Benefits of Listing for Russian Companies on the New York Stock Exchange

1
Benefits of Listing for Russian Companies on the
New York Stock Exchange
2
Reasons for a Russian Company to List on the NYSE
3
Executive Summary Compelling Reasons for a
Russian Company to List on the NYSE

• Shareholder Value Benefits
• Increased US share ownership Institutions and
  retail investors representing the majority of
  total equity investment in the US will only buy
  US listed, SEC-registered equities. The Company
  therefore has the opportunity to significantly
  increase US investor demand for its shares beyond
  direct investment by US international funds in
  the Russian markets.
• Improved valuation benchmarking Sizeable US
  ownership, US GAAP reporting and the NYSE
  platform all combine to maximise the focus of the
  US investment community on a Company sharpening
  the benchmarking of its valuation relative to its
  NYSE-listed peers over time an incisive
  valuation perspective reduces stock price
  volatility.
• A second market for the share NYSE listing can
  be a key driver in building a virtuous circle of
  more US domestic ownership, leading to more US
  trading liquidity, leading in turn to lower
  barrier to attracting further investment. NYSE
  achieves this through a combination of visibility
  and credibility of the trading platform.
• Strategic Benefits
• US acquisition currency NYSE-listed,
  SEC-registered stock can be used as acquisition
  currency for US public companies.
• Limits post-acquisition flow back NYSE listing
  maximises the acceptability to targets
  shareholders of a Companys equity as US
  acquisition currency and, by providing a credible
  and liquid US trading market, helps to limit
  post-acquisition flow back.
• Element of compensation plans A NYSE listed
  Company may be more attractive to US management
  and employees as an element of stock option and
  stock ownership plans than Home listed stock
  thus assisting in hiring and retaining key
  people.

4
Executive Summary Compelling Reasons for a
Russian Company to List on the NYSE

• Communication Benefits
• Adds credibility For many investors,
  intermediaries and business counter parties, NYSE
  listing confers additional credibility to the
  Company and position it as a leading global
  company.
• Enhanced visibility NYSE believes in the
  importance of offering visibility-enhancing tools
  to a Company based on physical events at the
  NYSE, leveraging NYSEs web penetration and
  assisting the Company with US media access.

5
A Growing Body of Academic Research Confirms the
Value of Listing in the US

• Advantages of US Listing Collation of recent
  studies pointing out advantage of US listing.
  (Karolyi 2004).
• Valuation Benefit of US Listing Oxford Metrica
  Depositary Receipts Investing in a World Asset
  Class, July 2004 (see next slide).
• Attracts Dynamic Companies When it comes to
  cross-listing, the most dynamic and outward
  European companies self-select in US exchanges
  (Pagano, Roell, Zechner, 2002).
• Highlights Quality High-quality innovative
  firms are willing to incur additional costs
  associated with listing in the US in order to
  reveal their value and distinguish themselves
  from firms that issue stocks back home (Blass,
  Yafeh, 2001)
• Equity Out Performance Companies issuing equity
  on major US exchanges outperform their benchmarks
  while those issuing equity through R144a
  significantly under-perform (Foerster, Karolyi
  2000). During the 1980s, stocks earned abnormal
  returns of 5 in response to the listing
  announcement (Kadlec, McConnell 1994)
• Higher Quality Research Firms which cross list
  in the US have greater analyst coverage, higher
  forecast accuracy and higher valuation.(Lang,
  Lins and Miller, 2002).
• Higher Valuation Foreign companies listed in the
  US receive higher valuation than their home
  country peers because listing helps to curb the
  potential for controlling shareholders to take
  advantage of minority shareholders (Doidge,
  Karolyi and Stulz, 2001)
• Improved Visibility International firms listing
  their shares on the NYSE experience a significant
  increase in visibility. The increase in analysts
  following is also associated with a decrease in
  the cost of equity capital (Baker, Nofsinger and
  Weaver, 2002).

