures included in this Prospectus have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them. viii

9 Exchange Rate Information The table below sets forth, for the periods and dates indicated, the high, low, period end and period average exchange rate between the Ruble and the U.S. dollar, based on the official exchange rate quoted by the CBR for the relevant year. Fluctuations in the exchange rate between the Ruble and the U.S. dollar in the past are not necessarily indicative of fluctuations that may occur in the future. These rates may also differ from the actual rates used in the preparation of the Financial Statements and other financial information presented in this Prospectus. High RUB per $1.00 Period Low end Period average (1) Source: (CBR) Note: (1) The average rates are calculated as the average of the daily exchange rates on the last business day (which rate is announced by the CBR for each such business day) of each full month in the relevant year. No representation is made that the Ruble or U.S. dollar amounts referred to herein could have been or could be converted into Rubles or U.S. dollars, as the case may be, at these rates, at any particular rate or at all. The exchange rate between the Ruble and the U.S. dollar has fluctuated significantly during the periods covered by the Financial Statements. The CBR rate on 21 January 2015 was RUB = U.S.$1.00. Translations The language of this Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. All translations in this Prospectus are direct and accurate translations of the original text. ix

10 TABLE OF CONTENTS OVERVIEW OF THE BANK...1 OVERVIEW OF THE OFFERING...3 RISK FACTORS...9 DESCRIPTION OF THE TRANSACTION AND THE SECURITY...38 USE OF PROCEEDS...40 CAPITALISATION AND INDEBTEDNESS OF THE BANK...41 SELECTED CONSOLIDATED FINANCIAL INFORMATION...42 FINANCIAL REVIEW...45 BUSINESS...75 RISK MANAGEMENT...90 MANAGEMENT...98 SHAREHOLDERS RELATED PARTY TRANSACTIONS THE EXCHANGE OFFER THE ISSUER THE SUBORDINATED LOAN AGREEMENT TERMS AND CONDITIONS OF THE NOTES SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM TAXATION TRANSFER RESTRICTIONS CLEARING AND SETTLEMENT ISSUANCE OF THE NOTES GENERAL INFORMATION APPENDIX A: OVERVIEW OF THE BANKING SECTOR AND BANKING REGULATION IN THE RUSSIAN FEDERATION INDEX TO FINANCIAL STATEMENTS... F-1 -x-

11 OVERVIEW OF THE BANK This overview highlights certain information concerning our business and this offering of Notes. It does not contain all information that may be important to you and to your investment decision. We urge you to carefully read the entire Prospectus, including the financial data and related notes and the matters set forth in Risk Factors before deciding to invest in the Notes. Overview of the Bank Established in 1993 (and evolved through a series of business combinations), the Bank provides a wide range of banking products and services to individual and corporate clients in Russia. The main activities of the Bank are retail banking, small business banking and corporate banking. The Bank s retail banking activities include retail lending, including residential mortgages, consumer loans, auto loans and credit cards, deposit taking, money transfer and foreign exchange services. The Bank s small business and corporate banking activities include commercial lending and specialised financing, deposit taking, cash management and foreign exchange services. The Bank also engages in money market, foreign exchange, precious metals and proprietary securities trading and provides private banking and asset management services to high net worth individuals. The Bank s leasing subsidiary, LLC URALSIB Leasing Company ( Uralsib Leasing ), provides finance leases and operating leases to Russian companies. The Bank has a leading position in several key segments of the Russian banking market. According to Frank Research Group, a Russian financial services research company, as of 1 July 2014, the Bank ranked 11th for retail deposits, 13th for loans to individuals, 4th for loans to small businesses, 7th for mortgage loans, 10th for auto loans, 20th for corporate deposits and 27th for corporate loans, in each case among banks operating in the Russian market. The Bank has one of the largest distribution networks of any Bank in Russia and is present in 56 regions of the Russian Federation. As at 30 June 2014, the Bank had 429 points-of-sale (including 13 branches), 2,843 ATMs, 507 payment terminals and 28,102 point-of-sale terminals ( POS terminals ). In addition, Uralsib Leasing had 48 branches as at that date. The Bank s strategy includes expanding and developing its retail banking business, which has been increasing as a percentage of the Bank s overall business in recent years. Loans to individuals represented 54.2% of the Bank s total gross loan portfolio as at 30 June 2014, as compared to 52.3%, 38.6% and 31.0% as at 31 December 2013, 2012 and 2011, respectively. The Bank is also a leader in lending to small businesses in Russia. As of 30 June 2014, the Bank was ranked 4 th among Russian banks based on the size of its small business loan portfolio. Substantially all of