Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ™.Not for distribution to the public. Copyright © 2015 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.
Effects Of Russian Sanctions AndOutlook For Russian Companies
Kevin StrangeDirector, Enterprise Solutions, S&P Capital IQ
Rick Kanungo, CFA, FRMSenior Director, Enterprise Solutions, S&P Capital IQ
Alexander GriaznovDirector, Corporate Ratings, Standard & Poor’s Ratings Services
March 25, 2015
Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ™.Not for distribution to the public. Copyright © 2015 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.
Effects Of Russian Sanctions AndOutlook For Russian Companies
Kevin StrangeDirector, Enterprise Solutions, S&P Capital IQ
Rick Kanungo, CFA, FRMSenior Director, Enterprise Solutions, S&P Capital IQ
Alexander GriaznovDirector, Corporate Ratings, Standard & Poor’s Ratings Services
March 25, 2015
3 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Today’s Speakers
S&P Capital IQ is analytically and editorially independent from Standard & Poor’s Ratings Services.
Alexander GriaznovDirector, Corporate Ratings
Standard & Poor’s Ratings Services
Rick Kanungo, CFA, FRMSenior Director, Enterprise Solutions
S&P Capital IQ
Kevin StrangeDirector, Enterprise Solutions
S&P Capital IQ
Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ™.Not for distribution to the public. Copyright © 2015 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.
Overview Of Sanctions And Equity Market Fund Flows
Kevin StrangeDirector, Enterprise Solutions, S&P Capital IQ
March 25, 2015
5 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Topics Of Discussion
• Overview of sanctions
– Organizations involved
– Implications
Commercial restrictions
Financing restrictions
– Subsidiaries of sanctioned entities
• Equity market fund flows
– Net fund flow observations from Q3 2014
Sectors:
– Financial (VTBR, SBER)
– Energy (Gazprom Neft, Novatek, Rosneft)
Exchanges:
– London Stock Exchange
– Moscow Stock Exchange
6 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Organizations Involved In Russia-Related Sanctions
• United States (U.S.)– Imposed by: Executive Order issued by The President of the United States, empowered by
Congressional Acts
– Administered by: The U.S. Treasury Department’s Office of Foreign Assets Control
• European Union (EU)– Imposed by: The Council of the EU
– Administered by: The Member States
• Additional countries with Russia-related sanctions organizations– Australia, Canada, Japan, Norway, Switzerland
Source: U.S. Department Of The Treasury Resource Center online, and European Union Newsroom online – as of March 24, 2015.
7 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
What The Sanctions Mean For Russian Companies
Source: U.S. Department Of The Treasury Resource Center online, and European Union Newsroom online – as of March 24, 2015.
U.S. and EU Sanctions
Businesses Individuals
Restrictions on Commercial
Activities
Restrictions on FinancingActivities
Blocking of Property
8 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
What The Sanctions Mean For Russian Companies
• Energy industry constraints
– The provision of goods, services or technology in support of:
Deepwater oil exploration or production
Arctic offshore oil exploration or production
Shale oil projects
– The provision of financial services is permitted
• Defense industry constraints
– The provision of technology or financial services in support of:
The sale, supply, transfer or export of military and dual use goods
– The provision of financial services is permitted (for non-military use)
Restrictions On Commercial Activities:
Source: U.S. Department Of The Treasury Resource Center online, and European Union Newsroom online – as of March 24, 2015.
9 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Target Companies – Restrictions On Commercial Activities
Commercial restrictions apply to energy companies and defense companies:
Energy Defense
U.S.
• Gazprom• Gazprom Neft• Lukoil• Rosneft• Surgutneftegas
EU
• Almaz Antey• Chemcomposite• Kalashnikov• NPO Bazalt• Sirius• Stankoinstrument• Technologii Maschinostrojenija• Tula Arms Plant• Wysokototschnye Kompleski
Source: U.S. Department Of The Treasury Resource Center online, and European Union Newsroom online – as of March 24, 2015.
10 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
What The Sanctions Mean For Russian Companies
• U.S.
– Banks: No new equity or debt longer than 30 days maturity
– Energy companies: No new debt longer than 90 days maturity
– Defense companies: No new debt longer than 30 days maturity
• EU
– No new bonds, equity or similar financial instruments with a maturity exceeding 30 days
– Transferable securities and money-market instruments with a maturity exceeding 30 days
– Services related to the issuing of such financial instruments, e.g., brokering, are also prohibited
Restrictions On Financing: Debt And Equity Implications
Source: U.S. Department Of The Treasury Resource Center online, and European Union Newsroom online – as of March 24, 2015.
11 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Target Companies - Restrictions On Financing Activities Restrictions On Financing Apply To Energy Companies, Financial Institutions And Defense Companies.
Energy Financial Defense
U.S.
• Novatek (U.S. only)• Gazprom Neft• Rosneft• Transneft
• Bank of Moscow (U.S. only)• Gazprombank• Russian Agricultural Bank• Sberbank• Vnesheconombank• VTB Bank
• Rostec (U.S. only)
EU
• Gazprom Neft• Rosneft• Transneft
• Gazprombank• Russian Agricultural Bank• Sberbank• Vnesheconombank• VTB Bank
• OPK Oboronprom (EU only)• United Aircraft Corporation (EU only)• Uralvagonzavod (EU only)
Source: U.S. Department Of The Treasury Resource Center online, and European Union Newsroom online – as of March 24, 2015.
