2011 09 bond market review

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CEE bond market review, September 2011

Finasta 2011

Central and Eastern Europe bond market review

I. CEE government bond marketCEE GOVERNMENT BOND MARKET REVIEW

The fears of Greek insolvency and possible contagious effects in other member states of the euro area have beencausing market nervousness for more than a year. Recently, the fears have intensified as expectations of anotherglobal recession came on stage. The investors directed their funds from the riskier assets such as stocks to saveheavens such as gold and government debt securities. Lately, the 10 year US and Germany government yields hasfallen to their new lows 1.95% and 1.74% respectively (see Figure 1). CEE government debt market has also beenaffected by the global risk aversion. Most CEE government benchmark yields continued to drop (see Figure 2) whichled to wider spreads especially at the long-end of the curve.

Currently we focus on short-term debt securities and trying to take advantage of higher spreads of CEE bonds thatwe believe are cheap in cash. New government bonds issue market was buoyant in the first half of the year, but

dried out in August. However, several countries have still not sufficed their borrowing needs for this year and mightbe forced to tap the markets this autumn.

The turmoil in the markets has driven the credit default swap spreads (see Figure 5 and Figure 6) thereby indicatinggenerally weaker confidence in the market. Given the current negative financial environment this might offerinvestors better yields from otherwise economically sound countries.

Figure 1. 10 year government bond yields (%) Figure 2. Selected long-term CEE government bondyields (%)

1,6

2,0

2,4

2,8

3,2

3,6

4,0

2010/09

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2011/09

US Gremany

3

3,5

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5,5

6

6,5

7

2010/09

2010/11

2011/01

2011/03

2011/05

2011/07

2011/09

RO (2018)

SI (2018)

HU (2018)CZ (2018)

LV (2018)

SK (2017)

PL (2018)

TU (2019)

Source: Bloomberg

Figure 3. Short-term government bond yields Figure 4. Long-term government bond yields

0,0

1,0

2,0

3,0

4,0

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6,0

0 1 2 3 4 5 6A+ A- BBB BBB- BB+

SK

PL

LT

BG

HU HRRO

MK

2,0

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6,06,5

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0,00 1,00 2,00 3,00 4,00 5,00 6,00 7,00AA A+ A- BBB BBB- BB+

SI

CZ SK

PLLT

HRHU

RO

TULV

Source: Bloomberg and Fitch ratings


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Figure 5. Credit default swaps (5 year, basis points) Figure 6. Credit default swaps (5 year, basis points)

050

100150200250

300350400450500

2010/09

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2011/01

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HR CZ DE HU

SI PL TU SK

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BG KZLV LTRO RUUA (rh scale)

Source: Bloomberg

CEE MACROECONOMIC FEATURES

BulgariaBulgaria is the poorest EU member state in terms of GDP per capita. Bulgarian economic recoveryrelied on export growth. However the last quarter was a negative surprise for the markets. In Q2

GDP growth slowed from 3.4% y/y to 1.9% y/y due to the decline in exports which comprises 2/3 of Bulgarian GDP.The news was followed by lower economic growth forecasts for 2011. Outlook for 2012 is also questionable due togloomy economic outlook in the euro area and the proximity of Greece. Recovering domestic demand might not besufficient. As for public finance, Bulgaria is one of the most prudent (next to Estonia) new member states withbudget surpluses in the pre-crisis period and one of the lowest public debts in the region at the moment.

CroatiaCroatian economic development was rather disappointing in 2010. Despite the revival of the globaleconomy countrys GDP fell by 1.2% last year. The Q1 2011 also remained weak and GDP posted

only a mild positive growth rate in Q2. The start of tourism season should support the Croatian economy during Q3.But the economy is not expected to grow by more than 1% this year. The deleveraging among households andcorporations continues and weak labor and credit markets weigh on the economy. Croatian fiscal stance among itsCEE peers seems rather unattractive as well. Country is projected to have one of the largest budget deficits nextyear. Nevertheless, Croatia is to join the EU in 2013. This should provide a boost for the countrys economy as wider

opportunities to use EU funds emerge.

GeorgiaEconomic figures published at the beginning of the year supported expectations of a robust GDPgrowth in 2011. Georgian GDP is expected to grow by 5.5% this year. Markets seem to be confident

with this as Georgia successfully raised USD 500m by issuing Eurobonds at favorable terms this April. Governmentauthorities intend to reduce deficit further in 2011. However, large current account deficit (up to 13% of GDP)remains a source of vulnerability especially when the needs to finance debt are increasing. Unemployment is stillhigh and adjustments to bring fiscal position to more sustainable levels are required.

