June 22, 2017 Issue No. 2017/23

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1 SECURIITIIES MARKET NEWSLETTER weekly Presented by: VTB Bank, Custody June 22, 2017 Issue No. 2017/23 Economy Russian central bank cuts key rate to 9% from 9.25% On June 16, 2017 it was stated that the Russian central bank reduced the key rate to 9.00% from 9.25% as inflation remained close to the target level, inflation expectations were falling, economic activity was recovering although some medium-term inflation risks remained. The central bank said it needs to retain a moderately strong credit policy in order to keep inflation close to the target but sees room for a further key rate reduction in July-December. Inflation stood at 4.1% annually in May. The ruble rate is stable, and its influence on inflation has decreased. The short-term inflation risks, connected with the oil price dynamics have diminished after OPEC and non-opec oil producers prolonged their output reduction deal. Mediumterm risks have remained high as oil prices are still lower than expected. There is also a rising structural deficit of skilled workforce in Russia, which is why salary growth can exceed labor productivity. A possible change of the consumption model to a spending-focused one can destabilize inflation. Inflation expectations are sensitive to changes in prices for some products and the ruble rate. Possible tax changes can accelerate inflation temporarily. The economic activity is restoring as investments and industrial production are increasing, and the consumption by households is growing. Taking these trends into account, the central bank has increased its 2017 gross domestic product growth forecast to %. In the future, only structural changes of the economy can push the growth rate beyond %. Company News Tatneft boosts stake in Bank Zenit to 71.9% On June 16, 2017 it was reported that Russian oil company Tatneft raised its stake in Bank Zenit to %. Tatneft now holds % in the bank directly and % indirectly through subsidiaries Tatneft Oil AG, based in Switzerland, and Zenit Investment Services Inc, based on the British Virgin Islands. In February, the shareholders of the bank approved boosting the bank s charter capital by RUB 14 bln through an additional share offering. The shares will be placed privately in favor of Tatneft. ESN Group buys 65% stake, debt of RBC from Onexim Group On June 19, 2017 it was announced that businessman Grigory Beryozkin s energy investment company ESN Group acquired a 65% stake and debt of media holding RBC from tycoon Mikhail Prokhorov s Onexim Group without disclosing the sum of the deal. Russia s Federal Antimonopoly Service earlier cleared application of Sotol Project, an ESN Group unit, to buy 65.43% voting shares in RBC and % in RBC Online, which focuses on advertising. Sistema directors ask Putin to intervene in Rosneft suit On June 19, 2017 Kommersant business daily reported that independent directors of multi-industry holding Sistema asked Russian President Vladimir Putin to pay attention to RUB bln suit filed by oil major Rosneft against the company. Rosneft filed the suit in May seeking to recover the loss stemming from 1

2 Sistema and its unit Sistema-Invest s alleged asset stripping of oil company Bashneft in , when they owned a controlling stake in it. In the letter, Roger Munnings, former head of the Russian subsidiary of KPMG; former Luxembourg s Economy and External Trade Minister Jeannot Krecke; former European Trade Commissioner Peter Mandelson; and Meade Hall & Associates founder Patrick Clanwilliam said that Sistema shares plunged 37% following the suit and the company s capitalization fell RUB 143 bln. The suit is groundless and irrational, as Rosneft demands compensation for usual corporate procedures done in compliance with law and calculates claims in foreign currency, basing the final claim on the ruble depreciation. The suit also hurts the Russian investment climate, as it increases risks and decreases predictability of the business environment in the country, the business daily reported. But President Vladimir Putin s spokesman Dmitry Peskov said that the Kremlin sees no danger for the Russian investment climate from the suit. According to Peskov the dispute between Rosneft and Sistema, it is being implemented in the legal framework, and the president is in no way able to interfere in the