Global Custody For Domestic and CIS Clients Strategy vs' Service Provision

1
Global Custody For Domesticand CIS Clients -
Strategy vs. Service Provision

• Stepan Tomlianovich
• ROSBANK

2
1990s Russian money are leaving

• Over 300 bn flight capital...
• ... of largely criminal origin (or working
  capital) ...
• ... invested in offshore bank accounts and real
  estate...
• ... to avoid high taxes, political and economic
  instability

3
2000s Russian money are coming

• Average annual economic growth over 6 percent
• Capital flows turned positive in 2005
• Capital movement controls to be lifted July 1,
  2006
• Tax amnesty discussed, taxation level
  decreasing
• Ruble is stable at least for the medium term
• Low political risks

4
2000s Russian money are coming

• Severstal - Arcelor
• Gasprom Centrica, Wingas
• Norilsk Nickel Stillwater, Gold Fields, Plug
  Power
• RAO UES, LUKoil, Rusal international expansion
  strategies
• Chelsea

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What are they really coming for?

• Market share expansion
• Moving up the added-value chain
• Regional and/or product diversification
• Securing crucial resources
• Buying new technologies
• Cost minimisation
• Fun/Social recognition

6
How the custodians can help?

• Minimise costs/transaction risks at the entry
  point (counselling, settlement procedure)
• Asset protection, interfacing with local
  authorities
• Follow-up on corporate actions, dividend
  payments, etc.
• Tax advice and reclaims

7
Crucial conditions to qualify

• Individual approach to each case
• Custom-built network if needed
• Broad expertise (legal, market regulation, taxes)
  in multiple markets
• Large capital to cover possible risks
• With direct investors speed is often more
  important than cost

8
Russian global portfolio investors emerge

• PIFs and pension fund allowed to invest abroad
• IPOs, MAs and high oil prices expand the ranks
  of millionaires
• High-net-worth individuals start to look beyond
  real estate and bank deposits
• Domestic private banking and asset management
  sectors booming, but may offer a limited set of
  instruments
• Russian investors less risk averse, look for high
  returns

9
Is it worth it to outsource?

• Partnership with a recognised global or regional
  custodian will minimise risks and investments,
  but may increase costs
• Local expertise may be obtained via market
  research specialists or legal advisors, but
  emerging markets are changing fast...
• Local provider may know a better way around
  regulatory hurdles, but is more dependent on a
  local regulator
• Building a proprietary network may only be
  justified by very high expected volume of business

10
The CIS perspective challenges and attractions

• Protectionism, strategic assets tightly
  controlled
• Corruption and crime often institutionalised
• Political opposition to Russian investments (in
  some cases)
• Miniscule domestic securities markets
• No foreign nominee recognition (in some cases)
• BUT
• Assets and labour force are cheaper
• Similar regulation (in some cases)
• Almost no language, mentality problems
• Remaining technological ties

11
The CIS perspective country focus

• Kazakhstan
• best infrastructure, but small market for
  portfolio investors
• Ukraine
• lingering infrastructure problems and political
  uncertainty
• Central Asia and Azerbaijan
• possible for servicing authorised direct
  investments
• Armenia and Belarus
• good industrial base, but not much for sale
• Moldova and Georgia
• attractive in certain sectors, political problems

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CIS investors in Russia

• Direct investors attracted by the booming
  consumer market
• Regional and sectoral focus, government
  strategies
• Portfolio investors not active, despite market
  growth
• Infrastructure problems remain (CSD, foreign
  nominee), give temporary advantage to local
  custodians
• Prospects for CIS issuers Russian Depository
  Receipts and direct listings

13
Strategic questions for investors... and
custodians

• Is the new Russian prosperity here to stay?
• Will any part of the CIS continue to integrate
  and how far will it go?
• How likely is the Cold Investment War?
• Who is Mr. Putin?