12 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Subsidiaries Of Sanctioned Entities
Sanctioned Entity # Of Majority Owned Subsidiaries # Of Instruments Issued
Rosneft 409 392
Gazprom Neft 238 64
Sberbank 213 248
Gazprombank 202 237
VTB Bank 159 5,918
Bank of Moscow 138 53
Russian Technologies State Corp. 122 93
Transneft 120 50
Vnesheconombank 107 155
Novatek 60 27
OPK Oboronprom 59 65
United Aircraft Corporation 36 50
Russian Agricultural Bank 33 1,866
Uralvagonzavod 19 11
Grand Total 1,915 9,229
Dealing With These Entities Or Their Majority-owned Subsidiaries May Result In A Breach Of Sanctions:
Source: S&P Capital IQ – as of January 5, 2015.
13 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Q3 2014Financials Energy
LSE
VTB Bank Sberbank Rosneft Gazprom Neft Novatek
+75,942,542$152.6M
+16,719,298$74.4M
+118,248$0.5M
(258,771)-$3.4M
(141,420)-$10.9M
MICEX
VTB Bank Sberbank Rosneft Gazprom Neft Novatek
(2,009,329,653)-$2.0M
+18,344,268$20.2M
+3,565,247$14.4M
(869,409)-$2.4M
(1,672,758)-$12.7
Fund Flows: Observations
Effect On Equity: Net Change In Shares Held By Public / Private Owners
• Financials Sector
– VTB Bank had a net positive equity inflow on the LSE, however net negative on the MICEX
– Sberbank had net positive equity inflows on the LSE and MICEX
• Energy Sector
– Only Rosneft was net positive on both exchanges, the other two oil companies were net negative
Source: S&P Capital IQ – as of March 24, 2015.
14 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
VTB Bank
Significant Changes In Shares Held By Public / Private Owners:
LSE: VTBR
Highest Number Of Shares Added
Q3 2014 # of Shares % Change
Lansforsakringar Fondforvaltning AB 100,017,405 NEWVan Eck Associates Corporation 11,302,131 44%
Raiffeisen Kapitalanlage-Gesellschaft m.b.H. 2,086,200 NEW
The Vanguard Group, Inc. 1,549,802 6%
Pictet Asset Management Limited 345,198 19%
Highest Number Of Shares Sold
MICEX: VTBR
Q3 2014 # of Shares % Change
Sberbank Asset Management 4,682,404,198 911%Deka International S.A. 2,000,000,000 133%
The Vanguard Group, Inc. 1,264,840,000 1%
Compagnie Trésorerie Benjamin Rothschild 528,020,000 NEW
Nomura Asset Management Co., Ltd. 414,690,000 NEW
Q3 2014 # of Shares % Change
Grantham, Mayo, Van Otterloo & Co. LLC (16,020,804) CLOSEDLazard Asset Management LLC (5,803,697) -99%
Dimensional Fund Advisors LP (4,219,325) -25%
HSBC Global Asset Management (UK) Ltd. (2,614,015) -74%
BlackRock, Inc. (NYSE:BLK) (2,565,134) -24%
Q3 2014 # of Shares % Change
BlackRock, Inc. (NYSE:BLK) (4,590,884,995) -5%HSBC Global Asset Management (UK) Ltd. (4,197,019,643) -62%
Lazard Asset Management LLC (2,200,502,714) CLOSED
Bank of Moscow, Asset Management Arm (625,542,998) CLOSED
UBS Global Asset Management (432,391,308) -8%
• Lansforsakringer Fondforvaltning AB opened a $201M position in VTB Bank on the LSE
– Holder of shares is an open-end / mutual fund: Länsförsäkringar Tillväxtmarknad Index
• BlackRock, Inc., HSBC Global Asset Management (UK) Ltd., and Lazard Asset Management LLC were among the largest volume sellers on both exchanges
Source: S&P Capital IQ – as of March 24, 2015.
15 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Sberbank
Significant Changes In Shares Held By Public / Private Owners:
LSE: SBER
Highest Number Of Shares Added
Q3 2014 # of Shares % Change
Capital Research and Management Company 12,225,000 20%Formuepleje A/S, Fondsmæglerselskab 9,774,125 564%
Grantham, Mayo, Van Otterloo & Co. LLC 6,085,190 50%
Van Eck Associates Corporation 5,731,480 52%
PPM America, Inc 4,876,631 77%
Highest Number Of Shares Sold
MICEX: SBER
Q3 2014 # of Shares % Change
Invesco Ltd. (NYSE:IVZ) 37,218,144 NEWLazard Asset Management LLC 32,862,425 13%
Fidelity Investments 13,407,722 35%
Baring Asset Management Limited 7,376,158 22%
BNP Paribas Investment Partners 7,040,655 30%
Q3 2014 # of Shares % Change
AllianceBernstein L.P. (5,298,847) -77%Lyxor International Asset Management S.A. (5,198,188) CLOSED
Baillie Gifford & Co. (5,128,903) -37%
BNP Paribas Investment Partners (4,896,206) -73%
Deutsche Wealth & Asset Management (4,435,000) -33%
Q3 2014 # of Shares % Change
Invesco Advisers, Inc. (37,218,144) CLOSEDHSBC Global Asset Management (UK) Ltd. (14,232,802) -39%
Principal Global Investors, LLC (4,571,114) CLOSED
Goldman Sachs Asset Management, L.P. (4,069,730) -34%
UBS Global Asset Management (3,782,679) -8%
• Net positive fund flow on both exchanges driven primarily by existing investors
• Van Eck closed out a relatively small position of 670k shares on the MICEX and increased holdings by over 50% on the LSE
Source: S&P Capital IQ – as of March 24, 2015.