HungarySo far Hungarian economic recovery relied on industry, which is dependent on exporting toGermany. Domestic demand remains economys weakest link and worsening European outlook

causes reasonable concerns. If euro area (especially Germany) starts consuming less, this will definitely hurtHungarian GDP growth as there is no counterbalance from the domestic demand. Austerity measures implementedby the government have constrained the household spending. However, the same measures led to Fitch rating

agency raising sovereign debt rating outlook to stable. Nevertheless, Hungary is sometimes considered as the Italyof Eastern Europe as it has the highest public debt to GDP ratio in the region. As almost half of the public debt isnon-forint, the central bank has a limited capacity to reduce its policy rate as it may cause forint depreciation andrise of the debt burden. Hungarian central bank has kept its key policy rate on hold at 6% for a seventh month in arow this August.

KazakhstanKazakh economy is strongly dependent on the developments in global commodity markets. Oil, gasand metal sectors account for a quarter of countrys GDP. Thus recent fluctuations in the global

markets may affect Kazakhstan economy. However, economic growth in H1 2011 was also supported by the growthin consumption. Level of investment was fairly weak. GDP grew by 7.1% in H1 2011, and full year growth isprojected to be at 5.9%. Kazakhstan public finance appears to be among the most prudent in our sample ofcountries. Currently government is planning its budget based on the baseline scenario of USD 80/bar. oil price.Government plans a wave of privatization by making IPOs and attracting strategic foreign investors over next fiveyears. Tax policy should be focused on stimulating non oil sector. Monetary policy lacks power to affect the inflation

due to irresponsive credit markets.

LatviaLatvian GDP growth was weakest among Baltic states in H1 2011. However, Q2 GDP growth camein above the expectations at 5.3% y/y. Latvia has suffered the worst economic downturn in the


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European Union in 2009 and barely escaped currency devaluation; its GDP contracted by 0.3% in 2010 as well.Latvian economy is on a stronger ground now but its return to the pre-crisis levels may take a couple of years.Especially when the economic outlook in the Western Europe is becoming cloudy.

LithuaniaThe economy is recovering rapidly after the downturn in 2009. GDP growth numbers outperformedmost expectations in H1 2011. The economic growth is expected to decelerate in H2 2011 as

expansion becomes more balanced. Good news, that the recovery is more widespread all expenditure componentsgrew in Q2 2011. In the light of current euro area problems further economic rebound in Lithuania remainsquestionable. Budget deficits prevail and there are concerns that government may be myopic or populistic insketching its budget projections. The public debt is still at sustainable levels but the danger of faster than expecteddebt accumulation prevails.

MacedoniaEconomic recovery in Macedonia continued in the beginning of 2011. Countrys GDP is projected togrow by 3% supported by exports and investment spending in 2011. Projections are subject to

adverse external developments. More importantly over 30% of labor force is unemployed and the same percentageof population is living below the poverty line. This suggests a notable presence of the shadow economy which,according to Macedonian statistics, may account to 15-40% of GDP. Hence country still has a lot of space to catchup. Macedonias immediate goals are EU and NATO accession as well as reduction of corruption and attraction ofFDI.

RomaniaRomanias GDP started to rebound only in Q1 2011 and was one of the latest in CEE. As mostlyeverywhere in CEE economy remains driven by the industry and exports, which are again subject to

external shocks. In Q2 Romanian economic growth decelerated from 1.7% y/y to 1.4% y/y mainly on the back ofthe poorer performance of industrial and exporting sectors. Romania, as well as Bulgaria, has one of the biggestpresences of Greek banks in the banking sector, which makes its financial system potentially more vulnerable to thespillover effects from Greece. General elections will take place in 2012 which may threaten budget deficit targets.

RussiaRussian GDP failed to meet market expectations as economic growth decelerated to 3.4% y/y inQ2 2011. The outlook for H2 2011 is brighter as agricultural sector should rebound after a severe

drought last year. Given the expansive fiscal policy the ever rising break-even oil price is required. It may reach 108-115 USD per barrel. Thus, the country is likely to face budget deficits as oil prices are getting lower. Governmentbond supply is expected to grow but the country still has one of the best public finance numbers in the CEE withgross debt below 10% of GDP.

SerbiaSince the beginning of 2010 economy started recovering from the downturn on the annual basis. Inthe end of April it was announced that International Monetary Fund will provide another stand-by

loan to Serbia. The EUR 1bn deal is yet to be approved in IMF headquarters. According to the Serbian government,the loan will be used only in the extreme case. Otherwise, the IMF guarantee will be used as insurance from adversedomestic and external economic developments and should be positively accepted by the markets. Serbian economicrecovery decelerated from 3.4% y/y to 2.2% y/y in Q2 2011. However, recent headwinds in the global economy arevery likely to put a weigh on the Serbian GDP growth as well.

