IMPORTANT NOTICE THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QUALIFIED INSTITUTIONAL BUYERS ( QIBS ) IN RELIANCE ON THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT OF 1933 (THE SECURITIES ACT ) PROVIDED BY RULE 144A THAT ARE ALSO QUALIFIED PURCHASERS ( QPS ), AS DEFINED IN SECTION 2(a)(51)(A) OF THE U.S. INVESTMENT COMPANY ACT OF 1940 OR (2) OUTSIDE OF THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT ( REGULATION S ). IMPORTANT: You must read the following before continuing. The following applies to the Document following this page, and you are therefore advised to read this carefully before reading, accessing or making any other use of the Document. In accessing the Document, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ( REGULATION S )), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, PRIOR TO THE EXPIRATION OF A 40-DAY DISTRIBUTION COMPLIANCE PERIOD (AS DEFINED IN REGULATION S) COMMENCING ON THE CLOSING DATE, THE SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT PURSUANT TO ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE FOLLOWING DOCUMENT MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. Confirmation of your representation: In order to be eligible to view the Document or make an investment decision with respect to the securities, investors must be either (1) a QIB that is also a QP or (2) outside the United States. The Document is being sent at your request and by accepting the e-mail and accessing the Document, you shall be deemed to have represented to us that (1) you and any customers you represent are either (a) QIBS that are also QPS or (b) you and the electronic mail address that you gave us and to which this e-mail has been delivered are not located in the United States and (2) you consent to delivery of such Document by electronic transmission. You are reminded that the Document has been delivered to you on the basis that you are a person into whose possession the Document may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver the Document to any other person. The materials relating to the Offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and J.P. Morgan Securities plc, The Royal Bank of Scotland plc and GPB-Financial Services Limited, collectively referred to herein as the Joint Lead Managers, or any affiliate of the Joint Lead Managers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Joint Lead Managers or such affiliate on behalf of the Issuer in such jurisdiction. The Document has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Joint Lead Managers or any person who controls them, nor any director, officer, employee or agent of any of them or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Document distributed to you in electronic format and the hard copy version available to you on request from the Joint Lead Managers.
15JUN201106100788 U.S.$500,000,000 5% Loan Participation Notes due 2023 issued by, but with limited recourse to, MTS International Funding Limited for the sole purpose of financing a loan to Mobile TeleSystems OJSC Issue Price: 100% MTS International Funding Limited, or the Issuer, a company organized and existing as a private limited company under the laws of Ireland, is issuing an aggregate principal amount of U.S.$500,000,000 5% loan participation notes due 2023, or the Notes, for the sole purpose of financing a loan, or the Loan, to Mobile TeleSystems OJSC, or MTS or the Borrower, pursuant to a loan agreement, or the Loan Agreement, dated May 30, 2013 between the Issuer, as lender, and the Borrower. The Loan will bear interest at 5% per annum. Subject to the provisions of the Trust Deed (as defined herein), the Issuer will charge as security for its payment obligations in respect of the Notes and under the Trust Deed (i) its rights to all payments of principal, interest and additional amounts (if any) payable by the Borrower under the Loan Agreement; (ii) its rights to receive all sums which may be or become payable by the Borrower under any claim, award or judgment relating to the Loan Agreement; and (iii) by way of a first fixed charge, all the rights, title and interest in and to amounts deposited in an account of the Issuer pursuant to the Loan Agreement, in each case to Deutsche Trustee Company Limited, or the Trustee, as trustee for the benefit of the holders of the Notes, or the Noteholders, upon the closing of the offering of the Notes. Furthermore, under the terms of the Trust Deed, the Issuer will assign all of its rights under the Loan Agreement, except for any Reserved Rights (as defined herein) and rights subject to the charge as described above, to the Trustee for the benefit of itself and the Noteholders upon the closing of the offering of the Notes. The Notes are secured limited recourse obligations of the Issuer. In each case where amounts of principal, interest