0. Raising Funding Against the Future Flow of Diversified Payment Rights: Lessons for Russia
Alex von Sponeck Head of Central and Eastern Europe, Middle East and Africa Debt Capital Markets Origination Merrill Lynch International Tel: October 2006

1. Contents Diversified Payment Rights Securitisation Introduction 1
General Market Overview 2
DPR Securitisation Structure 6
Alfa-Bank Transaction Summary 9

2. Introduction

3. Introduction
Diversified Payment Rights (“DPR”) future flow securitisations have been an important source of funding for emerging market banks in a wide range of jurisdictions: Brazil, Peru, El Salvador, Russia, Kazakhstan, Turkey and Mexico
Alfa-Bank’s debut US$350 million DPR-backed offering was Russia’s first DPR securitisation – a number of other Russian banks are now preparing similar issuances
This presentation sets out:
A general overview of Future Flow Securitisations
A basic transaction structure for DPR future flow securitisations
A case study of the Alfa-Bank deal including the major issues Alfa-Bank faced in executing their deal
The advantages to an issuer of a DPR future flow securitisation programme, and lessons learned 1

4. General Market Overview

5. General Market Overview
Emerging Market Future Flow Securitisations – Market Overview
Future Flow Securitisation
Future Flow Issuance
Future flow securitisation became popular in emerging markets in the early 1990s as a mechanism to reduce sovereign related risk and provide more attractive access to international capital markets
This funding instrument has grown in emerging markets over the past 15 years, primarily in response to search for lower cost of funds by companies that generate hard currency cash flows outside their country of domicile
Future flow securitisations investments have consistently proven themselves to investors, and over the years they have successfully mitigated a variety of the risks associated with emerging market investments
Mexico and Turkey had been the dominating country for future flow issuance until Currently, there has been a significant amount of issuance out of other countries and Eastern Europe and Russia have shown significant potential for strong future flow candidates:
Gazprom International S.A. (July 2004, US$1.25bn) (Merrill Lynch)
Russia International Card Finance S.A. (Rosbank, November 2004, US$225m) (Merrill Lynch)
Russia International Card Finance S.A. (Tap issue, February 2005, US$70m) (Merrill Lynch)
Alfa DPR Finance Co (March 2006, US$350m) (Merrill Lynch)
to date (US$m)
By Country / Region 2

6. General Market Overview
Emerging Market Future Flow Securitisations – Market Overview
Types of Assets Securitised
Market Share –
Types of Assets
The types of assets securitised by these future flow securitisations have varied over the years
The most common flow being securitised by corporates have been export receivables (e.g. Gazprom, Egypt General Petroleum Corp., Pemex, Indo Coal transactions)
Financial remittances (Swift receivables or DPRs) have become the most popular future flow asset class for banks, with US$13.4 billion of remittances/diversified payment rights (DPR) securitisations since 2002
DPR securitisations are closely followed by credit card receivables, which have totalled US$5.1 billion since 1998
DPRs are created as a result of the role of the emerging market financial institution as financial intermediary between foreign payers wishing to send funds to a company or individual in that emerging market:
It leverages existing export client relationships
The funds are typically sent from countries rated investment grade
Funds are denominated in hard currencies
Use existing global standardised systems for transferring funds (Swift)
Funds are captured offshore to mitigate sovereign intervention, inconvertibility and transferability events
The following overview will focus solely on DPR securitisations, which is a subset of the emerging market future flow securitisation universe
(US$m)
YTD (US$m)
Export Receivables
Other
Airline Receivables
Credit Card Receivables
Remittances/ Diversified Payment Rights 3

7. General Market Overview
What are Diversified Payment Rights?
The DPRs sold in a DPR securitisation are sourced by a bank, such as Alfa-Bank, acting as an intermediary, either for Russian exporters or individuals, or for other parties in Russia which receive FX cash flows from abroad
DPRs are made up of the following forms of payment orders generated through the SWIFT payment system:
Customer payments (MT100 series)
Bank to bank transfers (MT200 series)
Collections and cash letters, including “cash against documents” export transactions (MT400 series)
Documentary credits and guarantees, including “letter of credit” export transactions (MT700 series)
Travellers’ cheques (MT800 series)
Offshore
Russia
Remitting Entities
(Individuals,
Corporates)
Remitters’ Bank
(Outside Russia)
Local Beneficiaries
Payment
Instruction
Irrevocable Payment Obligation
On Payment
Generally only Swift MT100 and MT200 payment orders are included in a DPR transaction 4