the Bank s revenues are generated from clients located in Russia, and substantially all of the Bank s non-current assets are located in Russia. The Bank has been recognised by the CBR as a systemically important bank in the Russian Federation whose disorderly failure, because of its size, complexity and systemic interconnectedness, could cause significant disruption to the financial system and economic activity. The Bank has historically had, and continues to have, a system-critical role in the Republic of Bashkortostan ( Bashkortostan ), an autonomous region in Russia. The Bank s controlling shareholder is OJSC Financial Corporation URALSIB ( FC Uralsib ), which owned 97.2% of the Bank s share capital as of 30 June FC Uralsib and the Bank are ultimately controlled by Mr. Nikolai Tsvetkov, the Chairman of the Bank s Supervisory Board. FC Uralsib is a diversified financial group in which the Bank is the principal asset. Other financial services businesses which are not part of the Bank include Uralsib Asset Management and Uralsib Capital. The Bank has grown and developed through a series of business combinations, including the merger of four banks to form the Bank in 2005, and the consolidation of several other institutions into the Bank in The consolidation of these entities resulted in certain operating inefficiencies which have had an adverse impact on the Bank s results of operations through high personnel expenses and administrative and operating expenses and which contributed to the Bank s net losses in the financial periods under review in this Prospectus. Since the middle of 2012, the Bank has been implementing a strategic programme aimed at improving efficiency, reducing operating costs and improving asset quality, and the Bank s management expects these measures to contribute to improved financial performance for the Bank going forward. See Risk Factors Risks Relating to the Bank s Business and Industry The Bank has incurred losses, and there are risks associated with its strategy to reduce costs and improve asset quality. 1

12 As at 30 June 2014, the Bank s total assets were RUB billion, as compared with RUB billion as at 31 December 2013, RUB billion as at 31 December 2012 and RUB billion as at 31 December The Bank s net loss for the six months ended 30 June 2014 was RUB 1.5 billion compared to a net loss of RUB 1.8 billion for the six months ended 30 June The Bank s had a net loss of RUB 1.6 billion, RUB 4.4 billion and RUB 4.2 billion for the years ended 31 December 2013, 2012 and 2011, respectively. The Bank s total equity was RUB 42.0 billion, RUB 42.4 billion, RUB 45.5 billion and RUB 50.1 billion as at 30 June 2014, and 31 December 2013, 2012 and 2011, respectively. Competitive Strengths The Bank s management believes that the Bank has a number of competitive advantages in the Russian banking market, including: Extensive regional presence and systemic scale. Established position in key segments of the Russian banking market. Well-recognised and trusted brand. Strong and flexible customer-focused range of products and services. Experienced and highly-qualified management team. Performance-oriented employee culture. Integrated risk management system. Strategy The following are the key elements of the Bank s strategy: Expand retail banking business. Focus on lending to small sized businesses. Develop new and modern sales channels. Further improve asset quality and reduce credit risk. Reduce operating costs and improve efficiency. Importance of corporate culture. 2

13 OVERVIEW OF THE OFFERING The following overview of the Offering should be read in conjunction with, and is qualified in its entirety by Terms and Conditions of the Notes, Clearing and Settlement and the form of the Subordinated Loan Agreement. THE NOTES Issuer Exchange Advisers USIB Finance Limited. The Issuer is not a direct or indirect subsidiary of the Borrower. UBS Limited and Uralsib Securities Limited Notes Offered U.S.$77,250, % Loan Participation Notes due Issue Price 100% of the principal amount of the Notes. Issue Date 22 January 2015 Maturity Date 22 July 2020 Trustee Principal Paying Agent, Paying Agent and Transfer Agent Registrar Interest Form and Denomination Initial Delivery of Notes Status of the Notes Deutsche Trustee Company Limited Deutsche Bank AG, London Branch Deutsche Bank Luxembourg S.A. On each interest payment date (being 22 January and 22 July in each year and commencing on 22 July 2015), the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest actually received by or for the account of the Issuer pursuant to the Subordinated Loan Agreement, which interest under the Loan is payable at a rate of 10.5% per annum from and including the Issue Date, subject to application of any Write Down Measure pursuant to Clause 8 of the Subordinated Loan Agreement. See Status of the Notes below. The Notes will be issued in registered form, in denominations of U.S.$200,000 and higher multiples of U.S.