important notice important you must read the following...
TRANSCRIPT
IMPORTANT NOTICE
IMPORTANT: You must read the following before continuing: The following applies to the attached document following
this page, and you are therefore advised to read this carefully before reading, accessing or making any other use of the
document. In accessing the attached document, you agree to be bound by the following terms and conditions, including any
modifications to them, any time you receive any information from us as a result of such access. Definitions set out in this
Important Notice apply only as used herein and not to the attached document following this page.
THE ATTACHED DOCUMENT MAY NOT BE FORWARDED OR DISTRIBUTED OTHER THAN AS PROVIDED
BELOW AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. THE ATTACHED DOCUMENT
MAY ONLY BE DISTRIBUTED OUTSIDE THE UNITED STATES TO PERSONS THAT ARE NOT U.S. PERSONS AS
DEFINED IN, AND IN RELIANCE ON, REGULATION S UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE
ATTACHED DOCUMENT IN WHOLE OR IN PART IS PROHIBITED. FAILURE TO COMPLY WITH THIS
DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER
JURISDICTIONS.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY
JURISDICTION. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER
JURISDICTION. THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN AN OFFSHORE TRANSACTION TO A PERSON THAT IS NOT A U.S. PERSON IN ACCORDANCE
WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT.
Confirmation of your Representation: In order to be eligible to view the attached document or make an investment decision
with respect to the securities, you must be a person other than a U.S. person (within the meaning of Regulation S under the
Securities Act). By accepting the e-mail and accessing the attached document, you shall be deemed to have represented to us
that you are not a U.S. person and that you consent to delivery of such document by electronic transmission.
The attached document may only be provided to persons in the United Kingdom in circumstances where Section 21(1) of the
Financial Services and Markets Act 2000 does not apply to RSHB Capital S.A. and Russian Agricultural Bank. Accordingly,
the attached document is being distributed only to and directed only at (i) persons who are outside the United Kingdom, (ii)
persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005, (the "Order"), (iii) high net worth entities and other
persons falling within Article 49(2)(a) to (d) of the Order, or (iv) those persons to whom it may otherwise lawfully be
distributed in accordance with the Order (all such persons together being referred to as "relevant persons"). The attached
document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons.
Any investment or investment activity to which the attached document relates is available only to relevant persons and will be
engaged in only with relevant persons.
Under no circumstances shall the attached document constitute an offer to sell or the solicitation of an offer to buy, and there
shall not be a sale of the securities being offered, in any jurisdiction in which such offer, solicitation or sale would be
unlawful. Recipients of the attached document who intend to subscribe for or purchase the securities described herein (the
"Series 9 Notes") are reminded that any subscription or purchase may only be made on the basis of the information contained
in the attached document. The attached document may only be provided to persons in the United Kingdom in circumstances
where section 21(1) of the Financial Services and Markets Act 2000 does not apply to the Issuer.
If a jurisdiction requires that the offering be made by a licensed broker or dealer and Citigroup Global Markets Limited (the
"Lead Manager") or any affiliate of the Lead Manager is a licensed broker or dealer in that jurisdiction, the offering shall be
deemed to be made by the Lead Manager or its affiliate on behalf of the Issuer in that jurisdiction.
Under Russian law, the Series 9 Notes are securities of a foreign issuer. The Series 9 Notes are not eligible for initial offering
and public circulation in the Russian Federation. Neither the issue of the Series 9 Notes nor a securities prospectus in respect
of the Series 9 Notes has been, or is intended to be, registered with the Federal Service for Financial Markets of the Russian
Federation. The information provided in the attached document is not an offer, or an invitation to make offers, to sell,
exchange or otherwise transfer the Series 9 Notes in the Russian Federation or to or for the benefit of any Russian person or
entity.
You are reminded that the attached document has been delivered to you on the basis that you are a person into whose
possession the attached document may be lawfully delivered in accordance with the laws of the jurisdiction in which you are
located and you may not, nor are you authorised to, deliver the attached document to any other person.
