EURASIA OTHER CENTRAL ASIA

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1 1 December 2009 This is bne's Central Asian and Caucasus daily newsletter, a list of the top stories in region for the day. You can receive the list as a plain text or html or as a pdf file. Manage your delivery options here: subs.php EURASIA TOP STORY 1. Azerbaijani, Armenian FMs to talk Karabakh settlement in Athens 2. Kazakh Banks- Halyk Bank 3Q09 IFRS Results- Too Early to Celebrate 3. Kazakhgold may acquire Polyus Gold 4. Temirbank offers 80% haircuts to Eurobond holders EURASIA KAZAKHSTAN 5. CAMEC says ENRC stake reaches 95-09% 6. Halyk Bank 3Q2009 net profit down 48% to KZT9-3m (US$63m) 7. Kazakhstan to boost oil shipments across Caspian Sea 8. Kazatomprom to begin converting uranium for Japanese firms Kazkommertsbank s 3Q2009 net profit down 71% YoY 10. KKB repurchases EUR230mn of 2017 eurobond for estimated gain of EUR57mn 11. KMG EP reports weaker than expected 3Q2009 results 12. ZhaikMunai appoints two new Board members EURASIA OTHER CENTRAL ASIA 13. Tajikistan- Corruption costs country $12m in nine months - anti-corruption agency 14. Tajikistan- North-South power line launched EURASIA CAUCASUS 15. Georgia- Finance Ministry may put up Rustavi-based plant of Kazbegi for auction, says Kazbegi president 16. Georgia- Wimm-Bill-Dann Georgia to export dairy products to Armenia OTHER FRONTIER MARKETS 17. Mongolia- ARMZ may buy Khan Resources 18. Mongolia- Origo buys 21% of Gobi Coal and Energy EURASIA TOP STORY 1. Azerbaijani, Armenian FMs to talk Karabakh settlement in Athens RIA Novosti The foreign ministers of Azerbaijan and Armenia will meet to discuss the Nagorny Karabakh settlement in Athens on Tuesday, an Azerbaijani Foreign Ministry spokesman said.

2 Elmar Mammadyarov and Edward Nalbandian will be on a visit to the Greek capital as Athens will host on December 1-2 the 17th Ministerial Council of the Organization for Security and Cooperation in Europe (OSCE). Nagorny Karabakh, a region in Azerbaijan with a largely Armenian population, has been a source of conflict between the former Soviet republics since the late 1980s. The mountainous province has its own government and is de facto independent. The war between Azerbaijan and Armenia over the enclave in left an estimated 35,000 people dead. Sporadic violence on the border has been reported ever since. The conflict is mediated by the OSCE Minsk Group, comprising the United States, Russia and France. 2. Kazakh Banks: Halyk Bank 3Q09 IFRS Results: Too Early to Celebrate VTB Capital Halyk has reported its 3Q09 IFRS results and held a conference call for investors. The key takeaways are as follows. NPLs and provisions. In 3Q09, NPLs expanded to 19.7%, from 17.9% in 2Q09, though this was slower than in the previous quarter. Moreover, provisions grew to 14.8% from 12.9% in 2Q09, which implies that the coverage ratio improved slightly to 75% in 3Q09 from 72% in 2Q09, but stayed well below 100%. According to management, NPLs will not grow significantly by YE09 and the provision rate will reach 16.1%. Halyk expects provision expenses to decline in Margins. NII slid faster than we expected (-6% QoQ) and NIM decreased to 5.0% from 5.2% in 2Q09, reflecting the declining interest rates on the market and the still large cash position. Loan portfolio. Halyk s loan portfolio declined 5% QoQ but according to the bank is now likely to remain flat through the end of the year. In 2010, management expects lending operations to grow 10-15% YoY (this is more optimistic than our forecast of 7% growth). Customer accounts expanded rapidly (12% QoQ) due to the substantial growth of Halyk s corporate business, mostly attributed to the increase in term deposits. Samruk-Kazyna fund deposits slightly declined by 6%. Meanwhile, management expects seasonal withdrawals from corporate accounts in 4Q09. All in all, Halyk bank s results reflected the (still) complicated situation in the Kazakh economy. Although expected, the rate at which NPLs grew came as a negative surprise (although we expect that the peak level is approaching). Management remains cautiously optimistic on operations until YE09, guiding for a recovery to start in late Meanwhile, in 4Q09 we expect at least a one-off gain from the early repayment of a USD700mn FX debt due in 2010, which leaves Halyk with no major FX debt repayments until 2Q13.