and additional amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make such payment will constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to all principal, interest and additional amounts (if any) actually received by or for the account of the Issuer from MTS pursuant to the Loan Agreement, excluding amounts paid in respect of the Reserved Rights (as defined herein). The Issuer will have no other financial obligation under the Notes. The Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on MTS credit and financial standing in respect of the financial servicing of the Notes. Interest on the Notes will be payable at an annual rate equal to 5%. Subject to receipt of the funds necessary therefor from the Borrower, the Issuer will make interest payments on the Notes in arrear on May 30 and November 30 in each year, commencing on November 30, 2013, as described under Terms and Conditions of the Notes Interest. Unless previously redeemed or cancelled, the Notes will be redeemed at their principal amount on May 30, 2023. 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 taxes of the Russian Federation or Ireland. As set forth more fully in the Loan Agreement, MTS may prepay the Loan at its principal amount, in whole but not in part, together with accrued interest, if (i) MTS or the Issuer must deduct or withhold certain taxes from payments they make in respect of the Loan or the Notes, respectively, or following enforcement of the security created in the Trust Deed and upon MTS or the Trustee being required to deduct or withhold any taxes of the Russian Federation or the jurisdiction in which the Trustee in domiciled; or (ii) it becomes illegal for the Notes or the Loan to remain outstanding. Upon such occurrence, the Issuer will, subject to the receipt of the relevant funds from MTS, prepay the principal amount of all Notes outstanding, together with accrued interest. Except as otherwise expressly provided in this prospectus, or the Prospectus, and in the Trust Deed, no proprietary or other direct interest in the Issuer s rights under or in respect of the Loan Agreement, or in any rights that the Issuer 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 of the Loan Agreement or have direct recourse to the Borrower. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS ON PAGE 16. THE NOTES AND THE LOAN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. 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 ) EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE NOTES ARE BEING OFFERED AND SOLD OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS IN RELIANCE ON REGULATION S (THE REGULATION S NOTES ) AND WITHIN THE UNITED STATES TO QUALIFIED INSTITUTIONAL BUYERS ( QIBS ), AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ( RULE 144A ), THAT ARE ALSO QUALIFIED PURCHASERS ( QPS ), AS DEFINED IN SECTION 2(a)(51)(A) OF THE U.S. INVESTMENT COMPANY ACT OF 1940 (THE INVESTMENT COMPANY ACT ), IN RELIANCE ON THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144A (THE RULE 144A NOTES ) AND IN RELIANCE ON THE EXEMPTION FROM REGISTRATION UNDER THE INVESTMENT COMPANY ACT PROVIDED BY SECTION 3(C)(7) THEREOF. PROSPECTIVE INVESTORS ARE HEREBY NOTIFIED THAT SELLERS OF THE RULE 144A NOTES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A. FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS ON OFFERS, SALES AND TRANSFERS OF THE NOTES AND THE DISTRIBUTION OF THIS PROSPECTUS, SEE SUBSCRIPTION AND SALE AND TRANSFER RESTRICTIONS. Information contained in this Prospectus is not an offer, or an invitation to make offers, sell, purchase, exchange or transfer any securities in Russia, and does not constitute an advertisement or offering of any securities in Russia. The securities referred to in this Prospectus have not been and will not be registered in Russia or admitted to public placement and/or public circulation in Russia and are not intended for placement or circulation in Russia except as permitted by Russian law. The Prospectus has been approved by the Central Bank of Ireland (the Central Bank ) as competent authority under Directive 2003/71/EC (the Prospectus Directive ). The Central Bank only approves this Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange for the Notes to be admitted to its Official List (the Official List ) and trading on its regulated market (the Main Securities Market ). Such approval relates only to the Notes which are to be admitted to trading on a regulated market for the purposes of Directive 2004/39/EC or which are to be offered to the public in any member state of the European Economic Area. Reference in this Prospectus to Notes being listed (and all related references) shall mean that such Notes have been admitted to trading on the Main Securities Market. This Prospectus constitutes a prospectus for the purposes of the Prospectus Directive. The Notes will be in registered form and will be offered and sold in the minimum denomination of U.S.