Novy Rynok Premium Listing Segment on Moscow Exchange January 2014, Moscow
Corporate Governance and Transparency Challenges in Russia Corporate Governance Insufficient shareholder safeguards in the case of public offerings, change of control, reorganization, etc. Low board independence and insufficient supervision of transactions Transparency Asymmetry of bilingual disclosure Shortage of interim IFRS financials Deficits in disclosure of beneficial ownership and related-party transactions Ongoing disclosure and IR practices below the best practices But, we are not alone. Others have faced similar challenges 2
Novy Rynok: Goals and Objectives Novy Rynok * is a premium listing segment with higher corporate governance and transparency requirements that aims to give comfort to investors and offset deficiencies in Russian law Goals To create the corporate governance benchmark for Russia s ECM To change the perception of Russia s ECM in the eyes of foreign investors To position Moscow Exchange as a center of expertise in corporate governance Objectives To have no less than 5 companies in Novy Rynok in 3 years To increase the average share of foreign investors in trading volumes on Novy Rynok to 50% * The description of the current project reflects case studies and the best practices of major international exchanges (NYSE, LSE, HSE, FSE, BM&FBOVESPA, JSE) 3
Novy Rynok is a segment for ordinary shares Novy Rynok is not a quotation list* * Only companies from the quotation lists can apply for inclusion in Novy Rynok 4
Project Benefits LONG-TERM INVESTORS More comfort due to additional protection and the higher quality of issuers Access to more potential securities, particularly due to disclosure in English ISSUERS Market premiums for better quality Good corporate governance => Higher ratings => Lower cost of capital Good corporate governance => Effective running of a company => Financial success Increased reputational capital, improved brand strength RUSSIA s ECM* Enhanced perception of the Russia s CG and transparency levels New economic mechanisms for stimulating CG and transparency * ECM - Equity Capital Market 5
Investor poll by Moscow Exchange (2013) Sample of respondents 30 respondents 10 based in USA 6 based in Russia/CIS 7 based in Continental Europe 5 based in UK 2 based in Northern Europe Investments in Russian equities (among 28 respondents) The size of the current portfolio in Russian equities Investments in Russian equities as a percentage of the total equity portfolio 7% 7% 4% Not invested in Russian equities right now Under $500mln 32% 7% Not invested in Russian equities right now <=2% >2%, <=5% $500mln-2bn 32% >5%, <=10% 36% 46% $2-5bn >25%, <=50% $5-10bn 4% 11% 14% >50% 6
Results of the investor poll (2013) Potential market premium to the share price 17% 7% 37% 0% 0-10% 63% of respondents would value Russian companies at a premium if the premium listing assured good governance and 17% 10-20% 20-30% investor protection standards 23% >30% Top three governance mechanisms* that the premium segment should address in its listing requirements: 1 93% Transparency & disclosure standards 2 3 33% 40% Takeover regulations (mandatory bids and squeeze-outs) / Board independence, including director independence criteria ** Procedures for approval of related party transactions * Respondents could choose up to three answers ** Two items were scored the same in the investor poll 7
Roadmap to Novy Rynok for Issuers General prerequisites 1. Form of incorporation Open Joint Stock Company 2. Meeting the basic disclosure requirements applied to public companies Issuers in quotation lists 5.a An application for inclusion in Novy Rynok 3. Compliance with the basic CG requirements 4. Eligibility review 5. Minimum free-float 25% OR Issuers admitted to trading * and new issuers 5.b An application for inclusion in one of the two highest quotation lists and in Novy Rynok * Issuers with securities admitted to placement and/or trading on Moscow Exchange, but not included in the quotation lists 8
Novy Rynok Basic Principles Procedures and obligations associated with public offerings to protect new shareholders Additional provisions for the protection of existing shareholders Transparency and disclosure (openness to investors, information in English) 9
1. Procedures and Obligations Associated with Public Offerings Criteria 1.1 Public placements must target dispersion (during the offering, the company aims to give access to the proposed shares to all potential shareholders and undertakes not to create barriers limiting the ability of the individuals to buy the shares) Quality Controls Procedures disclosed in the prospectus, the report on results of share issuance 1.2 6-month lock-up period following the public offering before top-managers/controlling shareholders can sell their stakes, during next 6 months the parties can sell no more than 40% of their stakes Signed statements of content, information tracking 1.3 6-month lock-up period when new share issuances are restricted (shareholders capital should not be purposely diluted by such issue) 1.4 Disclosure of information on the use of public offering proceeds Procedures disclosed in the prospectus, information tracking Disclosure on the Website, in the annual report 10