3 3. Kazakhgold may acquire Polyus Gold We do not expect any significant share impact as the news has not been confirmed by either Polyus Gold or KazakhGold. If the news proves to be true, we see this as positive for both companies. According to the Russian newspaper, Vedom osti, Polyus Gold JSC (PMTL RU)(PMTL LI) is considering a reverse takeover by its recently bought 51% subsidiary, KazakhGold (KZG LI). No further information on the matter has been disclosed. There may be several reasons for Polyus to consider this option. One is that KazakhGold is traded in London and registered in the United Kingdom, which will provide Polyus with cheaper funding opportunities. Also, the Company will be able to join FTSE 100 index. If the acquisition is completed, KazakhGold will be renamed Polyus Gold according to the newspaper article. Until further details of the deal are revealed we do not expect any significant share impact. We currently do not have KazakhGold or Polyus Gold under formal research coverage. 4. Temirbank offers 80% haircuts to Eurobond holders The Bank has proposed cash-only payments equivalent to 19.7% and % of the principal amount outstanding to the holders of Eurobonds that are due in 2011 and 2014, respectively. While these debt haircuts are worse than our expectations, we note that the prices of the bonds rose by ca 5%, which we believe reflects that the offered payments could be considered as a floor. Domestic unsecured bondholders, however, can receive par after a significant extension of maturity dates as well as reduction of interest rates. Yesterday, Temirbank (TEBN KZ)(TEBNp KZ) released a broad summary of its debt restructuring terms. The Bank offered a cash payment of up to 19.7% of the principal outstanding to the holders of US$300m notes due in November 2014, and % to holders of US$500m notes due in May Domestic unsecured bondholders, however, can receive par after a significant extension of maturity dates as well as reduction of interest rates. Holders of secured domestic bonds will receive new secured notes in respect of 25% of the relevant principal amount of the existing instrument, with the balance being converted into unsecured subordinated notes. Deposits placed by JSC National Welfare Fund Samruk-Kazyna (SK) and the Bank s parent, BTA Bank (BTAS KZ), will be modified by an extended duration. Moreover, the interest rate on BTA Bank deposits is to be reduced. In addition, 37.3% of the liability to CoBank ACB under letters of credit issued by the Bank in respect of certain trade finance transactions will be written off with the balance remaining outstanding on current terms. Any default interest which may accrue in favour of any of the above-mentioned creditors will be also written off.

4 The Bank confirmed its previous statement that SK would recapitalise the Bank once the debt restructuring is completed, but did not provide specific information on the matter. The Bank also noted that on 23 December 2009, it will hold a meeting with its creditors to approve the debt restructuring. Moreover, the regulator set a deadline of 30 December 2009 for the Bank to get an approval for debt restructuring plan from its creditors. The Bank has proposed cash-only payments equivalent to 19.7% and % of the principal amount outstanding to the holders of Eurobonds that are due in 2011 and 2014, respectively. While these debt haircuts are worse than our expectations, we note that the prices of the bonds rose by ca 5%, which we believe reflects that the offered payments could be considered as a floor. We currently have Temirbank under formal research coverage, available to our clients. EURASIA KAZAKHSTAN 5. CAMEC says ENRC stake reaches 95.09% The Company updates on an increased stake in CAMEC, following from its previous announcement of 17 November 2009, when ENRC stake in CAMEC was equal to 94.33%. We expect no significant share impact on ENRC of this increased stake. According to a statement by CAMEC (CFM LN), as of 27 November 2009, ENRC (ENRC LN) held 2,736,734,354 ordinary shares of the African mining company through its indirectly wholly-owned subsidiary ENRC Africa 1 Limited. This amount represents 95.09% of the issued share capital of CAMEC. The acquisition of CAMEC was announced at the end of September 2009 with a recommended cash offer at GBp20 per share, valuing the Company at GBP584m (US $946m). As of 17 November 2009, ENRC stake in CAMEC was equal to 94.33%. We expect no significant share impact on ENRC. We currently have ENRC under formal research coverage, available to our clients. 6. Halyk Bank 3Q2009 net profit down 48% to KZT9.3m (US$63m) We do not expect any bond or share price impact for the Bank as we believe the results are in line with expectations. Halyk Bank (HSBK KZ)(HSBKp KZ)(HSBKp1 KZ)(HSBK LI) yesterday published interim IFRS consolidated financial results for 3Q2009. The Bank s net income fell by 48% to KZT9bn (US$63m) in 9M2009 versus 9M2008. Provisioning expenses increased by 143% to KZT73bn (US$500m) in January-September. NPLs reached 19.7% of gross loans, up from 10.1% as of YE2008 and 17.9% as of 1H2009.