$200,000 or integral multiples of U.S.$1,000 in excess thereof. The Regulation S Notes will initially be represented by a global certificate, or the Regulation S Global Certificate, without interest coupons, registered in the name of a nominee of, and deposited with a common depositary for, Euroclear Bank SA/NV, or Euroclear, and Clearstream Banking, société anonyme, or Clearstream, Luxembourg, on or about May 30, 2013. The Rule 144A Notes will initially be represented by a global certificate, or the Rule 144A Global Certificate, and, together with the Regulation S Global Certificate, the Global Certificates, without interest coupons, registered in the name of a nominee, and deposited with a common depositary for, The Depository Trust Company, or DTC. The Global Certificates will only be exchangeable for definitive certificates, or Definitive Certificates in certain limited circumstances as described herein. See Summary of the Provisions relating to the Notes in Global Form. J.P. Morgan Joint Lead Managers Gazprombank The date of this Prospectus is May 28, 2013 The Royal Bank of Scotland
This Prospectus comprises a prospectus for the purposes of the Prospectus Directive as implemented in Ireland by the Prospectus (Directive 2003/71/EC) Regulations 2005 (the Prospectus Regulations ), and for the purpose of giving information with respect to the Issuer, MTS, MTS and its subsidiaries and affiliates taken as a whole, which may be referred to herein as the Group, the Loan and the Notes, which, according to the particular nature of the Issuer, MTS, the Loan and the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer and MTS. The language of the 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. Each of the Issuer and MTS accepts responsibility for the information given in this Prospectus. To the best of the knowledge and belief of each of the Issuer and MTS (having taken all reasonable care to ensure that such is the case), each of the Issuer and MTS confirms that the information given in this Prospectus is in accordance with the facts and does not omit anything likely to affect its import. In addition, MTS having made all reasonable enquiries, confirms that (i) this Prospectus contains all information with respect to MTS, the Group, the Loan and the Notes that is material in the context of the issue and offering of the Notes; (ii) to the best knowledge of MTS, the statements contained in this Prospectus relating to the Group 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 Group 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 MTS, the Group, 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 MTS to ascertain such facts and to verify the accuracy of all such information and statements. This Prospectus does not constitute an offer of, or an invitation by or on behalf of, any of the Issuer, MTS or any Joint Lead Manager (as defined in Subscription and Sale ) to subscribe for or purchase any Notes in any jurisdiction where it is unlawful to make such an offer or invitation, and this Prospectus may not be used for, or in connection with, any offer of, or invitation by or on behalf of, any of the Issuer, MTS or any Joint Lead Manager to subscribe for or purchase any Notes in any jurisdiction or under any circumstances in which such offer or invitation is not authorized or is unlawful. The distribution of this Prospectus and the offer or sale of the Notes in certain jurisdictions may be restricted by law. The Issuer, MTS, the Trustee and the Joint Lead Managers each require any person into whose possession this Prospectus comes to inform themselves about and to observe any such restrictions. In making an investment decision, prospective investors must rely on their own examination of the Issuer, MTS, the Group, the Loan and the Notes and the terms of this Prospectus, including the risks involved. No person is authorized to provide any information or to make any representation not set forth in this Prospectus. Any information or representation not so set forth must not be relied upon as having been authorized by or on behalf of any of the Issuer, MTS, the Trustee or any Joint Lead Manager. The delivery of this Prospectus at any time does not imply that the information set forth in it is correct as at any time after 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 MTS after the date of this Prospectus. None of the Issuer, MTS, the Trustee or any Joint Lead Manager or any of their respective representatives 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 their own advisers as to the legal, tax, business, financial and related aspects of the purchase of the Notes. Prospective investors 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, MTS, the Trustee and the Joint Lead Managers are not responsible for compliance with these legal requirements. The appropriate characterization 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 i