16 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Rosneft
Significant Changes In Shares Held by Public / Private Owners:
LSE: ROSN
Highest Number of Shares Added
Q3 2014 # of Shares % Change
The Vanguard Group, Inc. 6,479,150 19%Van Eck Associates Corporation 4,624,186 44%
Invesco PowerShares Capital Mgmt LLC 3,437,341 84%
Capital Research and Management Company 2,331,400 NEW
Lyxor International Asset Management S.A. 2,214,672 NEW
Highest Number of Shares Sold
MICEX: ROSN
Q3 2014 # of Shares % Change
Sberbank Asset Management 1,425,569 156%Wellington Management Company LLP 1,192,482 NEW
BlackRock, Inc. (NYSE:BLK) 1,005,680 5%
Renaissance Investment Management (UK) Ltd 930,000 NEW
Baring Asset Management Limited 849,661 NEW
Q3 2014 # of Shares % Change
BlackRock, Inc. (NYSE:BLK) (3,197,716) -48%JPMorgan Asset Management Holdings Inc. (2,812,290) -74%
AllianceBernstein L.P. (1,735,655) CLOSED
HSBC Global Asset Management (UK) Ltd. (1,664,695) -32%
F&C Asset Management plc (1,407,000) -98%
Q3 2014 # of Shares % Change
Dimensional Fund Advisors LP (3,498,683) CLOSEDKalanda, Larisa Vyacheslavovna (VP) (482,218) -18%
Deka International S.A. (437,000) -77%
Handelsbanken Asset Management (318,000) -39%
Northern Trust Global Investments (173,767) -54%
• BlackRock, Inc. reduced holdings by -48% on the LSE, added 1M shares on the MICEX
• Dimensional Fund Advisors LP closed out of a large position on the MICEX
Source: S&P Capital IQ – as of March 24, 2015.
17 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Gazprom Neft
Significant Changes In Shares Held by Public / Private Owners:
LSE: GAZ
Highest Number of Shares Added
Q3 2014 # of Shares % Change
Danske Capital AS 117,539 54%Grantham, Mayo, Van Otterloo & Co. LLC 48,324 5%
BlackRock, Inc. (NYSE:BLK) 45,884 28%
Henderson Global Investors Limited 36,700 32%
Acadian Asset Management, Inc. 22,515 NEW
Highest Number of Shares Sold
MICEX: SIBN
Q3 2014 # of Shares % Change
Nomura Asset Management Co., Ltd. 109,900 220%Alpinex Asset Management 99,416 NEW
BNP Paribas Investment Partners 51,792 20%
Cambria Investment Management, L.P. 41,860 33%
Arsagera Asset Management (MICEX:ARSA) 29,119 54%
Q3 2014 # of Shares % Change
HSBC Global Asset Management (UK) Ltd. (227,276) -75%BNP Paribas Investment Partners (195,794) -6%
URALSIB Asset Management (45,913) -38%
Deutsche Wealth & Asset Management (37,737) -24%
State Street Global Advisors, Inc. (31,113) -28%
Q3 2014 # of Shares % Change
Open Joint Stock Company Gazprom (286,695) 0%Bank of Moscow, Asset Management Arm (206,328) CLOSED
Sberbank Asset Management (177,107) -72%
Deutsche Wealth & Asset Management (175,471) -25%
Grantham, Mayo, Van Otterloo & Co. LLC (174,261) -12%
• Danske Capital AS and Nomura Asset Management Co., Ltd. were the top purchasers of shares on each exchange respectively
• Three Russian firms were at the top of the list of sellers on the MICEX
Source: S&P Capital IQ – as of March 24, 2015.