5 Assets increased by 29% since YE2008 to KZT2.1tr (US$14.1bn). Loans declined by 3% to KZT1.tr (US$7.6bn), while deposits surged by 54% to KZT1.3tr (US$8.8bn). Gross loans-to-deposits ratio fell to 101% in 3Q2009 from 150% at YE2008. In 3Q2009, the Bank s ratio of liquid assets to total assets increased to 39.6% from 17.0% at YE2008. The figures were mostly in line with those previously published in regulatory data as well as in line with market expectations, in our view. We therefore do not expect any significant bond or share price impact for the Bank. We currently have Halyk Bank under formal research coverage, available to our clients. //IMG:1209_Kazakhstan_Halyk.gif:IMG// 7. Kazakhstan to boost oil shipments across Caspian Sea APA Kazakhstan has shipped 1 million tons of cargo from the Aktau port to Azerbaijan, Georgia, Russia and Iran this year, Kazakhstan s Deputy Minister of Transport and Communications Jenis Kasimbek told APA s local correspondent. Of this, 10 tons were shipped across the Caspian Sea and oil shipments accounted for 1/3 of the total shipments carried through the Caspian Sea, he added. According to him, Kazakhstan is building a new port Kurik Port which will allow delivering million tons of oil to Baku-Tbilisi-Ceyhan pipeline. But this is possible after the Kashagan offshore oil field comes on stream in , he noted. 8. Kazatomprom to begin converting uranium for Japanese firms Kazatomprom and two Japanese companies plan to begin the uranium conversion projects in , subject to Kazakhstan and Japan signing a bilateral agreement on the peaceful use of nuclear energy. We expect no share impact on NAC Kazatomprom, which is 100% state owned. Kazakhstan s National Atomic Company Kazatomprom has announced the signing of an agreement with Japan s Nuclear Fuel Industries, Ltd., Kansai Electric Power Co., Inc., and Sumitomo Corp. on converting uranium products into components of nuclear fuel rods. The companies plan to begin the projects between 2010 and 2012, dependent on Kazakhstan and Japan signing a bilateral agreement on the peaceful use of nuclear energy. We expect no share impact as NAC Kazatomprom is not listed, and is 100% stateowned.

6 9. Kazkommertsbank s 3Q2009 net profit down 71% YoY We do not expect any bond or share price impact for the Bank as the figures are in line with expectations. Kazkommertsbank (KKGB KZ)(KKGBp KZ)(KKB LI) yesterday published interim IFRS consolidated financial results for 3Q2009. The Bank s earnings fell by 71% YoY to KZT14.6bn (US$99.5m) in 9M2009 versus 9M2008. Provisioning expenses increased by 183% to KZT160bn (US$1.1bn) in January-September. NPLs reached 20.6% of gross loans, up from 8.1% as of YE2008 and 15.0% as of 1H2009. Kazkommertsbank s assets increased by 6.6% since YE2008 to KZT2.8tr (US $18.5bn). Loans rose by 13.5% to KZT2.4tr (US$16.1bn), while deposits grew by 19.7% to KZT1.2tr (US$7.8bn). The gross (net) loans-to-deposits ratio was largely unchanged and stood at 248% (208%). We do not expect any significant bond or share price impact for the Bank as we believe the interim figures reported are in line with those previously published in regulatory data, and mostly in line with market expectations, in our view. We currently have Kazkommertsbank under formal research coverage, available to our clients. //IMG:1209_Kazakhstan_KKBResults.gif:IMG// 10. KKB repurchases EUR230mn of 2017 eurobond for estimated gain of EUR57mn Renaissance Capital Event: On Friday (27 Nov), Business Wire reported a regulatory disclosure by KKB, according to which the bank repurchased EUR230.1mn on 23 Nov 2009 of its EUR750mn eurobond maturing in Feb At the time of the announcement, the nominal value of the remaining outstanding KKB17 bonds was EUR432.2mn. Following the repurchase of EUR230.1mn, the outstanding balance of this particular bond therefore is EUR202.2mn. Action: Positive for the equity, in our view. Rationale: The announcement follows a string of other announced buy-backs by KKB earlier in the year. The most direct impact would be an estimated gain of around EUR57.5mn on this most recent buy-back, assuming the bank has repurchased debt at the recently quoted market price of around 75% of par. The gain would clearly positively affect net income and equity (and support further provision creation in the near term). We would remind investors that KKB increased its loan portfolio by some $500mn in the summer, and we would not be surprised if there is an indirect link between loan increases and bond buy-backs (via borrowers pledging KKB s eurobond against their