investment authority is subject to legal restrictions. Such investors should consult their legal advisers regarding such matters. This Prospectus has been filed with and approved by the Central Bank as required by the Prospectus Regulations. The Prospectus approved by the Central Bank will be filed with the Irish Companies Registration Office in accordance with Regulation 38(1)(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 Central Bank. The Issuer is not and will not be regulated by the Central Bank as a result of issuing the Notes. In connection with the issue of the Notes, J.P. Morgan Securities plc (the Settlement Manager ) (or person(s) acting on its behalf) may over-allot the Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Settlement Manager (or person(s) acting on its behalf) will undertake stabilization action. Any stabilization action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilization action or over-allotment must be conducted by the Settlement Manager (or person(s) acting on its behalf) in accordance with all applicable laws and rules. NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE JOINT LEAD MANAGERS AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS PROSPECTUS, AND NOTHING CONTAINED IN THIS PROSPECTUS IS, OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION, WHETHER AS TO THE PAST OR THE FUTURE. NONE OF THE JOINT LEAD MANAGERS ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS PROSPECTUS. EACH PERSON CONTEMPLATING MAKING AN INVESTMENT IN THE NOTES MUST MAKE ITS OWN INVESTIGATION AND ANALYSIS OF THE CREDITWORTHINESS OF THE ISSUER AND MTS 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. THE NOTES AND THE LOAN HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE COMMISSION ), ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ( RSA 421-B ) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO UNITED KINGDOM INVESTORS This Prospectus is only being distributed to and is only directed at (i) persons who are outside the United Kingdom, (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order ), (iii) high net worth entities and (iv) other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all ii
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. iii
ADDITIONAL INFORMATION MTS has agreed that, for so long as any Notes remain outstanding, it will (i) file with the Commission or otherwise make public and deliver to the Issuer, within 180 days of the end of each fiscal year, an annual report on Form 20-F (or any successor form) containing the information required to be contained therein (or in such successor form), regardless of whether MTS is then required to file a Form 20-F under the rules promulgated by the Commission; (ii) make public and deliver to the Issuer, within 120 days of the end of each fiscal year, reports for the fourth quarter of such fiscal year containing its consolidated balance sheet, statement of operations and cash flow statement prepared in accordance with generally accepted accounting principles in the United States ( U.S. GAAP ) (but excluding footnotes) and a discussion by its management highlighting critical financial developments during the fourth quarter; and (iii) submit to the Commission or otherwise make public and furnish to the Issuer, within 90 days of the end of the first three fiscal quarters of each fiscal year, quarterly reports on Form 6-K (or any successor form) containing its consolidated balance sheet, statement of operations and cash flow statement prepared in accordance with U.S. GAAP (but excluding footnotes) and a discussion by its management highlighting critical financial developments during the period. In addition, each of the Issuer and the Borrower has agreed that, during any period in which it is not subject to and in compliance with Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934 (the Exchange Act ) or is not exempt from such reporting requirements pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act, it will provide to each holder of the Notes, each a Holder, (or holder of a beneficial interest therein) and to each prospective purchaser of the Notes (as designated by such Holder or holder of a beneficial interest), upon the request of such Holder, prospective purchaser or holder of a beneficial interest in the Notes, any information required to be provided by Rule 144A(d)(4) under the Securities Act. MTS has been filing reports with the Commission pursuant to the periodic reporting and other information requirements of the Exchange Act. Investors may read and copy any of these reports, statements or other documents at the Commission s public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, United States of America. Investors may also review MTS filings with the Commission by accessing the EDGAR system through the Commission s website at http://www.sec.gov. Copies of such reports will also available at the offices of the Trustee and the Principal Paying Agent during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted). See General Information. iv