18 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Novatek
Significant Changes In Shares Held by Public / Private Owners:
LSE: NVTK
Highest Number of Shares Added
Q3 2014 # of Shares % Change
BlackRock, Inc. (NYSE:BLK) 725,059 36%Van Eck Associates Corporation 331,578 45%
Lyxor International Asset Management S.A. 53,227 36%
Swedbank Robur Fonder AB 51,000 18%
The Vanguard Group, Inc. 45,416 3%
Highest Number of Shares Sold
MICEX: NVTK
Q3 2014 # of Shares % Change
The Vanguard Group, Inc. 722,160 6%Baring Asset Management Limited 577,578 NEW
Sberbank Asset Management 215,181 NEW
Deutsche Wealth & Asset Management 137,336 NEW
Alfa Capital LLC 111,919 43%
Q3 2014 # of Shares % Change
JPMorgan Asset Management Holdings Inc. (371,497) -51%T. Rowe Price Group, Inc. (255,348) -85%
AllianceBernstein L.P. (206,044) -60%
BNP Paribas Investment Partners (190,912) -31%
Lazard Asset Management LLC (141,242) -26%
Q3 2014 # of Shares % Change
BlackRock, Inc. (NYSE:BLK) (2,635,985) -69%Raiffeisen Kapitalanlage-Gesellschaft m.b.H. (229,900) -14%
Charles Schwab Investment Management, Inc. (189,300) -65%
URALSIB Asset Management (152,646) -42%
Swedbank Robur Fonder AB (120,000) -33%
• BlackRock, Inc. was the top buyer on the LSE, and the top seller on the MICEX
• The top buyers on the MICEX were characterized by three new investors
Source: S&P Capital IQ – as of March 24, 2015.
19 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Take Aways
• U.S. and EU sanctions were issued for individuals beginning in March ’14, and companies beginning in July ’14. They are still in effect.
• Sanctions apply to entities, subsidiaries and securities
• Net equity fund flows in Q3, 2014 for 5 companies under sanction:
LSE MICEX
VTB Bank
Sberbank
Rosneft
Gazprom Neft
Novatek
Source: S&P Capital IQ – as of March 24, 2015.
Summary
Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ™.Not for distribution to the public. Copyright © 2015 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.
Analyst Recommendations And Target Price
Rick Kanungo, CFA, FRMSenior Director, Enterprise Solutions, S&P Capital IQ
March 25, 2015
Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ™.Not for distribution to the public. Copyright © 2015 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.
Analyst Recommendations And Target Price
Rick Kanungo, CFA, FRMSenior Director, Enterprise Solutions, S&P Capital IQ
March 25, 2015
22 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Topics Of Discussion
• Equity markets– Events/ periods:
Q3 2014 – sanctions period
Q4 2014 – oil price and currency impact
– Analyst metrics: Examine broker recommendations (buy/ hold/ sell)
Target price
– Exchanges: London Stock Exchange
Moscow Stock Exchange
– Sectors: Financial (VTB Bank, Sberbank)
Energy (Gazprom Neft, Novatek, Rosneft)
• Credit markets – Standard & Poor’s Ratings Services
– Credit default swaps
23 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Analyst Recommendations And Target Price
ExchangesAnalyst Metrics
Events
Share price change after
sanctions in Q3 2014
Decline in currency and oil
prices in Q4 2014
London Stock Exchange (LSE)
Average broker recommendations
Target price
Moscow Stock Exchange (MICEX)
Average broker recommendations
Target price
1a
1a
2a
2a
1b
1b
2b
2b
Scope And Symbols
Stock price movement in opposite direction to analyst call
Stock price movement in same direction as analyst call
No change in analyst call
*Average broker recommendations, target price and analyst call refer to consensus median values
24 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Stock Performance: VTB Bank vs. Sberbank
• Financials sector marginally underperforms the Russian market index
• VTBR outperforms SBER and the Financials benchmark on both exchanges
3/17
/14
3/31
/14
4/14
/14
4/28
/14
5/12
/14
5/26
/14
6/9/
14
6/23
/14
7/7/
14
7/21
/14
8/4/
14
8/18
/14
9/1/
14
9/15
/14
9/29
/14
10/1
3/14
10/2
7/14
11/1
0/14
11/2
4/14
12/8
/14
12/2
2/14
1/5/
15
1/19
/15
2/2/
15
2/16
/15
3/2/
15-100%
-50%
0%
50%
100%
150%
S&P Russian Federation BMI Financials (Sector) - Index ValueJSC VTB Bank (MICEX:VTBR) - Share PricingSberbank of Russia OJSC (MICEX:SBER) - Share Pricing
Moscow Stock Exchange
03/1
7/14
03/3
1/14
04/1
4/14
04/2
8/14
05/1
2/14
05/2
6/14
06/0
9/14
06/2
3/14
07/0
7/14
07/2
1/14
08/0
4/14
08/1
8/14
09/0
1/14
09/1
5/14
09/2
9/14
10/1
3/14
10/2
7/14
11/1
0/14
11/2
4/14
12/0
8/14
12/2
2/14
01/0
5/15
01/1
9/15
02/0
2/15
02/1
6/15
03/0
2/15
-100%-80%-60%-40%-20%
0%20%40%60%80%
100%
S&P Russian Federation BMI Financials (Sector) - Index Value
Sberbank of Russia OJSC (LSE:SBER) - Share Pricing
JSC VTB Bank (LSE:VTBR) - Share Pricing
London Stock Exchange
Source: S&P Capital IQ, as of March 2015. Past performance is not indicative of future results. For illustrative purposes only. S&P Russian Federation BMI Financials > Constituents. Results of S&P Dow Jones Indices Consultation on Russian securities in its indices
% c
hang
e in
sto
ck p
rice
% c
hang
e in
sto
ck p
rice
25 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Analyst Recommendations And Target Price: VTB Bank
3/7/
14
3/21
/14
4/4/
14
4/22
/14
5/6/
14
5/20
/14
6/4/
14
6/18
/14
7/2/
14
7/16
/14
7/30
/14
8/13
/14
8/28
/14
9/11
/14
9/25
/14
10/9
/14
10/2
3/14
11/6
/14
11/2
0/14
12/4
/14
12/1
8/14
1/6/
15
1/20
/15
2/3/
15
2/17
/15
3/3/
15
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
0
1
2
3
4
5
JSC VTB Bank (LSE:VTBR) - Share PricingJSC VTB Bank (LSE:VTBR) - Daily Target Price (CIQ)JSC VTB Bank (LSE:VTBR) - Daily Avg Broker Recommendation (#) (CIQ)
3/7/
14
3/24
/14
4/7/
14
4/21
/14
5/7/
14
5/22
/14
6/5/
14
6/23
/14
7/7/
14
7/21
/14
8/4/
14
8/18
/14
9/1/
14
9/15
/14
9/29
/14
10/1
3/14
10/2
7/14
11/1
1/14
11/2
5/14
12/9
/14
12/2
3/14
1/13
/15
1/27
/15
2/10
/15
2/25
/15
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
0
1
2
3
4
5
JSC VTB Bank (MICEX:VTBR) - Share Pricing
JSC VTB Bank (MICEX:VTBR) - Daily Target Price (CIQ)
Source: S&P Capital IQ as of March 2015.
