1. Vladimir Dragunov, Partner Baker and McKenzie, Moscow 12-13 October 2006 London RECENT DEVELOPMENTS IN SECURITISATION IN RUSSIA Securitisation in Russia and the CIS

2. ©2006 Baker & McKenzie 2 CONTENTS  Our Practice and Experience  Key Drives for Securitisation in the CIS  What can be Securitised in Russia and the CIS  Our experience in Russia and the CIS  Structuring and Executing the Deal:  Preliminary stage  Structuring stage  Execution stage  Sample Structures  Asset Class Specific Issues

3. ©2006 Baker & McKenzie 3 Our Russian Practice  The first to open offices in Russia (1989)  The largest international law firm in Russia  Approximately 75 lawyers in the Moscow Office  Functions as an integrated CIS office and practice  Broad banking and finance practice. English law capabilities in the Moscow Office  Dedicated Russian and Global teams of lawyers (London, Frankfurt, New-York, etc.). Philosophy: in-depth local knowledge coupled with international experience  Highly Recommended for Russian Securitisation and Structured Finance work (Legal 500, Chambers Global)

4. ©2006 Baker & McKenzie 4 Our Experience in Russia and the CIS  Advising on early structured finance projects since 1999. Focus on securitisation throughout the CIS since 2001 and extensive global experience  Advising the International Finance Corporation (IFC) and the Russian State Duma on developing the regulatory framework for securitisation of assets in Russia (Position Paper issued in 2004)

5. ©2006 Baker & McKenzie 5 Our Russian and CIS Structured Finance Deals US$350 million Diversified Payment Rights Securitisation Counsel to the Arrangers March 2006 US$450 million Leasing Receivables Securitisation Counsel to the Originators March 2006 EUR250 million Warehouse Facility Residential Mortgages Securitisation Transaction Counsel February 2006 BTA Ipoteka Red ArrowAlfa Bank EUR300 million Consumer Receivables Securitisation Counsel to the Arrangers April 2005 Russian Standard Bank EUR300 million Consumer Receivables Securitisation Transaction Counsel December 2005 US$200 million Diversified Payment Rights Securitisation Counsel to Monoline Financial Guarantor December 2005 Home Credit & Finance Bank Kazkommertsbank EUR250 million Warehouse Facility Consumer Receivables Securitisation Counsel to the Arranger November 2005 Russian Standard Bank Technical Working Group on Securitisation Russian Legal Framework for Securitisation Working Group Member March 2005 International Finance Corporation US$200 million Diversified Payment Rights Securitisation Counsel to Monoline Financial Guarantor June 2006 Kazkommertsbank US$90 million Residential Mortgages Securitisation Transaction Counsel July 2006 Vneshtorgbank

6. ©2006 Baker & McKenzie 6 Key Drives for Securitisation in the CIS  Balance-Sheet Clean-up -Reduction of the Mandatory Reserves on Assets -Improving Financial Ratios (e.g., borrowing limits) -Disposal of Low Liquidity Assets  Access to Cheaper Financing -Lower Interest Rates/Discounts -Higher Credit Ratings for the Transaction  Diversification of Sources of Funding  Profile Raising  Creation of Long-Term Financing Program

7. ©2006 Baker & McKenzie 7 Asset Classes for Securitisation in the CIS  Loan Portfolios (mortgage loans, car loans, consumer loans, corporate loans, less likely: defaulted loans)  Debit and Credit Card Receivables  Diversified Payment Rights (МТ100/103+ S.W.I.F.T messages)  Export Receivables  Domestic Bonds, Bond Portfolios  Lease Payments  Other

8. ©2006 Baker & McKenzie 8 General Legal Framework in Russia  Russian Civil Code:  Part 1 (General): assignment, security, general contract issues  Part 2 (Special): factoring, bank accounts, loans and credits, sale and purchase  Part 3 (Conflict of Laws): default scenarios in the absence of choice of law, special rules on assignment  Mortgage Backed Securities Law  Banking Law  New Currency Control Law  General Insolvency and Bank Insolvency Laws  Russian Tax Code  Other

9. ©2006 Baker & McKenzie 9 IFC Working Group on Securitisation  True Sale issues (identification, future receivables, claw-back)  Bankruptcy remoteness of Russian companies  Credit enhancement issues (lock-box accounts, pledge of accounts)  Securities legislation (funding instruments, collateral)  Tax issues (VAT on sale, future flow transactions)  Currency control issues (special accounts, reserve requirements) PROPOSED SOLUTION: structured and prioritized approach

10. ©2006 Baker & McKenzie 10 Challenge Factor (Fitch) In each jurisdiction the CF takes into account: –The rule of law –Control of Corruption –Regulatory quality Emerging market jurisdictions are then rated on a scale of CF 1- 4: –CF1: no rating cap (Argentina, Brazil, Mexico) –CF2: a rating cap of 8 notches (Poland, Turkey) –CF3: a rating cap of 5 notches (Russia, Kazakhstan, Ukraine) –CF4: capped at IDR (Nigeria)

11. ©2006 Baker & McKenzie 11 Challenge Factor (Fitch) No limitiations on CF2 and CF3 jurisdictions where: –Robust securitisation legislation is in place –Sound history of securitisation transactions –Strong true sale opinion –Involvement of EBRD and IFC

12. ©2006 Baker & McKenzie 12 Key Project Stages 1.Preliminary Stage 2.Structuring Stage 3.Project Execution

13. ©2006 Baker & McKenzie 13 Preliminary Stage GOALS: 1.Early identification and mitigation of potential obstacles to securitisation (e.g., documentation, wording of anti-disposal, assignment clauses, etc.); 2.Preparing quality standard documentation for the originator (standard loan and security documents).