process. It is being done purely in the legal system and it would be incorrect to speak about any kind of its influence on the investment climate. The letter also says that the suit shows the wish of some state companies to expand its influence on the economy and the business climate regardless of methods and consequences of the actions, hurting internal competition and investor trust. The directors asked Putin to help in settling the dispute and hoped for a fair trial at court. Rosneft spokesman Mikhail Leontyev said that public position of the independent directors is vulnerable as Sistema while only pretending that it is Bashneft s owner bled it dry in the most cynical and shameless way. Russia s Association of Professional Investors sent a similar letter to Putin on June 6. In it, Chairman of the Association s Board of Directors Alexander Branis asked the president to study whether the government should looking into the situation and use mechanisms of working with state-controlled companies and the business community to support an out-of-court settlement. Peskov said that only court would be able to issue a final verdict if no other solution was found. This is the world practice, including the business world, and it is absolutely normal. Gazprom board approves RUB 4 bln capital injection in subsidiary On June 19, 2017 the board of directors of Russian gas giant Gazprom approved an increase of capital of its 100% subsidiary Gas-Oil by RUB bln to RUB bln. Rostelecom CEO Oseyevsky has no plans to buy operator s shares On June 19, 2017 president of Russian state-controlled telecom operator Rostelecom, Mikhail Oseyevsky, who headed the company in March, said he had no plans to buy the operator s stocks on the market unlike his predecessor Sergei Kalugin. The executive will still receive the operator s shares under the management incentive program. Rostelecom s management board will consider on June 20 a new incentive program that will not be applied to all employees of the operator, unlike the current program. Kalugin, who headed the operator since 2013 until March, purchased Rostelecom s shares several times, saying that he wanted to underline his own interest in the company s success. He owned % of Rostelecom s capital as of the end of 2016 and received in March a premium of 0.03% of common stocks. Rostelecom traded at RUB per common share and RUB per preferred share in Moscow as of 4 p.m. Moscow time on June 19. Novatek buys back 22,720 common shares in June 12-16, 2017 On June 19, 2017 it was reported that independent gas producer Novatek bought back 22,720 common shares, including shares held in the form of global depositary receipts (GDRs), from June 12 through June 16. In May, the board of directors extended a USD 600 mln buyback program, under which the company will buy its shares and GDRs via its unit Novatek Equity (Cyprus) Limited, until June 7, Russian Rosseti exercises early redemption option On June 20, 2017 it was stated that state-controlled power grid operator Rosseti redeemed RUB 5 bln worth of BO-01 bonds early in order to optimize the group s credit portfolio. The bonds were sold on June 22, 2015 at 11.9% annually and envisaged an early redemption option. Rosseti now has four bond issues totally worth RUB 26 bln in circulation. Official says Altaivagon to become part of Rostec On June 20, 2017 Viktor Meshcheryakov, deputy head of the Altai Region s government, stated that Russian railcar maker Altaivagon, which halted production a month ago, was expected to become part of state corporation Rostec and resume operations without disruptions. The decision was made after a conflict 2

3 between Altaivagon and Uralvagonzavod, when the first one proposed producing rail cars by RUB 600,000 cheaper than the rivals, but failed to receive permission. Court calls data on Rosneft rejecting suit against Sistema error On June 21, 2017 a representative of the Arbitration Court of the Republic of Bashkortostan said that information that oil major Rosneft rejects its RUB bln suit against multi-industry holding Sistema was published due to a technical malfunction. On June 20, a document saying that Rosneft and its co-claimant oil company Bashneft filed a request to reject the suit was added to the register, and the request had been registered, but Rosneft press secretary Mikhail Leontyev denied the information. Rosneft filed