2. Shareholder protections Criteria Quality Controls Rationale 2.1 The company/topmanagement/board of directors/controlling shareholders sign the Arbitration clause and adhere to solve a certain set of disputes though the arbitration conducted by the Exchange Arbitration Panel 2.2 In case of selling his/her stake the controlling shareholder ensures the transfer of obligations related to Novy Rynok Signed arbitration clause filed with the exchange The statement of content to be signed by the controlling shareholder Market participants do not trust Russian state courts State courts are subject to the influence of the powerful parties The interpretation of law can be ambiguous The rights of the shareholders of a company included in Novy Rynok should be protected in case of the transfer of control. Once the controlling shareholder fails to ensure the signing of the statement of content by the new controlling shareholder, he/she is deemed to launch a tender offer to all other shareholders 11
2. Shareholder protections (continued) Criteria Quality Controls Rationale 2.3 Delisting procedures unanimous vote of the board of directors on the inclusion/exclusion of the shares in Novy Rynok, mandatory bid to all shareholders by the controlling shareholders at fair price* Amendments to the charter Signed statements of consent** The law regulates delisting procedures, however does not cover the scenario of exclusion of shares from Novy Rynok Shareholder meeting competency is limited by the law which does not allow to extend it through adding the respective question 2.4 During the 6-month period after the reorganization via merger or spinoff***, the new entity must seek inclusion in Novy Rynok Signed statements of consent** The companies in Novy Rynok will be traded at a premium The shareholders of the new entities must have the same level of protection * Price formula will be set in the Listing rules ** Signed by the company and controlling shareholders *** In case of reorganization via absorption the absorbing entity must seek inclusion in Novy Rynok 12
2. Shareholder Protections (continued) Board of Directors 2.5 1/3 of independent * directors on the board, but not less than three 2.6 Fully independent audit committee (at least three members, at least one financial expert) 2.7 Insurance of directors responsibility (D&O) 2.8 Extending the authority of the board of directors: higher supervision of management and subsidiaries activities Material transactions: approval of transactions exceeding 5% of company s assets** Related party transactions: approval of RPTs exceeding 1% of assets under IFRS*** Preliminary approval of the major subsidiaries transactions (5% of the group assets) Decision on sale of treasury shares, preliminary approval of sale of quasi-treasury shares * Advanced director independence criteria will be applied ** According to the company law, the threshold defining large transactions subject to the board s approval equals 25% of standalone assets under RAS, which is too high *** The definition of related party transactions under Russian law is deficient 13
2. Shareholder protections (continued) Criteria Quality Controls Rationale 2.9 Restriction on voting by quasi-treasury shares: the elimination of the practice whereby entities under control de-facto vote in the interests of the parent companies management at parent shareholder meetings Filings to the exchange confirming the company upholds the restriction No law provisions regarding this topic This is an issue in Russia: a number of companies under control hold stakes at the controlling companies 2.10 Dividend payments tied to the net income under IFRS 2.11 Extended preemptive right: when new preferred shares are issued, all existing shareholders (of ordinary/preferred shares) should have the preemptive right Amendments to the dividend policy Filings to the exchange regarding terms of the preferred shares issue Dividends paid by Russian companies are traditionally far behind international practices Russian law provides the preemptive right only to the same classes of shares, while in majority of foreign jurisdictions* the extended preemptive right is applied * Examples are US, UK, Germany, Spain, Italy 14
3. Transparency & Disclosure Criteria 3.1 IFRS financials on a semiannual basis in Russian and English (annual auditor s report, semiannual auditor s review, clean auditor s opinion when entering the segment, MD&A on semiannual basis) 3.2 Ongoing disclosure in English (press releases on major corporate events, insider information) synchronized with the Russian versions 3.3 Detailed disclosure on related party transactions (exact terms on transactions exceeding 1% of the group assets) 3.4 Disclosure of the ultimate controlling shareholder, transparent shareholder agreements (essential terms, changes to such terms) 3.5 Annual shareholder meeting materials published on the Website 30 days prior to the meeting (in English and Russian) 3.6 Information on the company s internal control and risk management systems Quality Controls Filings to the exchange, disclosure on the Website Disclosure on the Website Disclosure on the Website The prospectus, the annual report, the Website, IFRS financials Disclosure on the Website The annual report 15