14. ©2006 Baker & McKenzie 14 Preliminary Stage (2) STAGE CONTENTS: Conducting due diligence and preparing recommendations for the improvement of: 1.Standard agreements of the Originator (e.g., loan, mortgage, bank account agreements, lease agreements, export agreements, financial lease agreements, services agreements, etc.); and 2.Agreements documenting the Originator’s indebtedness (e.g., syndicated loan facilities, Eurobond documentation, domestic bonds offerings, etc.)

15. ©2006 Baker & McKenzie 15 Preliminary Stage (3) Certain Russian law issues to be addressed in the documentation: 1.Interest/Commissions/Acceleration/Prepayment 2.Assignments and Transfers 3.Set-off 4.Confidentiality Clauses 5.Negative Pledge Clause 6.Applicable law and dispute resolution 7.Other Note: wording of clauses may be crucial!

16. ©2006 Baker & McKenzie 16 Structuring Stage Some issues to be addressed at this stage:  On balance-sheet or off-balance sheet securitisation, setting up an SPV  Domestic or cross-border securitisation  Structure: single, conduit, revolver (master trust)  Funding source: bonds, short-term commercial papers, participation certificates, other  Potential investors: residents, non-residents (Rule 144-А, Regulation S)  Listing: domestic, foreign, double, or both? Private placement?  Other

17. ©2006 Baker & McKenzie 17 Structuring Issues in Russia. Between the Lines  Russia is a rather strong pro-debtor jurisdiction. Courts tend to protect the weaker party (e.g., security, netting, assignments)  Increasing importance of court practice and court interpretation (assignments, factoring, security, etc.)  Many foreign law documents and concepts may not work in Russia. Need specific tailoring, careful documentation and wording in the Transaction Documents!  Unawareness of Russian courts and regulators of complex finance transaction, including securitisations

18. ©2006 Baker & McKenzie 18 Structuring: True Sale Securitisation SPV True Sale Trust Management Russia Foreign Jurisdiction Major Financial Institution Credit Enhancement Securities Sale POOL OF ASSETS ORIGINATOR Special Account

19. ©2006 Baker & McKenzie 19 Structuring: Domestic Securitisation SPV 1SPV 2 RUB POOL OF ASSETS Originator RUB INVESTORS COLLATERAL BONDS Repayment of the loan / Receivables LOAN TRUE SALE RUB. RUB RUSSIA MINIMUM CAPITALIZATION RULES Agent

20. ©2006 Baker & McKenzie 20 Structuring: Certain General Issues  Existing Assets v. Future Flow  Bank Secrecy and Data Protection  Setting up and Operating the SPV  Regulatory Approvals  Tax Issues  Currency Control Restrictions  Asset Class Specific Issues

21. ©2006 Baker & McKenzie 21 Securitisation of Credit/Debit Card Receivables BANK (Originator) SPV Assignment Special account A B $40 mln., 2007 $50 mln., 2011 $120 mln., 2030 C Reimbursement V I S A MASTERCARD $ $ Special account Payments without netting Offshore Russia Payments without netting Insurance policy Offshore

22. ©2006 Baker & McKenzie 22 Securitisation of Diversified Payment Rights Payor Bank Beneficiary Payor Concentration Account Original nostro account Collateral Account New nostro account Investors SPV Issue of securities Payment Order Russia Export contract МТ103+ BANK (Originator) Sale of DPRs Crediting the Beneficiary’s account $ $ $ $ $ $ $ Offshore

23. ©2006 Baker & McKenzie 23 Use of Factoring in Securitisation Factoring License  A factor should be a “bank, other credit organization or a company holding a factoring license” ( Article 825, Russian Civil Code )  BUT:  Other legislative provisions  Court practice  Recent trends  Transaction structure  Possible consequences Russian Licensed Bank Foreign Licensed Bank Foreign Factoring Company Foreign Company Russian Company RISK TYPES OF FACTORS

24. ©2006 Baker & McKenzie 24 Execution Stage 1.Advising on the structure of the transaction. Due diligence on Originator and its documentation to identify and resolve potential bottlenecks 2.Drafting and advising on the Transaction Documents (Sale Agreement, Servicing Agreements, Offering Documentation, Credit Enhancement Documentation, etc.) 3.Providing general legal support, participating in meetings, negotiating documentation 4.Providing legal opinions on the transaction (true sale, corporate approvals, validity and enforceability of agreements, etc.) 5.Closing

25. Vladimir Dragunov, Partner Baker and McKenzie, Moscow 12-13 October 2006 London RECENT DEVELOPMENTS IN SECURITISATION IN RUSSIA Securitisation in Russia and the CIS