the suit in May seeking to recover the loss stemming from Sistema and its unit Sistema-Invest s alleged asset stripping of oil company Bashneft in , when they owned a controlling stake in it. Initially, the company s claims amounted to RUB bln, but later raised it to RUB bln due to differences in currency exchange rates. Rostelecom to hire broker to trade VTB bonds On June 22, 2017 it was announced that Russian state-controlled telecom operator Rostelecom wants to hire VTB Capital Broker, a unit of investment company VTB Capital, as a broker for five years with a RUB 300 mln contract. The broker will trade VTB Bank one-day exchange discount inconvertible bonds on the Moscow Exchange. VTB Capital and VTB Bank are parts of the financial VTB Group. Dividends/coupons Raspadskaya may pay final dividends for 2017 On June 15, 2017 it was reported that Russian coal producer Raspadskaya would consider paying final dividends for But the company does not want to rush with dividends, as good financial results for January-June may be temporary due to the pressure from the rising ruble and a possible contraction of prices for coking coal in July-December. After a serious accident at a mine in 2010, Raspadskaya paid dividends only for January-June of 2011 of RUB 5 per share, or a total of RUB 3.9 bln. In 2016, shareholders of the company decided to spend RUB 6.75 bln of the net profit to cover losses of previous years, and to not distribute the remaining RUB 6.2 bln. Currently, Raspadskaya is in a good shape and produces about 600,000 tonnes of coal a month. Representatives of Evraz told Aton that the group of companies does not study reorganization of its coal business and does not plan to raise its stake in Raspadskaya to 100% from the current 81.95%. Rostelecom cuts 2016 dividends by 9% on year to RUB 15 bln On June 19, 2017 shareholders of Russian state-controlled telecom operator Rostelecom decided at an annual general meeting to pay out RUB 15 bln in dividends for 2016, as compared to RUB 16.5 bln paid for Every common and preferred share will pay RUB 5.387, while they brought RUB 5.92 per share for The shareholders register for dividends will be closed on July 7. According to the dividend policy, Rostelecom will pay dividends of no less than RUB 45 bln for The company should spend at least 75% of its free cash flow in dividends, as the policy demands. The total amount of the 2016 dividends exceeds free cash flow of RUB bln and the net profit of RUB bln, calculated under International Financial Accounting Standards. The shareholders also elected a new board of directors consisting of 11 people, including the first time President Mikhail Oseyevsky, who became head of the operator in March. VTB Capital General Director Alexei Yakovitsky also debuted in Rostelecom s board as an independent director. The board was left by Chairman of managing company April-Capital s board, Anatoly Milyukov, and Rostelecom s Vice President for legal affairs, Mikhail Irzhevsky. All the other members proceeded from the previous board. The shareholders also approved remunerations to the board s members, who are not government officials, at up to RUB 4 mln per each. Members of the audit committee will get up to RUB 400,000 and up to RUB 320,000 for work on other committees. The government owns 45.04% in Rostelecom via the property management agency; state development bank Vnesheconombank holds 3.96% of the operator; and Rostelecom s unit, Mobitel, holds 16.24% of the parent company. Sovcomflot owner approves RUB 6.1 bln in 2016 dividends On June 19, 2017 shareholder of Russian shipping company Sovcomflot approved paying RUB bln, or about RUB 3.12 per common share, in dividends for The dividends will amount to 50% of the net profit under International Financial Reporting Standards (IFRS). The company will also pay RUB mln of 3