6
The Market of Choice
7
The NYSE is the World's Largest and Most Global
Equity Market
and is home to approximately 6.9
trillion of non-U.S. companies
The worlds largest stock market has a market cap
of 19.5 trillion
Market Capitalization nearly doubled in last 6
years despite recent market downturn
Euronext consists of Paris, Brussels, Lisbon and
Amsterdam. Regional Percentages segmented by
Global Market Capitalization. Source World
Federation of Exchanges NYSE Research
Exchanges Data as of Jan 31, 2005.
8
NYSE Has a High Market Penetration in W. Europe ,
Particularly Vs. Nasdaq
Proportion of Index Constituents by Market
Capitalization Listed on U.S. Exchanges
AEX 25 DJ Euro Stoxx 50 U.K. FTSE 100 Germany Dax
30 Switzerland SMI France CAC 40 Italy
SP/MIB
Listed in Home Markets, Not listed in the U.S.
NASDAQ
NYSE
Market Capitalization as of 01/24/2005 Source
Bloomberg
9
The Market of Choice
The NYSE dominates U.S. listings by non-U.S.
companies
over 90 of all qualified non-U.S. companies
choose to list on the NYSE.
NYSE Market Share
Market Cap in Trillion
9
NYSE Market Share expressed as percentage of
Total NYSE and Nasdaq Non-U.S. market
cap. Source NYSE Research, Nasdaq Website, and
Bloomberg Date As of July 23rd 2004
10
Market of Choice for Qualified IPOs
Over the past five years, the NYSE has
consistently attracted an average of 90 of
qualified IPO proceeds.




1999-2004 Market Venue for Qualified IPOs ()
1 Reflects domestic qualified IPO
activity. Source NYSE Data, ILX and Commscann
Equidesk, excludes closed-end funds.
11
IPO Size and Sector Diversity
The NYSE welcomes qualified IPOs of all sizes
and sectors.1
IPO Profile 2 ( by Companies)
IPO Market Sectors ()2
1Small Cap Under 500 million market
capitalization Mid Cap 500 million to 1
billion Large Cap Over 1 billion

2 Dollar amounts and percentages based on market
cap at offering price. Domestic IPOs listed from
period January 1, 1998 June 30,
2004. Excludes funds and non-US IPOs. Sources
NYSE Data, Commscan Equidesk and Standard Poors
Research Insight.
12
Superior Market Structure NYSE
NYSE
Nasdaq

• Order Driven Auction
• Direct Interaction of Public Orders
• Centrality of Order Flow
• Obligations of the Specialist
• Capital Commitment
• Dampening Volatility
• NYSE Short Sale Rules
• Stability of Opening Prices
• Market on Close Process

• Quote Driven Dealer
• Dealer Intervention
• Fragmentation of Order Flow
• The function of market makers
• No obligation to commit capital
• No established volatility guidelines
• Short selling not prohibited on minus tick
• No single stable opening price
• No established process to address volatility at
  close

13
Cost Efficient Trading
A study conducted by Elkins/McSherry comparing
institutional execution costs found that the New
York Stock Exchange was one of the lowest cost
market venues worldwide and 25 more cost
efficient than Nasdaq.
Source Elkins/McSherry study published in
November 2004 Institutional Investor magazine of
institutional trading costs from July 2003 to
June 2004. 10 largest equity markets ranked by
market capitalization as of September 2004 as per
FIBV data. All numbers represented in basis
points.
14
Foreign Stocks Listed on NYSE and LSE
2000 2002 2004 NYSE 434 473
460 London 501 419 351
Source Exchanges, WFE
15
Newly-Listed Foreign Stocks on NYSE and LSE
NYSE
20
10
LSE
Sources WFE, Exchanges
16
Comparing the Value of NYSE and LSE GDR Listing
17
Comparison of NYSE and LSE Listing/Trading
Products

• The NYSE offers only one product Listing.
  All companies large and small are on the same
  platform.
• London offers a highly fragmented choice of
  listing and trading products, each offering
  different benefits and having different costs and
  reporting requirements.