UkraineExternal demand as well as domestic consumption is adding to the economic improvement. GDPgrowth moderated in Q2 but stronger support should be evident from the expected strong

agriculture results in Q3. Good economic performance may help to contain relatively moderate budget deficit.However, recent turmoil in the global economy may keep the government away from international debt markets.

Figure 7. Government gross debt (to GDP) Figure 8. Government net lending (% of GDP)

0

20

40

60

80

100

Russia

Kazakhstan

Bulgaria

FYRMacedonia

Turkey

Romania

Serbia

Latvia

Georgia

C

zechRepublic

Ukraine

Slovenia

Lithuania

SlovakRepublic

Croatia

Poland

Cyprus

Hungary

2011

2012

-7-6-5-4-3-2-10123

Croatia

Lithuania

Hungary

Slovenia

Poland

Slov

akRepublic

Cyprus

Cze

chRepublic

Romania

Serbia

Ukraine

Georgia

FYR

Macedonia

Latvia

Russia

Turkey

Bulgaria

Kazakhstan

2011

2012

Source: International Monetary Fund and European Commission


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CEE GOVENRNMENT BONDS CASE STUDY: Romania government bonds 2012

Figure 9. XS0147466501 yield to maturity (%)

Source: Bloomberg

Issuer: Government of RomaniaISIN: XS0147466501

Maturity date: 2012 August 05Issue amount: EUR 7mCoupon: 8.5%Coupon frequency: AnnualLiquidity: HighIndicative YTM: 2.3% (~200bps above Germany)

Romanian short-term bond spread from Germany has increased significantly during the last month and offers agood yield at the short-end of the curve. Romania is implementing planned austerity measures and is in goodrelationships with IMF.

Romania had to turn to IMF in 2008 to acquire external funding. However, in return country implemented severalausterity measures in order to balance its budget and achieve sustainable economic growth. Latest IMF missionvisited Romania at the end of July and officers were pleased with the progress. IMF points to Romaniascommitment to reduce budget deficit by 2012 as well as improvements in budget revenue collection, optimizationof expenditure and planned sales of minority and majority stakes in state-owned enterprises.

Credit strengths Credit challenges

Cooperation with international lenders ensures

financial prudency and continuous effort to balance

countrys finances.

Major austerity measures were taken in 2010 and

this should allow for recovery of internal demand in

2011.

Floating exchange rate allows for adjustments in

competitiveness without internal devaluation.

Economy depends on its export markets and

uncertain global economic environment.

High level of corruption puts a burden on successful

use of EU funds and reduces GDP growth rate.

Modest GDP growth rate.

The presence of Greek capital in the banking sector.

Elections will take place in 2012 and might

discourage politicians form fiscal conservatism.


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II. CEE corporate bond marketCEE CORPORATE BOND MARKET REVIEW

CEE debt has not been immune to the recent stress in the global markets. The CEE corporate bond yield spreadsfrom risk-free debt securities have widened, as August was another month of global risk aversion. Having startedthe year strongly, new issue activity has absolutely collapsed over the August (see Figure 10). There were almost noprimary deals brought to the market. Corporates are likely to return to the capital markets only when conditions willimprove.

Figure 10. New CEE* corporate bond issues in 2011 Figure 11. Bond market returns

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01020304050

60708090

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Amount issued (bnEUR) (rh scale)

Number of new issues (lh scale)

225

230

235240

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98

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Finasta Emerging Europe Bond Fund (lh scale)

JP Morgan Corporate Emerging Markets Bond Index BroadEurope

*selected countries: Cyprus, Bulgaria, Croatia, Czech Republic, Georgia, Hungary, Latvia, Lithuania, Macedonia, Poland, Romania, Russia, Slovakia,Slovenia, Turkey, Ukraine, Serbia and Kazakhstan.

Source: Bloomberg and Finasta

While the current price action in CEE was mainly driven by the external events, we believe that these drivers willremain in place and will determine the near term performance of the regional credit markets.

We favor a strategy that focuses on achieving balanced capital growth, outlining names that have solidfundamentals, are largely investment grade or quasi-sovereign. Considering the duration spectrum, we prefer short-maturity notes as having low volatility under current global economic settings. At the same time, we think thatshould the risk averse on the core markets diminish, the CEE credits have space to rally because the recent sell-offresulted in spreads widening that are against the fundamentals.