PRESENTATION OF FINANCIAL AND OTHER INFORMATION Financial Information The financial information set forth herein has, unless otherwise indicated, been derived from our audited consolidated financial statements as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010, prepared in accordance with U.S. GAAP and included elsewhere in this Prospectus (together with the notes thereto, the Audited Consolidated Financial Statements ). Our Audited Consolidated Financial Statements, set forth on pages F-2 through F-62 of this Prospectus, are prepared in accordance with U.S. GAAP. The U.S. dollar is the reporting currency for the Audited Consolidated Financial Statements. Independent Registered Public Accounting Firm The Audited Consolidated Financial Statements have been audited by ZAO Deloitte & Touche CIS ( Deloitte & Touche CIS ), an independent registered public accounting firm, as stated in their report appearing herein,. The address of Deloitte & Touche CIS is 5 Lesnaya Street, Moscow, 125047, Russian Federation. Deloitte & Touche CIS is a member of the Audit Chamber of Russia. Non-GAAP Financial Measures This Prospectus contains financial measures referred to as non-gaap, including OIBDA (as defined below), Adjusted OIBDA and free cash flow. The non-gaap financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with U.S. GAAP. Operating Income Before Depreciation and Amortization ( OIBDA ) represents operating income before depreciation and amortization. Adjusted OIBDA represents OIBDA adjusted for the impairment and provision for claims in Uzbekistan. OIBDA and Adjusted OIBDA may not be similar to OIBDA measures of other companies, are not measurements under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our Audited Consolidated Financial Statements. We believe that OIBDA and Adjusted OIBDA provide useful information to investors because they are indicators of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions of mobile operators and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. The impairment and provision for claims in Uzbekistan are also operating costs under generally accepted accounting principles and represent material and unusual changes which were incurred in respect of our operations in Uzbekistan in the current year. Our OIBDA and Adjusted OIBDA calculations are commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the wireless telecommunications industry. Reconciliation of OIBDA and Adjusted OIBDA to operating income is as follows for the periods indicated: Year Ended Year Ended December 31, December 31, (in millions of U.S. dollars) 2011 2012 Net operating income... 2,808.9 1,996.1 Add: Depreciation and amortization expense... 2,335.9 2,274.9 OIBDA... 5,144.1 4,271.0 ADD: Impairment of long-lived assets attributable to Uzbekistan... 510.8 Add: Provision for claims in Uzbekistan... 418.3 Adjusted OIBDA... 5,144.1 5,300.1 Free cash flow represents net cash from operating activities less cash used for certain investing activities. Free cash flow is commonly used by investors, analysts and credit rating agencies to assess and evaluate our performance over time and within the wireless telecommunications industry. Because free cash flow is not based in U.S. GAAP and excludes certain sources and uses of cash, the calculation should not be looked upon as an alternative to our Audited Consolidated Financial Statements. See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Consolidated Cash Flow Summary. v
Market Data Market data used in this Prospectus, including statistics in respect of MTS and its competitors market shares, subscriber volumes and coverage areas, have been extracted from the relevant operator s data, from AC&M-Consulting and Direct INFO, which are independent sources, and from other sources we believe to be reliable including, without limitation, in the section headed Business. Such information, data and statistics may be approximations or estimates or use rounded numbers. Each of the Issuer and MTS has relied on the accuracy of this information without independent verification and only accepts responsibility for accurately reproducing such information. So far as the Issuer and MTS are able to ascertain from this publicly available information, no facts have been omitted which would render the reproduced information misleading or inaccurate. In addition, some of the information contained in this Prospectus has been derived from the official data of Russian government