$1,000. The Notes will be represented by a Global Note Certificate. The Global Note Certificate will be exchangeable for Definitive Note Certificates in the limited circumstances specified in the Global Note Certificate. On or before the Issue Date, the Global Note Certificate shall be registered in the name of a nominee of, and deposited with a common depositary for, Euroclear and Clearstream, Luxembourg. The Notes are limited recourse, secured obligations of the Issuer as more fully described in Terms and Conditions of the Notes Status. The Notes will constitute the obligation of the Issuer to apply an amount equal to the gross proceeds from the issue of the Notes solely for the purpose of financing the Loan to the Borrower pursuant to the terms of the Subordinated Loan Agreement. The Issuer will only account to the holders of the Notes for all amounts equivalent to those (if any) received and retained (net of tax) from the Borrower in respect of principal, interest or any additional 3

14 amounts under the Subordinated Loan Agreement less amounts in respect of the Reserved Rights (as defined in Terms and Conditions of the Notes ). No other asset of the Issuer is available to meet claims of the Noteholders. Security The Notes will be secured by the Charge (as defined in Description of the Transaction and the Security ) on: all principal, interest and other amounts now or hereafter payable to the Issuer by the Borrower under the Loan; the right to receive all sums which may be or become payable by the Borrower under any claim, award or judgment relating to the Subordinated Loan Agreement; and all the rights, title and interest in and to all sums of money now or in the future deposited in the Account (as defined in Description of the Transaction and the Security ) and the debts represented thereby (including interest from time to time earned on the Account, if any), pursuant to the Trust Deed, provided that Reserved Rights and any amounts relating to Reserved Rights are excluded from the Charge. The Notes will also be secured by an absolute assignment with full title guarantee by the Issuer to the Trustee of its rights under the Subordinated Loan Agreement (save for the Reserved Rights and those rights subject to the Charge) pursuant to the Trust Deed. Withholding Taxes and Increased Costs Early Redemption All payments in respect of the Notes by or on behalf of the Issuer will be made without deduction or withholding for or on account of any present or future taxes, duties or assessments or governmental charges of whatever nature levied, imposed, collected, withheld or assessed by or on behalf of the Russian Federation or Ireland or any political subdivision or any authority thereof or therein having the power to tax, unless the deduction or withholding of such taxes or duties is required by law. Where any such deduction or withholding is required by law, the Issuer shall make such additional payments as shall result in the receipt by the Noteholders of such amount as would have been received by them if no such withholding or deduction had been required, to the extent and at such time as it shall receive and retain equivalent sums from the Borrower under the Subordinated Loan Agreement. Such additional payments will not be payable in certain circumstances as specified in Condition 7 (Taxation) of the Terms and Conditions of the Notes. The Borrower can prepay the Loan and, accordingly, the Notes will be redeemed or repaid by the Issuer in whole, but not in part (subject to a corresponding amount being received and retained (net of tax) by the Issuer under the Loan) in the following circumstances: (1) If the CBR does not issue the Final Conclusion (as defined in the Subordinated Loan Agreement) authorising the eligibility of the Loan for Tier 2 capital of the Borrower on or before the 90th day after the date of the Subordinated Loan Agreement, the Borrower may prepay the Loan at the outstanding principal amount thereof in whole but not in part. (2) The Borrower may elect, at any time after receipt of the Final Conclusion of the CBR referred to above, to prepay the Loan in whole but not in part, if, as a result of any amendment to, 4

15 clarification of, or change in (including a change in interpretation or application of) Regulation No. 395-P On the methodology for determining the amount and evaluation adequacy of own funds (capital) of credit organisations (Basel III), dated 28 December 2012 ( Regulation No. 395-P ) or other changes in applicable requirements of the CBR, the Loan would cease to qualify in whole but not in part as 395-P Tier 2 Capital (as such terms are defined in the Subordinated Loan Agreement). (3) As more particularly set out in Clause 6.4 of the Subordinated Loan Agreement, the Borrower may with the prior written consent of the CBR, upon not more than 60 nor less than 30 days notice, prepay the Loan at its outstanding principal amount in whole but not in part, if (a) by reason of the introduction of any change in any Russian law, regulation, regulatory requirement or directive or (b) as a result of the enforcement of the security provided for in the Trust Deed, the Borrower is required to pay any additional amount pursuant to Clause 7.2 or 10 of the Subordinated Loan Agreement, and in any such case such obligation