18
The Russia NYSE Relationship
19
Mechel Our Newest Russian Listing
The first Russian metals company to list on the
NYSE
Mechel raised 291 million in an Initial Public
Offering on October 29, 2004 by floating 10 of
the company at the top of the price range. It
was the first Russian IPO on an international
market since 2002. "We think that Russian
companies are an integral part of the world
economy," Mechel Chief Executive Vladimir Iorich.
"We think that you should really play in the
premier league always, and the American
market is the top league," he added. "We really
think that other companies will also come to the
market." We are happy to be among 2,700 of the
best companies of the world., said COO Alexei
Ivanushkin about the companys NYSE listing.
Price
20
NYSE-Listed Companies from Russia
The NYSE has 6 listed companies from Russia
more than any other Exchange outside Russia.
Source ADR Banks, NYSE Database. Trading Data
for full Q1 2005, Market Cap as of March 29,
2005.
21
Commitment to Strong Corporate Governance is
Aligned with that of NYSE Companies

• The NYSE has the worlds most stringent listing
  criteria. An NYSE listing sends a message about
  the transparency, corporate governance, global
  reach and quality of a company The top 4
  companies of SPs 2003 and 2004 Russian
  Corporate Governance survey are all listed on the
  NYSE.
• A company will underline its strong commitment to
  corporate governance excellence by listing on the
  NYSE.

Source SP Transparency and Disclosure Survey
Russia 2004.
22
The Russian Federation Growth at the NYSE
between 1996 and 2004
Tremendous Growth in Trading Volume and Value
Average Daily Volume
Average Daily Value
In 000s
In ms
CAGR 36
CAGR 25
Source NYSE iMark System, NYSE Research data
through year end 2004.
23
Maximizing Global Visibility
24
Partnership and Visibility

Listing Day Celebration

• the Companys branded signage on Trading Floor
  and bell podium
• Executive breakfast with the Companys management
• Webcast all listing day activities on nyse.com
  and www.the Company.com
• Invite board members, bankers, key analysts and
  media to participate

25
Ongoing Partnership Opportunities

NYSE is committed to assisting its Listed
companies with investor and public relations
initiatives.

• Board of Directors Meetings
• Anniversary Celebrations
• Product Announcements/Launches
• Analyst Day at NYSE
• Video Webcasting at NYSE
• Employee Investor Education
• Media Interviews at NYSE

26
NYSE Listing Process
27
Listing Timetable

• SEC Process

Prepare Registration Statement, US GAAP
Financials
Initial SEC Filing
Final Filing
Filing Declared Effective
Up to 4-6 months
30 - 45 Days
NYSE Process
Eligibility Review
Listing Application Select Specialist
Establish Listing Date, Symbol, Plan Events
Trading Commences
1-3 months
2 Weeks
2-3 Weeks
28
Preparation and Work for NYSE Listing

• Applicants must have filed registration statement
  with SEC and be declared effective-
• 20-F for quotation only
• F-1 for share/ADR offering
• Consider confidential early approach to SEC plan
  confidential submission for SEC review.
• Historic consolidated, audited reconciliations
  to US GAAP are generally required for 2 years by
  the SEC (Form 20-F).
• SEC registrants are required to comply with
  Sarbanes-Oxley Act corporate governance
  provisions
• Ongoing reporting on Form 20-F and 6-K (quarterly
  reports not required unless needed in home
  market).
• Establish ADR or global registered share
  programme
• Choose depositary bank
• File F-6 with SEC
• Execute depositary agreement
• NYSE-specific work-
• Submit application pack
• Receive eligibility clearance
• Choose trading symbol

29
NYSE Listing Standards
(Non-US Companies may use EITHER the Worldwide or
the Domestic Standards)

• Parent, or affiliated, company must be in good
  standing and retain control, or be under common
  control, with the new entity.
• Control is defined as the ability to exercise,
  directly or indirectly,
• 20 or more of the new entitys voting stock.

30
NYSE Contacts
31
The NYSE Russia Team
London David Griffiths Senior Managing
Director dgriffiths_at_nyse.com 44 (0) 20 7025 7881
(Tel) 44 (0) 20 7025 7890 (Fax) Stefan
Jekel Director sjekel_at_nyse.com 44 (0) 20 7025
7883 (Tel) 44 (0) 20 7025 7890 (Fax) Julie
Lowe Account Manager jlowe_at_nyse.com 44 (0) 20
7025 7887 (Tel) 44 (0) 20 7025 7890 (Fax)
New York Gregg Krowitz Managing
Director gkrowitz_at_nyse.com 1 212 656 5746
(Tel) 1 212 656 5071 (Fax) George
Sierant Managing Director gsierant_at_nyse.com 1
212 656 5940 (Tel) 1 212 656 5071 (Fax)