agencies. The official data published by Russian federal, regional and local governments is substantially less complete or researched than those of Western countries. Official statistics may also be produced on different bases than those used in Western countries. Any discussion of matters relating to Russia in this Prospectus is, therefore, subject to uncertainty due to concerns about the completeness or reliability of available official and public information. The veracity of some official data released by the Russian government may be questionable. The Issuer and MTS only accept responsibility for accurately reproducing such information. So far as the Issuer and MTS are able to ascertain from this publicly available information, no facts have been omitted which would render the reproduced information misleading or inaccurate. vi
CURRENCIES AND EXCHANGE RATES In this Prospectus, references to (i) U.S. dollars, dollars, $, U.S.$ or USD are to the lawful currency of the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia (the United States or U.S. ); (ii) rubles, RUB or RUR are to the lawful currency of the Russian Federation; (iii) hryvnias are to the lawful currency of Ukraine; (iv) soms are to the lawful currency of Uzbekistan; (v) manats are to the lawful currency of Turkmenistan; (vi) drams are to the lawful currency of Armenia; and (vii) A, euro or EUR are to the lawful currency of the member states of the European Union that adopted a single currency in accordance with the Treaty of Rome establishing the European Economic Community, as amended by the Treaty on the European Union, signed at Maastricht on February 7, 1992. The following tables show, for the periods indicated, certain information regarding the exchange rate between the ruble and the U.S. dollar, based on the official exchange rate quoted by the Central Bank of Russia (the CBR ). These rates differ from the actual rates used in the preparation of the Audited Consolidated Financial Statements and other financial information appearing in this Prospectus. Rubles per U.S. dollar Years ended December 31, High Low Average (1) Period End 2008... 29.38 23.13 24.86 29.38 2009... 36.43 28.67 31.72 30.24 2010... 31.78 28.93 30.37 30.48 2011... 32.68 27.26 29.38 32.20 2012... 34.04 28.95 30.97 30.37 (1) The average of the exchange rates on the last business day of each full month during the relevant period. Rubles per U.S. dollar High Low July 2012... 32.99 31.95 August 2012... 32.54 31.48 September 2012... 32.57 30.59 October 2012... 31.53 30.72 November 2012... 31.73 30.94 December 2012... 30.99 30.37 January 2013... 30.42 30.03 February 2013... 30,62 29,93 March 2013... 31.08 30.51 April 2013... 31.72 30.88 Source: CBR. The exchange rate between the ruble and the U.S. dollar quoted by the CBR for May 24, 2013 was 31.47 rubles per U.S. dollar. No representation is made that the U.S. dollar amounts referred to in this Prospectus could have been or could be converted into rubles or U.S. dollars, as the case may be, at the above exchange rates or at all. vii
CERTAIN DEFINITIONS Unless the context otherwise requires, in this Prospectus, references to (i) MTS or the Borrower are to Mobile TeleSystems OJSC; (ii) we, us, our, ourselves, Group or our company are to Mobile TeleSystems OJSC and its subsidiaries; (iii) MTS Ukraine or UMC are to MTS Ukraine Private Joint Stock Company (formerly CJSC Ukrainian Mobile Communications), our Ukrainian subsidiary; (iv) Uzdunrobita FE LLC ( Uzdunrobita ) to our Uzbekistan subsidiary; (v) MTS-Turkmenistan and BCTI are to Barash Communication Technologies, Inc., our Turkmenistan subsidiary; (vi) Comstar or Comstar UTS are to COMSTAR United TeleSystems, our Moscow public switched telephone network fixed line subsidiary; and (vii) MGTS are to Moscow City Telephone Network, our Moscow PSDN fixed line subsidiary, and (vii) K-Telecom or VivaCell-MTS are to K-Telecom CJSC, our Armenian subsidiary; and (viii) Sistema is to Joint-Stock Financial Corporation Sistema, our majority shareholder. We refer to Mobile TeleSystems LLC, our 49% owned equity investee in Belarus, as MTS Belarus. As MTS Belarus is an equity investee, our revenues and subscriber data do not include MTS Belarus. viii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Matters discussed in this Prospectus may constitute forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 (the U.S. Securities Act ), and Section 21E of the U.S. Securities Exchange Act of 1934 (the U.S. Exchange Act ). The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their businesses. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. MTS desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation and other relevant law. This Prospectus and any other written or oral statements made by us or on our behalf may include forward-looking statements. We have based these forward- looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The words believe, expect, anticipate, intend, estimate, forecast, project, predict, plan, may, should, could and similar expressions identify forward-looking statements. Forward-looking statements appear in a number of places including, without limitation, Risk Factors, Business, Overview, and Management s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk and include statements regarding: our strategies, future plans, economic outlook, industry trends and potential for future growth; our liquidity, capital resources and capital expenditures; our payment of dividends; our capital structure, including our indebtedness amounts; our ability to generate sufficient cash flow to meet our debt service obligations; our ability to achieve the anticipated levels of profitability; our ability to timely develop and introduce new products and services; our ability to obtain and maintain interconnect agreements; our ability to secure the necessary spectrum and network infrastructure equipment; our ability to meet license requirements and to obtain and maintain licenses and regulatory approvals; our ability to maintain adequate customer care and to manage our churn rate; and our ability to manage our rapid growth and train additional personnel. The forward-looking statements in this Prospectus are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. In addition to these important factors and matters discussed elsewhere herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward- looking statements include: growth in demand for our services; changes in consumer preferences or demand for our products; availability of external financing on commercially acceptable terms; the developments of our markets; the highly competitive nature of our industry and changes to our business resulting from increased competition; the impact of regulatory initiatives; the rapid technological changes in our industry; ix
cost and synergy of our recent acquisitions; the acceptance of new products and services by customers; the condition of the economies of Russia, Ukraine and certain other countries of the CIS; risks relating to legislation, regulation and taxation in Russia and certain other CIS countries, including laws, regulations, decrees and decisions governing each of the telecommunications industries in the countries where we operate, currency and exchange controls relating to entities in Russia and other countries where we operate and taxation legislation relating to entities in Russia and other countries where we operate, and their official interpretation by governmental and other regulatory bodies and by the courts of Russia and the CIS; political stability in Russia, Ukraine and certain other CIS countries; and the impact of general business and global economic conditions and other important factors described herein and from time to time in the reports filed by us with the Commission. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Readers are cautioned not to place undue reliance on these forwardlooking statements. Except to the extent required by law, neither we, nor any of our respective agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained or incorporated by reference in this Prospectus. x
ENFORCEABILITY OF JUDGMENTS We are an open joint stock company incorporated under the laws of the Russian Federation. Substantially all of our directors and executive officers named in this Prospectus reside in the Russian Federation. Moreover, the majority of our assets and substantially all of the assets of our 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 or the United States upon any of our directors or executive officers named in this Prospectus; or enforce, in the English or U.S. courts, judgments obtained outside English or U.S. courts against us or any of our 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 and the United States, liabilities predicated upon English laws or U.S. federal securities laws. Courts in the Russian Federation will generally recognize 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. 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 the United States), 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 us or our 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 recognize 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. The Loan Agreement will be governed by English law and will provide for disputes, controversies and causes of action brought by any party thereto against us 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 recognize 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 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 and the winding up or liquidation of Russian companies. xi