cannot be avoided by the Borrower taking reasonable measures available to it. Purchase of Notes by the Borrower and Cancellation of Notes Relevant Event Ratings The Subordinated Loan Agreement provides that subject to the prior written consent of the CBR with respect to a corresponding reduction in the principal amount of the Loan the Borrower or any of its Subsidiaries may from time to time purchase Notes in the open market, by tender or by a private agreement at any price. In the event that such an amount of Notes is surrendered to the Issuer by the Borrower or its Subsidiary, together with a request for the Issuer to procure cancellation of such Notes by the Registrar, whereupon the Issuer shall, pursuant to the Agency Agreement, request the Registrar to cancel such Notes, upon the cancellation of such Notes, and with the prior written consent of the CBR, the Loan shall be treated as prepaid by the Borrower in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation, together with any accrued and unpaid interest and other amounts (if any) thereon. Upon the occurrence of a Relevant Event (as defined in Description of the Transaction and the Security ), the Trustee may, subject as provided in the Trust Deed and subject to being indemnified and/or secured and/or prefunded to its satisfaction, enforce the security created in its favour pursuant to the Trust Deed. It is expected that the Notes will be rated B by Fitch. The Borrower's current foreign senior unsecured debt rating by Moody's is B2 (negative outlook) and the Borrower's current long term foreign currency issuer default rating by Fitch is B+ (negative outlook). The Borrower's long term counterparty default rating by Standard & Poor's is B+ (stable outlook). Fitch, Moody's and Standard & Poor's are established in the European Union and registered under the CRA Regulation. As such, Fitch, Moody's and Standard & Poor s are included in the list of credit rating agencies published by ESMA on its website in accordance with the CRA Regulation. In general, European regulated investors are restricted from using a rating for regulatory purposes if such rating is not issued by a credit rating agency established in the European Union and registered under the CRA Regulation. 5

16 A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid or paid on a particular date before the legal final maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. Any change in the credit ratings of the Notes could adversely affect the price that a subsequent purchaser will be willing to pay for the Notes. The significance of each rating should be analysed independently from any other rating. Listing Transfer Restrictions Governing Law Exchange Offer Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Main Securities Market. The Notes are subject to certain transfer restrictions. See Transfer Restrictions. The Notes, the Trust Deed, the Agency Agreement (as defined below) and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law. The Issuer is making an offer (the Exchange Offer ) to the holders of the Third Party Notes (as defined in The Exchange Offer ) to exchange such Third Party Notes for the Notes. Third Party Notes acquired by the Issuer in the Exchange Offer will be sold by the Issuer to the Borrower. Use of Proceeds The Issuer will not receive any cash proceeds from the offering of the Notes in the Exchange Offer. The Issuer intends to finance the Loan to the Borrower through consideration generated from the sale of the Third Party Notes to the Borrower. The Borrower will receive the Third Party Notes that are exchanged for Notes in the Exchange Offer and will not generate any new funds as a consequence of the offering of the Notes and the Loan. Security Codes Common Code: International Security Identification Number ( ISIN ): XS CFI code: DYFXXR Clearing Systems Euroclear and Clearstream, Luxembourg Yield The annual yield of the Notes when issued is 10.5% Risk Factors Certain Covenants An investment in the Notes involves a high degree of risk. See Risk Factors. The Issuer has covenanted under the Trust Deed that, as long as any Notes remain outstanding, it will not, without the prior written consent of the Trustee, agree to any amendment or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Subordinated Loan Agreement, except as otherwise expressly provided in the Trust Deed or the Subordinated Loan Agreement. 6