7 otherwise doubtful loans with the bank), so development in loan balances and/or further fresh inflow of funds to the bank in November would be telling in this respect. Balance sheet restructuring continues at KKB and the debt burden continues to decline all positives for KKB s equity, even though we would expect to see more shifts going into 2010, with a focus on deposit growth, in our view. With liquidity concerns out of the way, KKB continues to come across as a smooth trader. 11. KMG EP reports weaker than expected 3Q2009 results Although we believe the Company s operating costs, as well as its revenues, dropped and were below market expectations, on balance we believe the results were weaker than expected, and we expect negative share impact. KazMunaiGas EP (RDGZ KZ)(KMG LI) yesterday reported its 3Q2009 results. During the period the Company achieved revenues of KZT141bn (ca US$934m), which was up 14% QoQ, but down 33.0% YoY. The revenue was below market expectations, we believe due to weaker than anticipated netback prices, notably on domestic prices and the CPC pipeline (a third of exports). Operating costs (including MET and ERT taxes) were also below market expectations, only up 5% QoQ in 3Q2009, to KZT90.2bn (US$602m), resulting in KZT50.1bn (US$332m) of operating profit, and net income of KZT50.8bn (US$343m), up 157% QoQ, but down 17.0% YoY. The Company added a further 300,000 barrels per month to its hedging (with a floor of US$60/bbl, and ceiling at US$85/bbl), which lasts until YE2009. For the remainder of the year, the Company will have hedged 80% of its oil exports, although it has commented that it does not intend to hedge in The Company now has a net cash position of KZT601.7bn (US$4.0bn). As of 30 September 2009, 78% of this was held with two major Kazakh banks, Halyk Bank and Kazkommertsbank, with 94% denominated in dollars. Although acting as quite an effective hedge on the oil price, we note that the heavy focus in dollar terms could become a bigger issue should the Tenge show further signs of appreciating, given that KMG EP reports in KZT. Although we believe the Company s operating costs, as well as its revenues dropped, and were below market expectations, on balance we believe the results were weaker than expected, and we expect negative share impact. We currently have KazMunaiGas EP under formal research coverage, available to our clients. 12. ZhaikMunai appoints two new Board members ZhaikMunai LP (ZKM LI) yesterday announced the appointment of two new nonexecutive Board members: Atul Gupta and Mikhail Ivanov. Mr Gupta has 25 years of