4 the undistributed net profit for previous years in dividends. The company paid RUB 6.2 bln, or 25% of the IFRS net profit, in dividends for The Russian government holds 100% in Sovcomflot. TGC-1 holders approve paying RUB 1.3 bln in 2016 dividends On June 19, 2017 shareholders of Russian power producer Territorial Generating Company-1 (TGC-1) approved paying kopecks per share, or a total of RUB bln, in dividends for The company s net profit rose around 40% to RUB bln in 2016, as calculated under Russian Accounting Standards (RAS). Part of Gazprom Energoholding, TGC-1 paid RUB mln, or 35% of its RAS net profit, in dividends for Central Telegraph to hike 2016 dividends by 70% to RUB 2.3 mln On June 21, 2017 shareholders of Central Telegraph, a telecom operator working in Moscow and the Moscow Region, decided to boost dividends for 2016 by 70% on the year to RUB mln. The operator s common share will bring RUB , and a preferred share RUB For 2015, Central Telegraph paid RUB per preferred share and no dividends on common shares. The shareholders register for the payments will be closed on July 7. The shareholders also decided to raise the company s capital by RUB mln. The board of directors was re-elected in the previous membership. Statecontrolled telecom operator Rostelecom owns 80% of Central Telegraph s common shares and 60% of the capital. Rosseti may consider paying interim dividends On June 21, 2017 Oleg Budargin, CEO of Russian power grid operator Rosseti, stated that the company did not plan to pay interim dividends, but would consider paying dividends for January-June. CEO said that it was important for the company to confirm a newly established good dividend track record, which had appeared since January-March 2016, so that the shareholders trust the company and feel its effectiveness. In May, Rosseti s board of directors recommended paying RUB bln in 2016 dividends. A spokesperson for the company explained that this sum includes interim dividends for January-March 2016 at RUB bln. In , Rosseti paid no dividends. Uralkali owners decide against dividends for 2016 On June 21, 2017 shareholders of Russian fertilizer producer Uralkali approved a decision to pay no dividends on common shares for 2016 and not to distribute the net profit for the year. The company s net profit more than doubled to RUB bln in 2016, as calculated under Russian Accounting Standards (RAS) and soared to USD bln in 2016 from USD 184 mln in 2015 under International Financial Reporting Standards (IFRS). Uralkali has not paid dividends since Businessman Dmitry Mazepin holds 19.9% in Uralkali through UralChem and Belarusian businessman Dmitry Lobyak has a 20% stake. NLMK plans no dividend policy changes for 2017 On June 21, 2017 Oleg Bagrin, CEO of Russian steelmaker Novolipetsk Steel (NLMK), stated that the company did not plan any changes in its dividend policy in NLMK shareholders approved paying 77% of the net profit in dividends for January-March at RUB bln or RUB 2.35 per share. CEO also said the company may refinance its current Eurobonds, including USD 400 mln bonds maturing in 2018 and USD 211 mln bonds maturing in He added that NLMK s leverage is relatively low at about 0.4x of earnings before interest, tax, depreciation and amortization (EBITDA) and the company needs no new debt. Lukoil owners approve paying RUB 102 bln in 2016 final dividends On June 21, 2017 shareholders of Russian oil major Lukoil approved paying RUB 120 per share, or a total of RUB bln, in final dividends for The company will thus earmark 50% of its net profit under International Financial Reporting Standards (IFRS) for dividends. In 2016, Lukoil paid RUB 75 per share in dividends for January-September, thus the total dividend payout for the year may reach RUB 195 per share. Lukoil paid RUB 177 per share in dividends for 2015, including interim dividends for January-September. CEO Vagit Alekperov said in early June he holds 24.8% in the company. Rosneft to study 50% of profit in dividends starting from 2017 On June 21, 2017 Igor Sechin, CEO of Russian oil major Rosneft, said that the company would consider paying 50% of net profit in dividends starting from 2017, while no request to pay additional dividends for 2016 had been made. President Vladimir Putin on June 20 asked Sechin to return to an issue of paying 50% of net profit in dividends. Sechin said that Putin did not ask to pay additional dividends for 2016, but to return 4