1a
1a
2a
2a1a
1a
2a
2a
1b
1b2b
2b
1b
1b
2b
2b
% c
hang
e in
sto
ck/ta
rget
pric
e%
cha
nge
in s
tock
/targ
et p
rice
Sell
Buy
Sell
Buy
26 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Analyst Recommendations And Target Price: Sberbank
3/7/
14
3/24
/14
4/8/
14
4/25
/14
5/12
/14
5/28
/14
6/12
/14
6/27
/14
7/14
/14
7/29
/14
8/13
/14
8/29
/14
9/15
/14
9/30
/14
10/1
5/14
10/3
0/14
11/1
4/14
12/1
/14
12/1
6/14
1/5/
15
1/20
/15
2/4/
15
2/19
/15
3/6/
15
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
0
1
2
3
4
5
Sberbank of Russia OJSC (LSE:SBER) - Share PricingSberbank of Russia OJSC (LSE:SBER) - Daily Target Price (CIQ)Sberbank of Russia OJSC (LSE:SBER) - Daily Avg Broker Recommendation (#) (CIQ)
3/7/
14
3/25
/14
4/9/
14
4/24
/14
5/14
/14
5/29
/14
6/17
/14
7/2/
14
7/17
/14
8/1/
14
8/18
/14
9/2/
14
9/17
/14
10/2
/14
10/1
7/14
11/3
/14
11/1
9/14
12/4
/14
12/1
9/14
1/12
/15
1/27
/15
2/11
/15
2/27
/15
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
0
1
2
3
4
5
Sberbank of Russia OJSC (MICEX:SBER) - Share PricingSberbank of Russia OJSC (MICEX:SBER) - Daily Target Price (CIQ)Sberbank of Russia OJSC (MICEX:SBER) - Daily Avg Broker Recommendation (#) (CIQ)
1a
1a
2a
2a
1a
1a
2a
2a
1b
1b
2b
2b2b
2b
1b1b
Source: S&P Capital IQ as of March 2015.
Sell
Buy
Sell
Buy
% c
hang
e in
sto
ck/ta
rget
pric
e%
cha
nge
in s
tock
/targ
et p
rice
27 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
VTB Bank Sberbank
LSE
Q3, 2014 Q4, 2014 Q3, 2014 Q4, 2014
MICEX
Q3, 2014 Q4, 2014 Q3, 2014 Q4, 2014
Analyst Scorecard: Financial Companies
1a
1a
2a
2a
1b
1b
2b
2b
2a
2a
1a
1a
1b
1b
2b
2b
6%
69%
25%
Source: S&P Capital IQ as of March 2015.
28 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Share Price: Energy CompaniesLSE
• Novatek significantly underperformed in Q2 2014, before sanctions
• All three stocks underperformed benchmark post-sanctions but Novatek did better than peers
3/17
/14
3/31
/14
4/14
/14
4/28
/14
5/12
/14
5/26
/14
6/9/
14
6/23
/14
7/7/
14
7/21
/14
8/4/
14
8/18
/14
9/1/
14
9/15
/14
9/29
/14
10/1
3/14
10/2
7/14
11/1
0/14
11/2
4/14
12/8
/14
12/2
2/14
1/5/
15
1/19
/15
2/2/
15
2/16
/15
3/2/
15
-100%
-50%
0%
50%
100%
150%
Joint Stock Company NOVATEK (MICEX:NVTK) - Share PricingOpen Joint Stock Company Rosneft Oil Company (MICEX:ROSN) - Share PricingJoint Stock Company Gazprom Neft (MICEX:SIBN) - Share PricingS&P Russian Federation BMI Energy (Sector) - Index ValueOil Transporting Joint Stock Company Transneft (MICEX:TRNFP) - Share Pricing
MICEX
• Only Novatek was in line with the benchmark before the sanctions. The remaining three were underperforming
• However, all four stocks outperformed the benchmark post-sanctions
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
Joint Stock Company NOVATEK (LSE:NVTK) - Share PricingOpen Joint Stock Company Rosneft Oil Company (LSE:ROSN) - Share PricingJoint Stock Company Gazprom Neft (LSE:GAZ) - Share PricingS&P Russian Federation BMI Energy (Sector) - Index Value
Source: S&P Capital IQ as of March 2015. For illustrative purposes only. Past performance is not indicative of future results.S&P Russian Federation BMI Financials > Constituents Results of S&P Dow Jones Indices Consultation on Russian securities in its indices.