Transparency & Disclosure (continued) Criteria Quality Controls 3.7 Indication on the status of independent directors The annual report, the Website, materials to AGM* 3.8 IR practice: IR calendar (1 year outlook), meetings with investors and analysts The Website, filings to the exchange 3.9 Publication of the policy on securities trading and the code of ethics and business conduct The Website, filings to the exchange 3.10 Disclosure of the compensation systems of topmanagers/board members (fixed vs variable, indicators of variable compensation, option programs, golden parachutes) The Website, filings to the exchange 3.11 Individual compensation of the board members The annual report 3.12 Fees for audit related services vs fees for non-audit services The annual report, IFRS financials * AGM Annual general shareholder meeting 16
Implementation Plans 2q of 2012 2h of 2012 1h of 2013 2h of 2013 1h of 2014 2h of 2014 Negotiations with market participants Meetings and discussions with experts in corporate governance Meetings and discussions with Russian issuers Negotiations with potential anchor investors Fine-tuning of requirements considering feedback Negotiations with investors Investor poll via electronic questionnaire with participation of local and foreign investors Finalization of Novy Rynok s set of requirements Negotiations with the FFMS Translation of requirements into English Internal approval procedures Development of the chapter in Listing rules devoted to Novy Rynok Consideration of Novy Rynok requirements on the Listing and Stock Market Committees Approval by the Board of Directors Launch of the project First issuers included in Novy Rynok 17
Promotion Plans Materials for distribution* Presenting Novy Rynok at conferences in Russia and abroad*** Promotion Plans Meetings and negotiations with global and local investors** Negotiations with potential issuers; organizing round tables, webinars and interviews * Publications, articles, presentations, questionnaires for investors ** Time-frame: the second half of 2012-2013 *** By top management of the exchange (the second half of 2012-2013) 18
THANK YOU Oksana Derisheva Director Listing Department Oksana.Derisheva@moex.com +7 (495) 363 32 32, ext. 25034 Elena Pastukhova Head of premium listing Listing Department Elena.Pastukhova@moex.com +7 (495) 363 32 32, ext. 25014
Disclaimer This presentation has been prepared and issued by Open Joint Stock Company Moscow Exchange MICEX-RTS (the Company ). Unless otherwise stated, the Company is the source for all data contained in this document. Such data is provided as at the date of this document and is subject to change without notice. This document does not constitute or form part of, and should not be construed as, an offer or invitation for the sale or subscription of, or a solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any offer, contract, commitment or investment decision relating thereto, nor does it constitute a recommendation regarding the securities of the Company. The information in this document has not been independently verified. No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information or opinions contained herein. None of the Company, or any of its subsidiaries or affiliates or any of such person's directors, officers or employees, advisers or other representatives, accepts any liability whatsoever (whether in negligence or otherwise) arising, directly or indirectly, from the use of this document or otherwise arising in connection therewith. This presentation includes forward-looking statements. All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding our financial position, business strategy, management plans and objectives for future operations are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, achievements or industry results to be materially different from those expressed or implied by these forward-looking statements. These forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we expect to operate in the future. Important factors that could cause our actual results, performance, achievements or industry results to differ materially from those in the forward-looking statements include, among other factors: perception of market services offered by the Company and its subsidiaries; volatility (a) of the Russian economy and the securities market and (b) sectors with a high level of competition that the Company and its subsidiaries operate; changes in (a) domestic and international legislation and tax regulation and (b) state policies related to financial markets and securities markets; competition increase from new players on the Russian market; the ability to keep pace with rapid changes in science and technology environment, including the ability to use advanced features that are popular with the Company's and its subsidiaries' customers; the ability to maintain continuity of the process of introduction of new competitive products and services, while keeping the competitiveness; the ability to attract new customers on the domestic market and in foreign jurisdictions; the ability to increase the offer of products in foreign jurisdictions. Forward-looking statements speak only as of the date of this presentation and we expressly disclaim any obligation or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation as a result of any change in our expectations or any change in events, conditions or circumstances on which these forward-looking statements are based. 20