5 to discussion of paying 50% of net profit in dividends. Rosneft s board of directors earlier recommended paying RUB bln, or 35% of net profit calculated under International Financial Reporting Standards (IFRS), in dividends for The shareholders will consider the recommendation at an annual general meeting on June 22. TransContainer holders approve RUB per share in 2016 dividends On June 22, 2017 shareholders of Russian railway container operator TransContainer approved paying RUB per share, or a total of RUB mln, in final dividends for The company already paid RUB per share, or a total of RUB 1.33 bln, in dividends for January-June. In 2016, TransContainer s net profit rose 42.2% to RUB bln, as calculated under Russian Accounting Standards. United Transport Logistics Company of Russia, Belarus, and Kazakhstan owns 50% plus two shares in TransContainer, but Russian Railways earlier said it plans to get the stake back. Far Eastern Shipping Company (FESCO), part of Summa Group, owns 25.07%, and private pension fund Blagosostoyanie has 24.5%. Eurobonds / DRs Etalon Group plans buyback of USD 20 mln GDRs until end of 2017 On June 20, 2017 it was reported that Russian real estate developer Etalon Group plans to spend USD 20 mln to buy back global depositary receipts (GDRs) until the end of The deadline for the buyback is December 31, but it may be changed depending on the market situation. The company will buy GDRs at the market price, and it may expand the volume of the program if it thinks that the market price of GDRs is not fair. The board of directors may use the purchased GDRs for a stock option plan for the management or cancel the securities. In May, Etalon said that its core owners - Baring Vostok s affiliate Dehus Dolmen Nominees Limited and the family of Vyacheslav Zarenkov that owned the shares through Strata Investments Limited - sold 37 mln GDRs in the company for a total of USD mln. After that, Baring Vostok controls about 10% in Etalon, the Zarenkov family owns about 36%, and 54% is free-float. Russia s Finance Ministry places USD 3 bln Eurobonds On June 20, 2017 Russia s Finance Ministry placed two Eurobond tranches totaling USD 3 bln. The ministry placed a USD 1 bln Eurobond tranche maturing in 2027 with a coupon rate of 4.25% and a USD 2 bln tranche maturing in 2047 with a coupon of 5.25%. A banking source said earlier that demand for the Eurobonds reached around USD 6.6 bln. VTB Capital acted as the organizer. Please be advised that the information presented in this newsletter is based on the following sources: National Settlement Depository (NSD); Clearstream Banking; Euroclear Bank; PRIME-TASS information agency; Kommersant, "Rossiyskaya Gazeta, Izvestiya, "Vedomosti, The Moscow Times newspapers, and others. For more information kindly contact: Anna Enfiandzhiants Evgenia Sakr Julia Dombrovskaya T +7 (495) T +7 (495) T +7 (495) F +7 (495) F +7 (495) F +7 (495) E anna.enfiandzhiants@msk.vtb.ru E evgenia.sakr@msk.vtb.ru E julia.dombrovskaya@msk.vtb.ru This document has been prepared exclusively for internal use of VTB Bank (PJSC) customers. The information should not be further distributed or duplicated in whole or in part by any means without the prior written consent of VTB Bank (PJSC). The information contained herein has been prepared on the basis of information which is either publicly available or obtained from a source which VTB Bank (PJSC) believes to be reliable at the time of publication. Information provided herein may be a summary or translation. The content of the material contained herein is subject to change without notice, and such changes could affect its validity. VTB Bank (PJSC) is not obligated to update the material in light of future events. Furthermore, VTB Bank (PJSC) does not warrant, expressly or implicitly, its veracity, accuracy or completeness. VTB Bank (PJSC) and its affiliates accept no liability whatsoever for any use of this communication or any action taken based on or arising from the material contained herein. Additional information may be available upon request. The material in this communication is for information purposes only. Therefore, this communication should not be interpreted as investment, tax or legal advice by VTB Bank (PJSC) or any of its officers, directors, employees or agents and customers should consult with appropriate professional advisers for these specific matters. Nothing expressed or implied herein is intended to create any obligation of VTB Bank (PJSC) and/or impose any liability on VTB Bank (PJSC) and/or create legal relations between VTB Bank (PJSC) and VTB Bank (PJSC) customers. 5

April 13, 2017 Issue No. 2017/13

SECURIITIIES MARKET NEWSLETTER weekly Presented by: VTB Bank, Custody April 13, 2017 Issue No. 2017/13 Company News PhosAgro s board of directors approves large financing deal On April 6, 2017 the board