% c
hang
e in
sto
ck/ta
rget
pric
e%
cha
nge
in s
tock
/targ
et p
rice
29 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
3/17
/14
4/1/
14
4/16
/14
5/5/
14
5/20
/14
6/5/
14
6/20
/14
7/7/
14
7/22
/14
8/6/
14
8/21
/14
9/8/
14
9/23
/14
10/8
/14
10/2
3/14
11/7
/14
11/2
4/14
12/9
/14
12/2
4/14
1/13
/15
1/28
/15
2/12
/15
2/27
/15
3/16
/15
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
0
1
2
3
4
5
Joint Stock Company Gazprom Neft (LSE:GAZ) - Share PricingJoint Stock Company Gazprom Neft (LSE:GAZ) - Daily Target Price Median (CIQ)Joint Stock Company Gazprom Neft (LSE:GAZ) - Daily Avg Broker Recommendation (#) (CIQ)
Analyst Recommendations And Target Price: Gazprom Neft
3/11
/14
3/26
/14
4/10
/14
4/25
/14
5/15
/14
5/30
/14
6/18
/14
7/3/
14
7/18
/14
8/4/
14
8/19
/14
9/3/
14
9/18
/14
10/3
/14
10/2
0/14
11/5
/14
11/2
0/14
12/5
/14
12/2
2/14
1/13
/15
1/28
/15
2/12
/15
3/2/
15-50%
-30%
-10%
10%
30%
50%
0
1
2
3
4
5
Joint Stock Company Gazprom Neft (MICEX:SIBN) - Share PricingJoint Stock Company Gazprom Neft (MICEX:SIBN) - Daily Target Price Median (CIQ)Joint Stock Company Gazprom Neft (MICEX:SIBN) - Daily Avg Broker Recommendation (#) (CIQ)
2a
2a1a
1a 2a
2a
1b
1b
2b
2b 1b
1b
2b
2b
1a
1a
Source: S&P Capital IQ as of March 2015.
Sell
Buy
% c
hang
e in
sto
ck/ta
rget
pric
e%
cha
nge
in s
tock
/targ
et p
rice
Sell
Buy
30 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Analyst Recommendations And Target Price: Novatek
3/10
/14
3/25
/14
4/9/
14
4/28
/14
5/13
/14
5/29
/14
6/13
/14
6/30
/14
7/15
/14
7/30
/14
8/14
/14
9/1/
14
9/16
/14
10/1
/14
10/1
6/14
10/3
1/14
11/1
7/14
12/2
/14
12/1
7/14
1/6/
15
1/21
/15
2/5/
15
2/20
/15
3/9/
15
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
0
1
2
3
4
5
Joint Stock Company NOVATEK (LSE:NVTK) - Share PricingJoint Stock Company NOVATEK (LSE:NVTK) - Daily Target Price Median (CIQ)Joint Stock Company NOVATEK (LSE:NVTK) - Daily Avg Broker Recommendation (#) (CIQ)
3/11
/14
3/26
/14
4/10
/14
4/25
/14
5/15
/14
5/30
/14
6/18
/14
7/3/
14
7/18
/14
8/4/
14
8/19
/14
9/3/
14
9/18
/14
10/3
/14
10/2
0/14
11/5
/14
11/2
0/14
12/5
/14
12/2
2/14
1/13
/15
1/28
/15
2/12
/15
3/2/
15
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
0
1
2
3
4
5
Joint Stock Company NOVATEK (MICEX:NVTK) - Share Pricing
Joint Stock Company NOVATEK (MICEX:NVTK) - Daily Target Price Median (CIQ)
1b
1b
1a
1a
2a
2a
1a
1a
2a
2a
2a
1b
1b
2b
2b
2a
Sell
Buy
Sell
Buy
% c
hang
e in
sto
ck/ta
rget
pric
e%
cha
nge
in s
tock
/targ
et p
rice
Source: S&P Capital IQ as of March 2015.