17 THE LOAN Lender Borrower Status of the Loan Principal Amount of the Loan Interest on the Loan Use of Proceeds Early Prepayments by the Borrower Withholding Taxes and Increased Costs Acceleration Events USIB Finance Limited, a company organised and existing as a private limited liability company under the laws of Ireland. Open joint stock company BANK URALSIB, an open joint stock company incorporated under the laws of the Russian Federation. The Loan is a direct, unconditional, subordinated and unsecured obligation of the Borrower and obligations under the Loan will rank at least pari passu with all other direct, unconditional, subordinated and unsecured indebtedness of the Borrower. On the occurrence of a Bankruptcy Event (as defined in the Subordinated Loan Agreement) the claims of the Lender in respect of principal of, and interest on, the Loan shall be subordinated to the claims of Senior Creditors (as defined in the Subordinated Loan Agreement) of the Borrower in the manner set out in the Subordinated Loan Agreement and applicable law. U.S.$77,250, % per annum, payable semi-annually in arrear on 22 January and 22 July in each year starting on 22 July 2015, subject to application of any Write Down Measures pursuant to Clause 8 of the Subordinated Loan Agreement. The Borrower will receive the Third Party Notes that are exchanged for Notes in the Exchange Offer and will not generate any new funds as a consequence of the offering of the Notes and the Loan. See The Notes Early Redemption above. All payments to be made by the Borrower under the Loan will be made without deduction or withholding for or on account of any present or future taxes, duties or assessments or governmental charges of whatever nature levied, imposed, collected, withheld or assessed by or on behalf of the Russian Federation or Ireland or any political subdivision or any authority thereof or therein having the power to tax, unless the deduction or withholding of such taxes and duties is required by law or by agreement with a taxing authority. If any taxes or duties are payable as required by law or agreement with a taxing authority in either or both of the above jurisdictions, the sum payable by the Borrower will (subject to certain exceptions) be required to be increased to the extent necessary to ensure that the recipient receives a net sum it would have received had no such deduction or withholding been made or required to be made. In the case of an Acceleration Event (as defined in the Subordinated Loan Agreement), the Trustee may, subject to certain conditions, as more particularly set out in the Trust Deed, take any actions in the manner and to the extent contemplated by the applicable law of the Russian Federation to prove for its debt and / or, to the extent applicable, commence liquidation or winding up proceedings of the Borrower. 7

18 Governing Law The Subordinated Loan Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law. 8

19 RISK FACTORS Prospective investors should consider carefully, among other things, the risks set forth below and other information contained in this Prospectus prior to making any investment decision with respect to the Notes. The Bank notes that in a number of situations, which it cannot always control, these risks may materialise and may negatively affect the Bank s ability to comply with its payment obligations under the Subordinated Loan Agreement and, as a result, the debt service by the Issuer on the Notes. These risk factors, individually or together, could have a material adverse effect on the Bank, the Issuer and/or their respective businesses, operations and financial conditions and/or the rights under the Notes of the holders of the Notes. In addition, the value of the Notes could decline due to any of these risks, and investors may lose some or all of their investment. Prospective investors should note that the risks described below are the principal risks which the Bank believes are relevant to prospective investors, but they are not the only risks each of the Bank or the Issuer, as the case may be, faces. There may be additional risks of which the Bank or the Issuer is not currently aware, and any of these risks could have a negative effect on the Bank s ability to comply with its payment obligations under the Subordinated Loan Agreement or the debt service by the Issuer on the Notes. Prospective investors are urged to consult with their own legal, financial and tax advisors before making an investment in the Notes. Risks Relating to the Bank s Business and Industry The slowdown of growth of the global and the Russian economies and financial markets, and deteriorating conditions in the Russian economy, could have a material adverse effect on the Bank s business, liquidity and financial condition Slowdown of global and Russian economies and deteriorating conditions in Russian economy The financial markets, both globally and in Russia, have faced significant volatility, dislocation and liquidity constraints during the global financial crisis which started in the U.S. in In response to the financial crisis, many of the largest countries in the world, including Russia, the United States and several European countries, implemented significant rescue packages, which included, among other things: the recapitalisation of banks through the state purchase of common and preferred equity securities; the state guarantee of certain forms of bank debt; the purchase of distressed assets from banks and other financial institutions by the state; quantitative easing and the provision of guarantees of distressed assets held by banks and other financial institutions by the state. While the effect of the global financial crisis has continued, to some degree, in present, generally, global economies have recently been gradually recovering from the downturn caused by the