8. General Market Overview
DPR Securitisation – Market Overview
DPR Issuance – the Players
DPR Issuance
Turkish banks have been the largest users of DPR securitisation with more than US$9.8 billion in total issuance, followed by Brazil with US$4.1 billion
Most financial transactions included as collateral have been commercial in nature (trade/export related or foreign direct investment)
Exceptions are the Brazilian, Salvadorian and Turkish DPR securitisations, which have a high percentage of worker remittances
In March 2006, Alfa-Bank closed the first ever DPR securitisation to date in Russia – rated 2 notches higher than the unsecured debt rating (Baa3 vs. Ba2)
The first capital markets funded DPR securitisation in Kazakhstan was closed in 2005 by Kazkommertsbank
YTD (US$m)
DPR Transactions to Date Russia / Kazakhstan 5

9. DPR Securitisation Structure

10. DPR Securitisation Structure
Processing and Financing of DPRs
Payment Flow Process
Offshore
Russia
Alfa-Bank’s
Correspondent Banks
Sender
Sender’s Bank
Bank A
Bank B
Bank C
Bank D
Alfa-Bank
Beneficiary
Sender
A Sender directs a payment order to a Beneficiary in Russia
The Sender of the payment order directs its bank of choice (the “Sender’s Bank”) to remit a payment to an account of the Beneficiary, who holds an account with Alfa-Bank
Alfa-Bank holds USD and EUR nostro accounts with several international Correspondent Banks
The Sender’s Bank issues a Payment Order to Alfa-Bank in Russia for credit of the Beneficiary
If the Sender’s Bank is not one of Alfa-Bank's Correspondent Banks then it will forward this Payment Order to a Correspondent Bank of Alfa-Bank. This Bank will then issue the Payment Order to Alfa-Bank via SWIFT 6

11. DPR Securitisation Structure
Transaction Structure
Transaction Summary
Initial Flow of Funds
Alfa-Bank pledges the DPRs via a secured loan agreement to an SPV in a tax neutral jurisdiction
The SPV funds the loan secured by the DPRs via a note issuance in the international capital markets
Exporters trade as normal with importers who make SWIFT payments to the designated correspondent banks (the “Correspondent Banks”) of Alfa-Bank
Alfa-Bank instructs approximately five to eight Correspondent Banks to redirect USD and EUR payment flows to the SPV
The SPV traps sufficient cash to meet the next debt service under the Notes
Offshore
Russia
SPV
Collection
Account
Note proceeds 2
Alfa-Bank
Pledge of DPRs 3 1
Notes
Note proceeds
Note Investors
The SPV sells Notes to investors for a consideration of US$x million
The SPV pays US$x million to Alfa-Bank as a loan secured by existing and future DPR flows pledged or sold under the Factoring Agreement
Alfa-Bank pledges to the SPV all its rights, title and interest in and to all DPR payment rights 7

12. DPR Securitisation Structure
Processing and Financing of DPRs
Ongoing Flow of Funds
Offshore
Russia
Sender
Sender’s Bank
Correspondent
Banks
Instructions to remit payments to SPV
Alfa-Bank
Payments 5
Sender
USD/EUR payments 2 1
USD/EUR payments
Beneficiaries
SPV
Collateral Account
Excess funds 4 3
Debt service
Note Investors
Senders instruct their foreign Correspondent Banks to remit payments to beneficiaries in Russia, either directly or via the Sender’s Bank
Alfa-Bank’s Correspondent Banks send Payment Orders to Alfa-Bank via SWIFT and deposit the funds into Alfa-Bank’s nostro accounts at these Banks. Funds are periodically transferred to a Collateral Account of the SPV
Funds from the Collateral Account are used by the SPV to meet debt service payments under the Notes (interest and principal)
Once the SPV has sufficient funds in the Collateral Account to cover the debt service for the next payment period, the excess funds are transferred to Alfa-Bank
Alfa-Bank continues to service the Payment Orders to its clients in Russia 8

13. Alfa-Bank Transaction Summary

14. Alfa-Bank Transaction Summary
Alfa-Bank US$350m Series 2006-A Issuance Backed by DPRs
Summary Terms and Conditions
Issuer:
Alfa Diversified Payment Rights Finance Company S.A.
Originator:
Open Joint-Stock Company “Alfa-Bank”
Transaction Type:
Series 2006-A Notes issued under Alfa-Bank’s newly established multi-issuance DPR Programme
Credit Priority:
Senior secured, ranking pari passu with all other issues off the programme in the future
Format:
Reg S/144A (Alfa’s first ever 144A issuance)
Structure Rating:
Baa3 (Moody’s) (two notches above Alfa’s Ba2 unsecured rating
Nominal Amount:
US$350,000,000
Amortisation Schedule:
20 equal payments
Pricing Date:
27 March 2006
Final Maturity Date:
15 March 2011
Average Life:
2.5 years
Coupon:
3m US$ Libor bps (quarterly)
Issue/Re-offer Price: %
Re-offer Spread:
3m US$ Libor bps per annum 9