31 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Analyst Recommendations And Target Price: Rosneft
3/11
/14
3/21
/14
4/2/
14
4/14
/14
4/24
/14
5/8/
14
5/21
/14
6/2/
14
6/16
/14
6/26
/14
7/8/
14
7/18
/14
7/30
/14
8/11
/14
8/21
/14
9/2/
14
9/12
/14
9/24
/14
10/6
/14
10/1
6/14
10/2
8/14
11/1
0/14
11/2
0/14
12/2
/14
12/1
2/14
12/2
4/14
1/12
/15
1/22
/15
2/3/
15
2/13
/15
2/26
/15
3/11
/15
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
0
1
2
3
4
5
Open Joint Stock Company Rosneft Oil Company (MICEX:ROSN) - Share PricingOpen Joint Stock Company Rosneft Oil Company (MICEX:ROSN) - Daily Target Price Median (CIQ)Open Joint Stock Company Rosneft Oil Company (MICEX:ROSN) - Daily Avg Broker Recommendation (#) (CIQ)
3/10
/14
3/24
/14
4/7/
14
4/23
/14
5/7/
14
5/21
/14
6/5/
14
6/19
/14
7/3/
14
7/17
/14
7/31
/14
8/14
/14
8/29
/14
9/12
/14
9/26
/14
10/1
0/14
10/2
4/14
11/7
/14
11/2
1/14
12/5
/14
12/1
9/14
1/7/
15
1/21
/15
2/4/
15
2/18
/15
3/4/
15
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
0
1
2
3
4
5
Open Joint Stock Company Rosneft Oil Company (LSE:ROSN) - Share Pricing
Open Joint Stock Company Rosneft Oil Company (LSE:ROSN) - Daily Target Price Median (CIQ)
Open Joint Stock Company Rosneft Oil Company (LSE:ROSN) - Daily Avg Broker Recommendation (#) (CIQ)
1a
1a
2a
2a 1a
1a
2a
2a
1b
1b 2b
2b
1b
1b
2b
2b
Sell
Buy
% c
hang
e in
sto
ck/ta
rget
pric
e%
cha
nge
in s
tock
/targ
et p
rice
Sell
Buy
Source: S&P Capital IQ as of March 2015.
32 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
4%
54%
42%
Gazprom Neft Novatek Rosneft
LSE
Q3, 2014 Q4, 2014 Q3, 2014 Q4, 2014 Q3, 2014 Q4, 2014
MICEX
Q3, 2014 Q4, 2014 Q3, 2014 Q4, 2014 Q3, 2014 Q4, 2014
Analyst Scorecard: Energy Companies
2a
2a
1b
1b
2b
2b
1a
1a
2a
2a
1b
1b
2b
2b
1a
1a
2a
2a
1b
1b
2b
2b
1a
1a
Source: S&P Capital IQ as of March 2015.
33 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Standard & Poor’s Ratings And Credit Default Swap Performance
34 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Standard & Poor’s Ratings, CDS: VTB Bank
• Local Currency and Foreign Currency Rating at same levels
• CDS market significantly more pessimistic than S&P Rating and moved further negative before WatchNeg action
Source: S&P Capital IQ as of February 2015. Credit ratings are provided by Standard & Poor’s Ratings Services, which is analytically and editorially independent from any other analytical group at McGraw Hill Financial. Lowercase nomenclature is used to differentiate S&P Capital IQ market signals from the credit ratings issued by Standard & Poor’s Ratings Services.
35 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Standard & Poor’s Ratings, CDS: Rosneft
• Local Currency and Foreign Currency Rating at same levels
• CDS market sentiment slightly more pessimistic than S&P Rating
Source: S&P Capital IQ as of February 2015. Credit ratings are provided by Standard & Poor’s Ratings Services, which is analytically and editorially independent from any other analytical group at McGraw Hill Financial. Lowercase nomenclature is used to differentiate S&P Capital IQ market signals from the credit ratings issued by Standard & Poor’s Ratings Services.
36 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Standard & Poor’s Ratings, CDS: Novatek
• Local Currency and Foreign Currency Rating at same levels
• No CDS available
Source: S&P Capital IQ as of February 2015. Credit ratings are provided by Standard & Poor’s Ratings Services, which is analytically and editorially independent from any other analytical group at McGraw Hill Financial. Lowercase nomenclature is used to differentiate S&P Capital IQ market signals from the credit ratings issued by Standard & Poor’s Ratings Services.
37 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Standard & Poor’s Ratings, CDS: Gazprom Neft
• Foreign Currency Rating same until May 2014, notch lower since then
• CDS score slightly but consistently lower than S&P Ratings
Source: S&P Capital IQ as of February 2015. Credit ratings are provided by Standard & Poor’s Ratings Services, which is analytically and editorially independent from any other analytical group at McGraw Hill Financial. Lowercase nomenclature is used to differentiate S&P Capital IQ market signals from the credit ratings issued by Standard & Poor’s Ratings Services.
38 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Standard & Poor’s Ratings, CDS: Transneft
• Foreign Currency Rating one notch lower than Local Currency Rating
• CDS score mostly lower than S&P Ratings with periods of alignment with Foreign Currency Rating
Source: S&P Capital IQ as of February 2015. Credit ratings are provided by Standard & Poor’s Ratings Services, which is analytically and editorially independent from any other analytical group at McGraw Hill Financial. Lowercase nomenclature is used to differentiate S&P Capital IQ market signals from the credit ratings issued by Standard & Poor’s Ratings Services.
Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ™.Not for distribution to the public. Copyright © 2015 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.
Alexander GriaznovDirector, Corporate Ratings, Standard & Poor’s Ratings Services
March 25, 2015
Standard & Poor’s Ratings Services Credit Ratings Impact
40 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Ratings Of Major Russian Exporters
Source: Standard & Poor’s Ratings Services as of March 25, 2015.