TABLE OF CONTENTS PRESENTATION OF FINANCIAL AND OTHER INFORMATION... v ENFORCEABILITY OF JUDGMENTS... xi OVERVIEW... 1 RISK FACTORS... 16 USE OF PROCEEDS... 68 CAPITALIZATION AND INDEBTEDNESS... 69 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 70 BUSINESS... 108 REGULATION OF TELECOMMUNICATIONS IN THE RUSSIAN FEDERATION AND UKRAINE... 154 MANAGEMENT... 179 PRINCIPAL SHAREHOLDERS... 186 CERTAIN TRANSACTIONS WITH RELATED PARTIES... 187 THE ISSUER... 189 THE LOAN AGREEMENT... 191 TERMS AND CONDITIONS OF THE NOTES... 216 SUMMARY OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM... 228 SUBSCRIPTION AND SALE... 235 TRANSFER RESTRICTIONS... 237 CERTAIN ERISA CONSIDERATIONS... 242 TAXATION... 244 GENERAL INFORMATION... 254 INDEX TO FINANCIAL INFORMATION... F-1
OVERVIEW The following summary should be read in conjunction with, and is qualified in its entirety by reference to, the more detailed information and the Audited Consolidated Financial Statements which are set out elsewhere in this Prospectus. See Risk Factors for a discussion of certain factors that should be considered by potential investors prior to an investment in the Notes. We are a leading telecommunications provider in Russia and the CIS, providing a wide range of mobile and fixed line voice and data telecommunications services, including transmission, broadband, pay-tv and various value-added services, as well as selling equipment and accessories. According to AC&M-Consulting, we are the largest provider of mobile cellular communications services in Russia and Armenia and the second largest in Ukraine in terms of mobile subscribers. As of December 31, 2012, we had a mobile subscriber base of approximately 95.8 million (approximately 71.2 million in Russia, 20.7 million in Ukraine, 2.4 million in Armenia, and 1.5 million in Turkmenistan), which is a decrease of 5.29% compared to December 31, 2011. This decrease is attributable to the suspension of our services in Uzbekistan as a result of the State Agency for Communications and Information of Uzbekistan suspending our operating licenses, which accounted for 9.3 million subscribers as of December 31, 2011. This was partially offset by a 2.7% increase in our subscriber base in Russia, Ukraine and Armenia compared to December 31, 2011. We are also the largest operator in the Moscow residential broadband market in terms of subscribers, with a 28.5% market share as of December 31, 2012, according to Direct INFO. Our revenues for the year ended December 31, 2012 were $12,436 million, an increase of 0.9% from the year ended December 31, 2011. Our net income for the year ended December 31, 2012 was $1,038 million, a decrease of 34% from the year ended December 31, 2011. Our OIBDA for the year ended December 31, 2012 was $4,271 million, a decrease of 17% from the year ended December 31, 2011. Adjusted OIBDA for the year ended December 31, 2012 was $5,300 million, an increase of 3% from the year ended December 31, 2011. Russia is our principal market, both in terms of subscribers and revenues. For the years ended December 31, 2012, 2011 and 2010, approximately 87%, 86%, and 83% of our revenues came from operations in Russia; approximately 9%, 9%, and 9% of our revenues came from operations in Ukraine; and approximately 4%, 5%, and 8% of our revenues came from operations in other countries, respectively. As of December 31, 2012, approximately 75% of our mobile subscriber base was in Russia and approximately 21% was in Ukraine. According to AC&M-Consulting, as of December 31, 2012, we had a 30.90% and 35.56% market share of total mobile subscribers in Russia and Ukraine, respectively. The table below sets forth our total mobile subscribers as of the end of the last five years: Period Subscribers (1) (in million) 2008... 91.3 2009... 97.8 2010... 103.3 2011... 101.1 (2) 2012... 95.8 (3) (1) Excludes MTS Belarus subscribers as its results of operations are not consolidated in our financial statements. We define a subscriber as an individual or organization whose account shows chargeable activity within 61 days (or 183 days in the case of our prepaid tariffs) or whose account does not have a negative balance for more than this period. (2) Excludes Turkmenistan subscribers. (3) Excludes Uzbekistan subscribers. According to AC&M-Consulting, overall mobile cellular penetration in Russia was approximately 161.3% as of December 31, 2012, which is an increase from 156.8% at December 31, 2011. According to AC&M-Consulting, mobile cellular penetration in Ukraine was approximately 126.1% as of December 31, 2012, which is an increase from 117.6% as of December 31, 2011. According to our estimates, mobile cellular penetration in Armenia was approximately 118% as of December 31, 2012, as compared to approximately 116.4% as of December 31, 2011. Mobile penetration in Turkmenistan was approximately 85.9% as of December 31, 2012, according to our estimates. 1