global financial crisis which resulted in tapering the previously implemented rescue packages (for instance, tapering some of quantitative easing policies by the U.S. in 2013). The majority of the Bank s assets and customers are located in, or have businesses related to, Russia. As a result, the Bank is substantially affected by the state of the Russian economy, which is, to a significant degree, dependent on exports of key commodities, such as oil, gas, iron ore and other raw materials. Following a period of stabilisation after the most acute stage of the recent global financial crisis, the Russian economy s growth has been gradually slowing down, and Russian economic conditions deteriorated significantly during In particular, according to Rosstat s estimates that Russia s gross domestic product ( GDP ) growth slowed from 4.3% in 2011, to 3.4% in 2012 to 1.3% in 2013 and 0.9%, 0.8% and 0.7% (annualised), respectively, in the first, second and third quarters of According to the Ministry of Economic Development of the Russian Federation, Russia s GDP contracted by 0.5% in November 2014 as compared with November The decreases in growth rates from 2011 to 2014 were mainly as a result of decreased oil and gas exports; decreased investments in the Russian economy and capital outflow; the monetary policy of the CBR aimed at the inflation suppression and the increase in production costs. The negative developments affecting the Russian economy in 2014 have been aggravated by the impact of the current political and economic crisis in Ukraine and related sanctions imposed on certain Russian individuals and legal entities by U.S. and the EU (as well as other nations, such as Australia, Canada, Japan and Switzerland). Such developments have been further aggravated by a significant decline in global oil prices as a result of Russia s heavily reliance on oil exports. The price of Brent Crude oil decreased to U.S.$48.35 as at 20 January 2015 from U.S.$ as at 30 June The Ministry of Economic Development of the Russian Federation has forecasted net capital outflows in the private sector of U.S.$125 billion in 2014 and has forecasted negative growth in GDP of 0.8% in As a result of slowing growth and capital outflows, the Ruble depreciated sharply against the U.S. dollar and the Euro during In particular, the Ruble to U.S. dollar exchange rate of the CBR was RUB = U.S.$1.00 as of 31 December 2014 as compared to RUB = U.S.$1.00 as of 31 December The CBR rate on 21 January 2015 was RUB = U.S.$1.00. In response to high inflation, the CBR increased its benchmark one-week repo rate from 5.5% in February 2014 to 7.5% in April 2014, to 8% in July 2014, to 9.5% in October 2014, to 10.5% in December 2014 and then to 17.0% also in December 2014, and there can be no assurance that further increases will not occur. The crisis in Ukraine has also reduced, to a significant extent, the ability of Russian companies to raise new debt and/or refinance existing debt in international capital markets. Further depreciation of the Ruble, further measures taken by the Russian Government and the CBR to address the depreciation of the Ruble and/or further sanctions that might be imposed by the U.S. and the EU and other countries on certain Russian entities and/or certain sectors of the Russian economy could contribute to a further deterioration of conditions in the Russian economy. See The current political and economic crisis in Ukraine and related sanctions imposed by the U.S. and the EU and certain other countries may have a material adverse effect on the Bank s business, liquidity and financial condition, as well as the value of the Notes below. 9

20 Furthermore, the value of the Ruble relative to the U.S. dollar and the currencies of other developed countries remains vulnerable to any future possible decline in global commodity prices. There can be no assurance that further future declines in, or periods of significant volatility of, commodity prices will not lead to GDP contraction or slower GDP growth, or adversely affect the Ruble/U.S. dollar exchange rate. Any of these factors could adversely affect the financial condition of the Bank s customers and may result, among other things, in a sharp reduction in the Bank s capital adequacy ratios, a decrease in the funds that its customers hold on deposit with the Bank, a change in the strategy of the Bank (including toward a resumed focus on corporate banking), a reduction in the demand for loans, foreign currency, investment and other banking transaction services that these customers carry out with the Bank, as well as a general deterioration in the quality of the Bank s loan book and/or a reduction in the market values of securities or other assets held on the Bank s balance sheet, leading to possible defaults and/or the need for increased provisions. Dislocation of the global and Russian banking sectors The volatility and market disruption in the global banking sector which began at the outset of the global financial crisis continued, to a certain extent, throughout 2011 and 2012, affecting the liquidity of banks around the world, causing the