CEE CORPORATE NEWS (AUGUST, 2011)

Oil&gas MOL (Hungary), an integrated oil and gas company, reported quite strong Q2 2011financial results. Revenue climbed by 44% y/y to USD 7.0bn, EBITDA went up by 64%y/y to USD 0.84bn and net profit was USD 0.292bn. Results were boosted by higher crude oil prices and by higheroil products sales. Net debt decreased by 12.7% from the beginning of 2011 to USD 4.2b. (16.08.2011)

Nizhnekamskneftekhim (Russia), the petrochemical company, posted strong H1 2011 financial results. Thecompany received RUB 59.6b of revenue (+34.5% y/y) and earned RUB 4.8b of net profit (+45.6% y/y). Net debtamounted to RUB 7.2b and was lower by 48.2% from the beginning of 2011. (25.08.2011)

Zhaikmunai (Kazakhstan), an independent oil&gas producer, released strong Q2 2011 profitability results.Revenue amounted to USD 73.5m (+2.2 times) and net profit surged to USD 24.9m (+4.1 times). Net debtamounted to USD 309.6m and was by 3% higher from the beginning of 2011. (29.08.2011)

Gazprom (Russia) Q1 2011 financial results were really strong as the company achieved record EBITDA of RUB1 317bn (+41% y/y) and net profit was RUB 468bn (+41% y/y). Sales revenue was boosted both due to higher salesvolumes and prices of natural gas sold. The growth of sales volumes was highest in FSU* countries (+86%) and theprice of natural gas increased most in European Union countries. Despite strong profitability, free cash flows were


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negative in Q1 2011. Net debt amounted to RUB 840.5bn and was by 3.5% lower ytd. (30.08.2011)

*FSU Gazprom definition: Former Soviet Union.

BankingBank of Georgia (Georgia) earned USD 28.1m (+165% y/y) in Q2 2011. Net profit was

supported by higher net interest income (+28.6% y/y), other non-interest income(+55.9% y/y) and lower provisions (-81% y/y). Net loans climbed by 3.1% ytd and deposits grew by 3.7% ytd. Wewelcome higher net interest margin and expect to see higher growth of loans in H2 2011. (16.08.2011)

OTP Bank (Hungary) net profit climbed by 36% y/y to HUF 37.3bn in Q2 2011. The profit was mainly influenced bylower provisions. However, it is too early to claim that the credit quality of loan portfolio improved as CHF wasstrengthening in August. Recent devaluation of Swiss currency should benefit the creditworthiness of theborrowers. Net interest income rose by 1% to HUF 151bn. Assets decreased by 1% ytd and net loans were lower by5%. Consolidated capital adequacy ratio remained strong and amounted to 18%. (19.08.2011)

AgricultureAgroton (Ukraine) the agricultural company reported it received USD 65.5m ofrevenue in H1 2011 (+3.2 times more y/y), adjusted EBITDA amounted to USD 8.4m

(USD -6.7m in H1 2010) and net profit was USD 34.2m (+21.7% y/y). The revenue increased mostly due to higherprices of wheat and sunflower. The sold volumes of these products have also risen on the annual basis. The

company keeps on expanding its production capacity by increasing the land portfolio and storage capacities. The netdebt stood at USD 15.3m at the end of H1 2011. We remind that the company issued bonds of USD 50m in thisJuly. (01.09.2011)

Avangard (Ukraine), the largest eggs producer in Ukraine, keeps on demonstrating strong financial performance.The revenue in H1 2011 grew by 35% y/y to USD 223.9m., EBITDA went up by 43.6% to USD 91.2m and net profitwas USD 64.8m or by 6.9% higher. Shell egg production rose by 50.5% y/y, but the prices of products remainedalmost unchanged. EBITDA margin increased despite the fact that price of grain rose in H1 2011. Thus, it will bedifficult to keep EBITDA margin higher than 40%. Net debt stood at USD 110.9m in the end of H1 2011 and was by54% higher ytd. (30.08.2011)

Metals and miningSeverstal (Russia), vertically integrated steel producing company, reported EBITDA ofUSD 1.1bn (+13.9% y/y) and net profit of USD 601.6m (+3.1 times). Revenue increased

by 20.4% y/y to USD 4 382m. Higher price of steel products and slightly higher sales volumes contributedpositively to the companys results. Gold segment grew strongly as gold price has been constantly climbing up.Sales volume of gold increased by 44% y/y. However, the prices of steel products have been declining in the recentmonths, thus the outlook on H2 2011 results is not so positive.