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Sanctions: Key Focus On Liquidity
• Although the list of sanctioned entities includes only several companies and banks, sanctions constrained capital markets access for all Russian corporates
• Liquidity remains manageable for the majority of top-tier Russian corporates
• High capex flexibility supports maintenance of adequate liquidity
Source: Standard & Poor’s Ratings Services, Sovereign Government Rating Methodology and Assumptions, June 24, 2013.
42 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Technological Sanctions: Limited Impact On Credit Profile
• They cover only a small number of projects. Russian companies do not rely on the production of fields subject to sanctions
• Unconventional production is years away
• For many types of banned equipment there is a replacement in Asia
• Oil field services market is for 95% local
Source: Standard & Poor’s Ratings Services, Sovereign Government Rating Methodology and Assumptions, June 24, 2013.
43 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Gazprom
Key strengths• Strong competitive position, with vast reserves, large-scale
production, vertical integration, monopoly over profitable exports of pipeline gas and solid market share in Europe.
• Robust credit metrics, currently, and under our base case. • Resilient profitability.
Key weaknesses• Increasing risks of operating in Russia, as well as payment
and transit risks in Ukraine.• Increasing competitive pressure in export and domestic
markets, putting pressure on company’s metrics and its volatility.
• Relatively low domestic gas prices.
Rating outlookNegative, mirrors that on the Russian Federation, Gazprom's controlling shareholder.
UpsideWill likely be driven by the sovereign, as even if Gazprom's SACP were to strengthen (for example, if free operating cash flow remains positive despite ongoing investments), we would not raise the rating because of the risk of negative sovereign intervention.
DownsideWill also likely be driven by the sovereign, as our expectation of extraordinary government support provide Gazprom with some margin of safety against any deterioration in its stand-alone credit performance.
Source: Standard & Poor’s Ratings Services, Sovereign Government Rating Methodology and Assumptions, June 24, 2013.
44 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
LUKOIL
Key strengths• Strong competitive position, with a large
reserve base, sizable production, and resilient profitability.
• Solid financial metrics, with funds from operations to debt above 60% under our base-case scenario.
Key weaknesses• Increasing risks of operating in Russia,
where most of company's reserves are located.
• Our expectation of negative discretionary cash flow due to sizable capital expenditures.
Rating outlookNegative, mirrors that on the Russian Federation, where LUKOIL generates about 90% of its EBITDA.
UpsideWill likely be driven by the sovereign.
DownsideWill likely be realized if we lowered the T&C assessment on Russia. OR: if the company's hard currency liquidity resources declined while its hard currency short-term maturities increased, OR: in case of significant decline in production, large debt-financed investments or shareholder distributions, a prolonged period of limited access to financing, OR: if the ratio of funds from operations (FFO) to adjusted debt falls to less than 60%. However, we see these scenarios as unlikely.
Source: Standard & Poor’s Ratings Services, Sovereign Government Rating Methodology and Assumptions, June 24, 2013.
45 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Rosneft
Key strengths• Large reserves and sizeable production, supporting strong
competitive position, furthermore strengthen by company’s vertical integration, and resilient profitability.
• Our expectation of healthy ratio of funds from operations (FFO) to adjusted financial obligations of not less than 20% in 2015.
Key weaknesses• Increasing risks of operating in Russia where most of
company’s assets are located.• Our expectation of S&P adjusted financial obligations to
EBITDA of above 3.0x in 2015 and negative free cash flow generation in the 2015-2016 owing to ambitious investment plans.
Rating outlookNegative, mirrors that on the Russian Federation, Rosneft's controlling shareholder.
UpsideWill likely be driven by the sovereign.
DownsideWill also likely be driven by the sovereign. The rating could also come under pressure in case of company-specific liquidity pressures or targeted sanctions, which are not part of our base case scenario.
Source: Standard & Poor’s Ratings Services, Sovereign Government Rating Methodology and Assumptions, June 24, 2013.
46 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Gazprom Neft
Key strengths• Large production and reserve base, with comfortable
reserve life and solid growth potential in new projects.• Resilient profitability, supported by imperfect natural
hedges via taxes and foreign exchange rates that are linked to oil price trends.
• Currently solid financial metrics.
Key weaknesses• Exposure to the risks of operating in Russia and in the oil
industry.• Our expectation of negative free operating cash flow
(FOCF) and weakening credit metrics, due to capital expenditures and acquisitions.
Rating outlookNegative outlook on Gazprom Neft mirrors that on Gazprom. Although we maintain our assessment of Gazprom Neft's SACP at 'bbb-', the rating continues to be capped by that on the parent.
UpsideWill likely be driven by the parent, which in turn is driven by the sovereign.
DownsideWill also likely be driven by the rating on Gazprom
Source: Standard & Poor’s Ratings Services, Sovereign Government Rating Methodology and Assumptions, June 24, 2013.
47 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Q&A
S&P Capital IQ is analytically and editorially independent from Standard & Poor’s Ratings Services.
Alexander GriaznovDirector, Corporate Ratings
Standard & Poor’s Ratings Services
Rick Kanungo, CFA, FRMSenior Director, Enterprise Solutions
S&P Capital IQ
Kevin StrangeDirector, Enterprise Solutions
S&P Capital IQ
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