15. Geographic Distribution Geographic Distribution
Alfa-Bank Transaction Summary
Alfa-Bank US$350m Series 2006-A Issuance Backed by DPRs
Highlights
Geographic Distribution
The issue attracted a high quality order book with broad geographic distribution and strong participation from many premier Emerging Market asset managers and insurance companies, a very significant number of accounts
The 57% participation of US investors is one of the highest ever penetrations of the US investor base for a Russian transaction under 144A, this is all the more notable as the deal was Alfa-Bank's debut deal under 144A
Highlights
Geographic Distribution 10

16. Alfa-Bank Transaction Summary
Designated Depositary Banks (“DDBs”)
DPRs are paid by the sender’s banks into accounts at Alfa-Bank’s Depositary Banks outside of Russia
Depositary Banks that have signed Account Agreements are known as Designated Depositary Banks (“DDBs”)
Payments into accounts held at DDBs are controlled by the Trustee (JP Morgan Chase Bank in this transaction)
Alfa-Bank has signed Account Agreements with four of its top US$ Depositary Banks
89.96% of the DPRs received by Alfa-Bank in 2005 flowed through the four DDBs:
Ratings
2005 DPR Flows (in US$)
Designated Depositary Bank
69.14%
9,750,625,436
Aa3 / A+ / A+ (pos)
JP Morgan Chase Bank, New York
12.18%
1,718,057,446
Aa3 / AA- / AA-
Deutsche Bank Trust Co. Americas, New York
4.56%
643,582,162
Aa2 (pos)/ A+ (pos) / AA-
HSBC Bank USA, New York
4.07%
574,021,537
Aa3 / A+ / AA-
Bank of New York, New York
10.04%
1,416,516,850
Others
100.0%
14,102,803,431
Collections
89.96%
12,686,286,581
Total – Designated Banks 11

17. Alfa-Bank Transaction Summary
Structural Features Protecting Investors
Comprehensive Mitigation of Risk – Early Amortisation Events 12

18. Alfa-Bank Transaction Summary
Triggers Provide Further Security for Investors
Test
Early Amortisation of the Notes will be triggered in the event of the following 13

19. Alfa-Bank Transaction Summary
Further Tests and Covenants
Other Structural Features 14

20. Alfa-Bank Transaction Summary
Actual Debt Service Coverage Ratios
Monthly Debt Service Coverage Ratio
Quarterly Debt Service Coverage Ratio
These numbers are calculated using Alfa-Bank’s 2005 DPR flows and assuming a US$350m note issuance 15

21. Transaction Documents
“Programme Structure” Provides Flexibility and Cost-Savings
Future Flow Securitisation
Transaction Documents
Allows the issuer to sell multiple series of debt certificates from the same assets. All series share the credit risks and cash flows from a single large pool of Receivables
Offers potential for an ongoing programme of financing, as funding needs dictate, and access to a variety of investors, maturities and currencies on both a strategic and opportunistic basis
Allows more flexibility for the issuer to tailor the credit and repayment profile of the issued securities
Despite slightly higher initial costs, offers the ability to transact more cost effective future flow securitisations on an ongoing basis
Different series can have different tenors and amortisation schedules
Notes can be issued in multiple currencies (e.g., U.S. Dollars, Yen, Euros, etc.)
Notes can bear either a fixed or floating interest rate
Notes can be “enhanced” (e.g., supported by a financial guarantee) or “unwrapped” (e.g., not supported by a financial guarantee)
Notes can be offered to investors in several ways (e.g., registered with the SEC, 144A or “pure” private placement)
The primary documents used in a secured loan structure are:
Secured Loan Agreement
Secured Loan Supplement(s)
Pledge Agreement
Indenture
Indenture Supplement(s)
Account Agreements 16

22. Why Use Future Flow Securitisation?

23. Why Use Future Flow Securitisation?
Advantages
Lower cost of funding
Execution stability in more difficult markets
Higher rated than senior unsecured debt
Alternative/diversification of funding sources
Ability to attract monoline guarantors, subject to ratings
Lessons Learned
Distribution strength is key – choose the Arranger well
Ability to negotiate & structure with Rating Agencies is crucial
Investors are willing to understand and accept new structures from Russia
True sale vs. pledge of assets – tax implications 17

24. Merrill Lynch – The Leader in Russia & CIS Securitisation
US$300m
Due September 2009
Rosbank
November 2004/January 2005
Russia’s first ever
Bank securitisation
US$1,250m
Due February 2020
Gazprom
July 2004
Russia’s first Structured
Export Notes transaction
US$350m
Due March 2011
Alfa Bank
March 2006
Russia’s first
DPR securitisation
[US$430m] in execution
Due March 2012
MDM Auto Loan
October 2006
Russia’s first 144A
Auto Loan Securitisation 18

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