TransportationNovorossiysk Sea Port (Russia), the largest Russian port operator transshipped by2.5% fewer y/y products in July what is a slightly disappointing result. A 5% decrease

of liquid cargo transshipment had the largest negative influence on total cargo transshipment drop. However, bettery/y results were seen in bulk cargo segment as more iron ore, grain and fertilizers were transshipped. We remindthat embargo of Russian grains export was lifted at the beginning of July, thus strong y/y growth of this cargotransshipment will be seen in the following months. (12.08.2011)

CEE CORPORATE BONDS CASE STUDY: Bank of Georgia (B/Ba3/B+) 2012 bonds

Figure 12. XS028375662 yield to maturity (%)

0

2

4

6

8

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12

2010/01

2010/03

2010/05

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2011/01

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2011/09

Ask YTM

Bid YTM

Issuer: BG Finance B.V.ISIN: XS028375662Maturity date: 2012 February 08Issue amount: USD 200mOutstanding amount: USD 70.114mCoupon: 9.0%Coupon frequency: SemiannualListing: London S.E.Liquidity: LowIndicative YTM: 5.1% (~500bps above UST)

Bank of Georgia (BoG) Eurobonds mature in February 2012, and their price has virtually no exposure to the external

news flow. BoG ability to pay off its creditors is beyond doubt; therefore, this short Eurobond issue offering a yield

of just over 5% may be of interest for conservative investors as a protective asset.


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Bank of Georgia (BoG) is the largest universal bank in Georgia with a leading market position in most areas of

banking. It had 36% share of domestic banking assets and gross loans, 35% of client deposits and 36% of equity at

June 2011. BoG serves more than 735,000 retail and 93,000 corporate customers through its network of 143

branches and 408 ATMs.

Its operations are concentrated in Georgia, which provided over 90% of consolidated income and assets in 2010,

with the rest coming from subsidiaries in Belarus (Belarusky Narodny Bank) and until recently Ukraine (the Ukrainian

subsidiary, BG Bank, was sold in early 2011). The Bank also promotes its wealth management services via offices in

Israel, Ukraine and UK.

Georgian GDP grew by higher than expected 6.4% y-o-y in 2010, outperforming virtually all peers, with medium-

term growth prospects also strong. The Georgian banking sector remains highly underpenetrated, its loans-to-GDP

ratio remaining at a modest 30% as of end 2010.

Credit strengths Credit challenges

Leading domestic market position with a well-known

franchise and brand.

Transparency and good governance, over 89%

institutionally owned. Supervisory Board includes two large

institutional shareholders and five independent directors.

Experienced Western trained management team that is

implementing a prudent strategy.

Healthy economic and regulatory capitalisation.

Diversified funding base including Eurobonds, financing

from IFIs (EBRD, IFC, OPIC and others) and foreign wealth

management.

Strong growth potential in the highly underpenetrated

Georgian market, facilitated by the countrys liberal

economic system and low corruption.

Very high probability of systemic support in case of need

Strong H1 2011 operating performance: a pick-up in NIM,

strong loan growth, healthy fee income growth, good cost

control and asset quality improvements.

High liquid assets buffer: cash & equivalents and cash with

other bank stand at 647 mln. USD as of end 2011 1H.

Substantial risks emanating from the

political and operating environment.

Rapid loan book growth, which poses a

challenge for the bank's risk management

function and loan book quality.

Above average structural funding pressures


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Table 2. Bank of Georgia 2011 1H financial highlightsConsolidated, Unaudited IFRS, millions USD 2010 1H 2011 1H Growth y-o-y

Net Interest Income 70,1 52,5 20,6 %Net Non-Interest Income 45,6 32,7 26,1 %Total Operating Income 115,7 85,2 22,7 %Recurring Operating Costs 58,2 50,3 4,4 %Profit Before Provisions 55,5 33,9 47,8 %Net Provision Expense 4,3 10,8 -63,7%Net Income/Loss 46,5 19,7 113,1 %

Net Loans 1075,0 1464,1 23,1 %Total Assets 1856,4 2474,2 20,4 %Client Deposits 806,4 1247,8 39,8 %Borrowed Funds 512,7 488,1 -14,0 %Total Liabilities 1504,1 2023,1 21,5 %Shareholders Equity 352,3 451,1 15,7 %

Key ratiosROA, annualized 2,1 % 3,8 %ROE, annualized 11,2 % 20,6 %Net Interest Margin 8,1 % 7,1 %Cost / Income 60,2 % 52,0 %Net Loans To Total Assets 57,9 % 59,2 %Liquid Assets To Total Assets 24,3 % 25,5 %

Liquid Assets To Total Short-Term Liabilities 34,8 % 37,9 %Liquid Assets To Total Liabilities 31,2% 30,0%Net Loans To Total Deposits 116,2 % 108,3 %Total Deposits To Total Assets 49,8 % 54,6 %NPLs To Gross Loans To Clients 8,0 % 3,9 %Equity To Total Assets 19,0 % 18,2 %NBG Total Capital Adequacy Ratio 14,5 % 15,1 %