8 experience in the international upstream oil and gas business, and was last CEO of Burren Energy from 2006, until it was sold to Eni SpA (ENI IM)(E US) in Mr Ivanov has over 15 years working experience in the industry and is currently a Partner and Director of Oil and Gas Projects at Baring Vostok Capital Partners, and is the Chief Executive Officer of Volga Gas (VGAS LN). We do not expect a significant share impact on the news. We currently do not have ZhaikMunai under formal research coverage. EURASIA OTHER CENTRAL ASIA 13. Tajikistan: Corruption costs country $12m in nine months - anticorruption agency bne Corruption cost Tajikistan 56 million somoni ($12m) in January to September 2009, according to a report from the Agency for State Financial Control and Combating Corruption. The agency s director, Fattoh Saidov, told a parliament hearing that 49.4% of the total had already been recovered. The agency carried out 892 inspections, resulting in 742 criminal proceedings in the first nine months of 2009, Asia Plus quotes Saidov as saying. 14. Tajikistan: North-South power line launched bne A new power line connecting north and south Tajikistan started operation on November 29. President Emomali Rakhmon and representatives of China Theban Electric Apparatus Stock (TBEA), which built the line, attended the opening ceremony, Asia Plus reports. The line will allow Tajikistan s northern Sughd region to receive electricity from south Tajikistan, where most of the country s power is generated. Previously, it relied on the Qairoqum hydroelectricity power plant, which supplied around 20% of electricity needed, and imports from Kyrgyzstan and Uzbekistan. EURASIA CAUCASUS 15. Georgia: Finance Ministry may put up Rustavi-based plant of Kazbegi for auction, says Kazbegi president GBC Tbilisi (GBC) The Tax Office has arrested two containers of Kazbegi Company with malt for a week, Kazbegi President Gogi Topadze told GBC. Kazbegi planned to export the raw material worth USD to Armenia.

9 I am unable to export concentrates to Ukraine and Kazakhstan because of problems with the Tax Office. As a result, we will delay inauguration of bottling Kazbegi lemonades in Ukraine, Topadze said. As reported, Tax Office imposed a fine of over 3.5m on Tbilisi and Rustavi based plants of Kazbegi. Topadze has stated not to pay the fine. The businessman has also announced distrust to the Finance Ministry Board of Appeals. Topadze says that the Authorities have detained an employee of Kazbegi company, as they are trying to stage pressure on the company, but I declare I will rather lose Rustavi-based plant than pay these unclear taxes, Topadze noted. As reported, Tax Office demands that Kazbegi Company pay taxes for expenditures the company made for handing over Kazbegi fridges and inventories to restaurants and supermarkets free of charge. Kazbegi Company will have to pay considerably fines for delayed exports. It is unimaginable to make problems to Georgian exports, while the country s exports ratio in total trade turnover is very negative, Topadze noted. I expect that the Georgian Finance Ministry puts up Rustavi-based plant for auction, Topadze said and added that he would not put up with the current injustice. Turkish Efes, as well as Lithuanian and other investment companies offered USD 36m for Rustavi-based plant, but I refused all proposals for certain principles, Topadze said. Rustavi-based plant to Kazbegi Company has paid 34m GEL to the state budget for three years, Topadze said. 16. Georgia: Wimm-Bill-Dann Georgia to export dairy products to Armenia GBC Wimm-Bill-Dann Georgia, a dairy product manufacturer, plans to launch dairy product exports to Armenia. The company has already launched negotiations with Armenia on registration procedures and selection of a distributor company, Nana Ghlonti, a company commercial director, told GBC. Will-Bill-Dan Georgia does not unveil the exports volume. At the same time, the company plans to penetrate the Azerbaijani market too. Wimm-Bill-Dann Georgia introduced two brands in Georgia two months ago, namely, Chuda and Domik Vderevne. The company management has invested USD 15m in the project implementation. Wimm-Bill-Dann, a Russian dairy product company founded by Russia-based Georgian businessman David Iakobashvili, acquired Georgian Products, a dairy manufacturer, in October 2007.

10 OTHER FRONTIER MARKETS 17. Mongolia: ARMZ may buy Khan Resources bne Russia s AtomRedMetZoloto (ARMZ) has announced it will bid for Khan Resources Inc, a Toronto-based mining company assets in Mongolia. Khan s main activities in Mongolia are at the Dornod uranium property where it has a 58% interest in the Main Dornod Property and a 100% interest in the Additional Dornod Property. 18. Mongolia: Origo buys 21% of Gobi Coal and Energy bne Private equity investor Origo has bought 21% of Gobi Coal and Energy for around $15m, from En+ Group. Origo Sino-India paid $4.5m for 6.4% of the company, and Origo Resource Partners PLC paid $10.5m for a 14.9% shareholding. Gobi is a Ulan Bataar based mining company with two high quality coking and thermal coal deposits at Shinejinst and Zeegt in Mongolia s southwestern Bayanhongor region. Oleg Deripaska s En+ Group has exited the remainder of its 31% stake in Gobi to other investors, according to reports in the Mongolian press.