reduction in financing available to financial institutions and provoking persisting doubts about the overall stability of the global economy, monetary system, banking sector and economic conditions in certain countries, including certain EU countries and Russia. Disruption in the global credit markets has had a negative impact on investor confidence and has negatively affected the interbank markets and debt issuance in terms of volume, maturity and credit spreads. Among the sectors of the global credit markets experiencing particular difficulty due to the impact of the global financial crisis are those associated with sub-prime mortgage-backed securities, asset-backed securities, collateralised debt obligations, leveraged finance and complex structured securities. Although European markets generally showed recovery during 2013 and 2014, no assurance can be given that a further economic downturn or financial crisis will not occur, or that measures to support the banking system, if taken to overcome a crisis, will be sufficient to restore stability in the global banking sector and financial markets in the short term or beyond. In addition, the default, or a significant decline in the credit rating, of one or more sovereigns, including, in particular, the Russian Federation, or financial institutions could cause severe stress in the Russian financial system generally and the business and economic condition and prospects of the Bank s counterparties, customers, suppliers or creditors, directly or indirectly, in ways which are difficult to predict. The credit rating of the Russian Federation has been downgraded by each of Moody s, Fitch and S&P mainly driven by the negative impact on the Russian economy of the current political and economic crisis in Ukraine and related sanctions imposed on certain Russian individuals and legal entities, which effects have been further aggravated by a significant decline in global oil prices as a result of Russia s heavily reliance on oil exports. In particular, in October 2014 Moody s downgraded the Russian Federation s sovereign rating to Baa2 with a negative outlook, and in January 2015, Moody s further downgraded Russia s sovereign credit rating to Baa3 with a negative outlook; in March 2014, Fitch adjusted its sovereign rating outlook for the Russian Federation from stable to negative, and in January 2015 Fitch downgraded the Russian Federation s long-term sovereign rating to BBB- with a negative outlook; and in March 2014, S&P adjusted its sovereign rating outlook for the Russian Federation from stable to negative, in April 2014, S&P downgraded the Russian Federation s foreign currency long-term sovereign credit rating of from BBB to BBB- (negative outlook) and in December 2014 S&P adjusted its outlook for the Russian Federation to credit watch negative and stated that it is considering downgrading the Russian Federation s sovereign rating further in January There can be no assurance that the Bank or the Russian Federation will be able to maintain their current credit ratings, and any deterioration in the general economic or political environment or the Bank s financial condition could lead to further downgrades. Any such downgrades could adversely affect the Bank s liquidity and undermine confidence in the Bank, which could lead to increased borrowing costs and restrict the Bank s access to capital markets. An increase to the Bank s cost or reduction in availability of funding could render it unable to meet deposit withdrawals on demand or at their contractual maturity, to service the credit facilities of existing customers or to fund new loans, investments and businesses. Furthermore, reduced liquidity and cost of capital could adversely affect the Bank s ability to repay its own borrowings, including the Loan, as they mature, to meet covenants and other obligations under its own financing facilities or to raise further financing, for example, by issuances of debt securities, at favourable terms to the Bank or at all. Should the Bank s access to new financing become limited, it could be forced to sell unencumbered assets to meet its liabilities. In a time of reduced liquidity, the Bank could be unable to sell some of its assets, or it could be forced to make such sales at depressed prices, which in either case could adversely affect the Bank s results of operations and financial condition. Furthermore, recently, a number of Russian banks have experienced other difficulties, including failure to make sufficient loss provisions, that have caused them to become insolvent and have their licences revoked or to recognise large loan impairments that required steps to replenish their capital. Intensified withdrawal of banking licences as a result of inability of certain banks to meet the mandatory requirements of the CBR, failure to comply with anti-money laundering regulations or due to other reasons could result in lower investor confidence in Russian banking system generally and investors or depositors, as the case may be, reducing their exposure to Russian bank equities, debt or deposits, including those of the Bank, which could be 10