Source: Company data, Bank Finasta

Prepared by:AB bank Finasta Capital markets department

Rta Medaiskyt, [email protected]

+370 5 203 22 19

Sales contacts:Marius Dubnikovas, Head of institutional sales

Phone: +370 5 203 22 [email protected]

AB bank FinastaMaironio str. 11, LT-01124

VilniusLITHUANIA

www.finasta.com


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Appendix

III.1 Macroeconomic projections

Bulgaria 2010 2011F 2012F

Real GDP growth 0.2% 2.1% 2.5%Inflation (annual average) 3.0% 4.8% 3.7%Budget balance (to GDP) -3.6% -2.6% -1.5%Government gross debt (to GDP) 18.0% 19.7% 20.0%

Croatia 2010 2011F 2012F

Real GDP growth -1.4% 1.2% 1.8%Inflation (annual average) 1.0% 3.5% 2.4%Budget balance (to GDP) -5.3% -6.3% -6.1%Government gross debt (to GDP) 40.0% 44.1% 47.6%

Cyprus 2010 2011F 2012F


Czech Republic 2010 2011F 2012F


Estonia 2010 2011F 2012F

Real GDP growth 3.1% 6.5% 5.5%Inflation (annual average) 2.9% 5.5% 6.0%Budget balance (to GDP) 0.2% -1.0% -0.7%Government gross debt (to GDP) 6.6% 6.3% 6.0%

Georgia 2010 2011F 2012F


Hungary 2010 2011F 2012F

Real GDP growth 1.2% 2.8% 2.8%Inflation (annual average) 4.9% 4.1% 3.5%Budget balance (to GDP) -4.1% 3.9% -4.3%Government gross debt (to GDP) 80.3% 76.6% 76.9%

Kazakhstan 2010 2011F 2012F

Real GDP growth 7.0% 5.9% 5.6%Inflation (annual average) 7.4% 9.1% 6.4%Budget balance (to GDP) 1.5% 1.8% 2.1%Government gross debt (to GDP) 11.4% 12.6% 14.1%

Latvia 20102011F 2012F

Real GDP growth -0.3% 3.0% 3.0%Inflation (annual average) -1.2% 5.0% 5.0%Budget balance (to GDP) -7.9% -5.3% -1.9%Government gross debt (to GDP) 39.9% 42.5% 41.0%

Lithuania 2010 2011F 2012F


Macedonia 2010 2011F 2012F

Real GDP growth 0.7% 3.0% 3.7%Inflation (annual average) 1.5% 5.2% 2.0%Budget balance (to GDP) -2.5% -2.5% -2.2%

Government gross debt (to GDP) 24.8% 26.8% 27.4%


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Poland 2010 2011F 2012F


Romania 2010 2011F 2012F

Real GDP growth -1.3% 1.5% 4.3%Inflation (annual average) 6.1% 6.1% 3.4%Budget balance (to GDP) -6.5% -4.4% -2.9%Government gross debt (to GDP) 35.2% 37.8% 37.7%

Russia 2010 2011F 2012F


Serbia 2010 2011F 2012F

Real GDP growth 1.8% 2.0% 5.0%Inflation (annual average) 6.2% 9.9% 4.1%Budget balance (to GDP) -3.5% -3.3% -2.7%

Government gross debt (to GDP) 44.0% 40.5% 39.8%

Slovak Republic 2010 2011F 2012F


Slovenia 2010 2011F 2012F


Turkey 2010 2011F 2012F

Real GDP growth 8.2% 4.6% 4.5%

Inflation (annual average) 8.6% 5.7% 6.0%Budget balance (to GDP) -2.6% -1.7% -1.5%Government gross debt (to GDP) 41.7% 39.4% 37.6%

Ukraine 2010 2011F 2012F


Sources: International Monetary Fund, European Commission, Bloomberg and Finasta

III.2 Sovereign FC long term credit ratings

Country Rating (Fitch/S&P/Moodys) Outlook (Fitch/S&P/Moodys)Bulgaria BBB-/BBB/Baa2 Positive/Stable/StableCroatia BBB-/BBB-/Baa3 Negative/Negative/Stable

Cyprus BBB/BBB+/Baa1 Negative/-/NegativeCzech Republic A+/AA-/A1 Positive/Stable/StableEstonia A+/AA-/A1 Stable/Stable/StableGeorgia B+/B+/Ba3 Positive/Positive/StableHungary BBB-/BBB-/Baa3 Stable/Negative/NegativeKazakhstan BBB-/BBB/Baa2 Stable/Stable/StableLatvia BBB-/BB+/Baa3 Positive/Positive/PositiveLithuania BBB/BBB/Baa1 Positive/Stable/StableMacedonia BB+/BB/non rated Stable/StablePoland A-/A-/A2 Stable/Stable/StableRomania BBB-/BB+/Baa3 Stable/Stable/StableRussia BBB/BBB/Baa1 Positive/Stable/StableSerbia BB-/BB/non rated Stable/StableSlovakia A+/A+/A1 Stable/Positive/StableSlovenia AA/AA/Aa2 Stable/Negative/StableTurkey BB+/BB/Ba2 Positive/Positive/PositiveUkraine B/B+/B2 Positive/Stable/Stable

Source: Bloomberg


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Finasta 2011

III.3 Finastabond quotes, September 14, 2011

Transaction date 2011.09.14Issuer ISIN Maturity

dateDays tomaturity

Coupon Couponfrequency

Nominalvalue

Currency Bid,%

Ask,%

Bid (*) Ask(*)

Settlement date: 2011.09.15Government Treasury Bills

Lithuania LT0000600017 2011.10.05 20 - - 100 LTL 1.71 1.26 99.9053 99.9298Lithuania LT0000610032 2012.03.15 182 6.1 1 100 LTL 2.17 1.69 101.9075 102.1506Lithuania LT0000600033 2012.04.04 202 - 1 100 LTL 2.17 1.77 98.8135 99.0304Lithuania LT0000600041 2012.06.20 279 - 1 100 LTL 2.39 2.02 98.2046 98.4816Lithuania LT0000603227 2012.10.29 410 7.6 1 100 LTL 2.72 2.40 105.2987 105.6752Lithuania LT0000610040 2013.01.24 497 5.6 1 100 LTL 3.02 2.60 103.3597 103.9401Lithuania LT0000603235 2013.08.05 690 4.4 1 100 LTL 3.47 3.17 101.6609 102.2114Lithuania LT0000605107 2015.04.29 1322 4.9 1 100 LTL 4.52 4.20 101.2019 102.2814Lithuania LT0000611014 2016.02.10 1609 3.75 1 100 LTL 4.72 4.00 96.1822 98.9902Lithuania LT0000607053 2018.03.28 2386 5.2 1 100 LTL 5.35 4.98 99.1371 101.1788Lithuania LT1000600262 2012.01.25 132 - - 100 EUR 2.01 1.56 99.2845 99.4417Lithuania LT1000600247 2012.02.01 139 - - 100 EUR 2.00 1.65 99.2487 99.3787Lithuania LT1000600288 2012.04.25 223 - - 100 EUR 2.20 1.70 98.6769 98.9740Lithuania LT1000600296 2012.07.25 314 - - 100 EUR 2.39 2.01 97.9887 98.3024Lithuania LT1000600304 2012.10.24 401 - - 100 EUR 2.55 2.25 97.2447 97.5614Lithuania LT1000600270 2017.09.22 2195 4.95 1 1000 EUR 4.70 4.30 101.2833 103.3810Settlement date: 2011.09.19

Government bondsLithuania XS0147459803 2012.05.10 234 5.875 1 1000 EUR 2.49 1.28 102.1000 102.9000Lithuania XS0163880502 2013.03.05 533 4.5 1 1000 EUR 3.20 2.72 101.8000 102.5000Lithuania XS0435153068 2014.06.22 1007 9.375 1 1000 EUR 3.45 3.21 115.3000 116.0000Lithuania XS0457764339 2015.01.15 1214 6.75 2 1000 USD 4.01 3.69 108.4500 109.4750Lithuania XS0212170939 2016.02.10 1605 3.75 1 1000 EUR 3.96 3.68 99.1500 100.2500Lithuania XS0541528682 2017.09.14 2187 5.125 2 1000 USD 4.69 4.50 102.2500 103.2500Lithuania XS0327304001 2018.02.07 2333 4.85 1 1000 EUR 4.42 4.22 102.3500 103.4500Lithuania XS0485991417 2020.02.11 3067 7.375 2 1000 USD 5.14 5.02 115.0500 116.0000Lithuania XS0602546136 2021.03.09 3459 6.125 2 1000 USD 5.29 5.15 106.1500 107.2500Belarus XS0529394701 2015.08.03 1414 8.75 1 1000 USD 16.68 14.26 78.0000 84.0000Bulgaria XS0145624432 2013.01.15 484 7.5 1 1000 EUR 2.65 2.14 106.2000 106.9000Bulgaria XS0145623624 2015.01.15 484 8.25 2 1000 USD 3.36 3.24 115.2478 115.6525Croatia XS0190291582 2014.04.15 484 5 1 1000 EUR 4.47 4.25 101.2278 101.7727Croatia XS0431967230 2015.01.05 484 6.5 1 1000 EUR 5.80 5.57 102.0108 102.6899Croatia XS0645940288 2018.07.09 2485 5.875 1 1000 EUR 6.79 6.64 95.0955 95.9059Hungary XS0204418791 2011.10.28 39 3.625 1 1000 EUR 3.54 0.76 99.9967 100.3033Hungary XS0161667315 2011.10.29 39 3.625 1 1000 EUR 3.83 3.55 100.8598 101.2404Macedonia XS0438534579 2013.01.08 477 9.875 1 1000 EUR 5.49 4.63 105.3945 106.5182Romania XS0147466501 2012.05.08 232 8.5 1 1000 EUR 2.82 2.39 103.4801 103.7700

Romania XS0638742485 2016.06.17 1733 5.25 1 1000 EUR 5.32 5.21 99.6771 100.1234Settlement date: 2011.09.19

Corporate bondsMOL XS0231264275 2015.10.05 1477 3.875 1 1000 EUR 7.04 6.18 89.19 91.96UkrSibbank XS0278743710 2011.12.21 93 7.75 2 1000 USD 9.18 4.11 99.60 100.90Mobile Telesystems XS0211216493 2012.01.28 131 8 2 2000 USD 5.25 2.88 100.95 101.80OJSC Raspadskaya XS0301347372 2012.05.22 246 7.5 2 1000 USD 6.10 4.89 100.90 101.70Severstal XS0376189857 2013.07.29 679 9.75 2 1000 USD 5.36 4.64 107.66 108.99Vimpelcom XS0361041550 2013.04.30 589 8.375 2 1000 USD 5.14 4.43 104.93 106.07Vimpelcom XS0253861834 2016.05.23 1708 8.25 2 1000 USD 7.29 6.85 103.73 105.53Vimpelcom XS0361041808 2018.04.30 2415 9.125 2 1000 USD 7.93 7.63 106.07 107.64Lukoil XS0463663442 2014.11.05 1143 6.375 2 1000 USD 4.07 3.55 106.71 108.29Lukoil XS0461926569 2019.11.05 2969 7.25 2 1000 USD 5.90 5.67 108.60 110.20Russian Railways XS0499245180 2017.04.03 2023 5.739 2 1000 USD 4.83 4.52 104.38 105.93Novorossiyk Sea Port XS0300986337 2012.05.17 241 7 2 1000 USD 5.81 4.50 100.75 101.60Vnesheconombank XS0524610812 2020.07.09 3216 6.902 2 1000 USD 5.82 5.64 107.38 108.64Bank of Georgia XS0283756624 2012.02.08 142 9 2 1000 USD 7.29 3.50 100.62 102.08OTP XS0268320800 2016.09.19 1827 5.27 1 1000 EUR 9.75 8.72 82.90 86.50Sinek XS0225785962 2015.08.15 1426 7.7 2 1000 USD 5.71 5.19 106.82 108.68

Nizhnekamskneftekhim XS0463418052 2012.04.20 214 12 2 667 USD 9.28 5.82 101.50 103.50

(*) clean price indicatedAll quotes are indicative.Quotes are good for trades up to 0.5MM LTL

Bloomberg: FNSTwww.finasta.com


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Finasta 2011

DISCLAIMER

This document has been prepared by AB bank Finasta. an affiliate of AB bank Snoras group. AB bank Finasta is regulated by the Bank ofLithuania and the Securities Commission of the Republic of Lithuania. AB bank Finasta maintains strict internal policies that are designed to

manage any actual or potential conflicts of interest from harming the interests of investors. The document is not an offer to buy or sell or thesolicitation of an offer to buy or sell any security or to participate in any particular trading strategy. The information in this document is forinformation purposes only. The document has been prepared for AB bank Finasta clients. Information may not be reproduced. transmitted ordistributed (in whole or in part) by any other person. Information herein has been based upon sources believed to be reliable, but AB bank Finastadoes not represent that it is accurate or complete. All opinions, estimates and forecasts herein reflect the judgment on the date of thispublication and are subject to change without notice. Past performance is not necessarily indicative for future results. The price or value of theinvestments to which the document refers, either directly or indirectly. may fall or rise against the interest of investor. AB bank Finasta does notaccept any kind of liability for losses or damages that may arise from the use of this document. AB bank Finasta neither received nor will receivedirect/indirect reward from the issuers mentioned in this document due to information contained here.

2011 09 bond market review

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