The attached document does not constitute, and may not be used in connection with, an offer or solicitation in any place where
offers or solicitations are not permitted by law.
The attached document has been sent to you in an electronic form. You are reminded that documents transmitted via this
medium may be altered or changed during the process of electronic transmission and consequently none of Russian
Agricultural Bank, RSHB Capital S.A., the Lead Manager nor any person who controls any of them nor any director, officer,
employee nor agent of it or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any
alterations to the document distributed to you in electronic format.
DRAWDOWN PROSPECTUS
dated 15 February 2012
prepared in connection with the
RUB 10,000,000,000 8.625 per cent. Loan Participation Notes due 2017 (the "Series 9 Notes")
Issued under the
U.S.$10,000,000,000
Programme for the Issuance of Loan Participation Notes
to be issued by, but with limited recourse to,
RSHB CAPITAL S.A.
for the purpose of financing loans to
Russian Agricultural Bank
(the "Programme")
This Drawdown Prospectus (which must be read and construed as one document in conjunction with the entirety of the base prospectus dated 17 May
2011 prepared in connection with the Programme (the "Base Prospectus") and incorporated herein by reference - see "Documents Incorporated by
Reference" beginning on page 2) (the "Drawdown Prospectus") is prepared in connection with the issue of the Series 9 Notes by RSHB Capital S.A.
(the "Issuer") under the Programme. The Series 9 Notes are being issued for the sole purpose of financing a senior loan (the "Series 9 Loan") to
Russian Agricultural Bank ("RAB"), as borrower, on the terms of an amended and restated senior facility agreement between the Issuer and RAB
dated 17 May 2011 (the "Facility Agreement") as amended and supplemented by a senior loan supplement dated 15 February 2012 (the "Series 9
Loan Supplement") in respect of the Series 9 Loan the form of which is set out herein (together with the Facility Agreement, the "Series 9 Loan
Agreement").
Subject to the provisions of an amended and restated principal trust deed dated 17 May 2011 (the "Principal Trust Deed") between the Issuer and
BNY Mellon Corporate Trustee Services Limited (the "Trustee") as amended in respect of the Series 9 Notes by a supplemental trust deed dated 17
February 2012 (together with the Principal Trust Deed, the "Series 9 Trust Deed"), the Issuer will (a) charge, in favour of the Trustee, by way of first
fixed charge as security for its payment obligations in respect of the Series 9 Notes and under the Series 9 Trust Deed, certain of its rights and
interests in respect of the Series 9 Loan Agreement; and (b) assign, in favour of the Trustee, certain of its other rights under the Series 9 Loan
Agreement but excluding any Reserved Rights (as defined in the Terms and Conditions of the Series 9 Notes – see "Terms and Conditions of the
Series 9 Notes"), in each case for the benefit of the holders of the Series 9 Notes (the "Noteholders"), all as more fully described under "Overview of
the Programme" in the Base Prospectus.
In each case where amounts of principal, interest and additional amounts (if any) are stated to be payable in respect of the Series 9 Notes, the
obligation of the Issuer to make any such payment constitutes an obligation only to account to Noteholders, on each date upon which such amounts of
principal, interest and additional amounts (if any) are due in respect of the Series 9 Notes, for an amount equivalent to all principal, interest and
additional amounts (if any) actually received from RAB by or for the account of the Issuer pursuant to the Series 9 Loan Agreement. The Issuer will
have no other financial obligation under the Series 9 Notes. Noteholders will be deemed to have accepted and agreed that they will be relying
solely on the credit and financial standing of RAB in respect of payment obligations of the Issuer under the Series 9 Notes.
The Series 9 Loan will rank pari passu in right of payment with RAB's other outstanding unsecured and unsubordinated indebtedness. Other than as
described in this Drawdown Prospectus and the Series 9 Trust Deed, Noteholders have no proprietary or other direct interest in the Issuer's rights
under or in respect of the Series 9 Loan Agreement or the Series 9 Loan. Subject to the terms of the Series 9 Trust Deed, no Noteholder will have any
rights to enforce any of the provisions in the Series 9 Loan Agreement or have direct recourse to RAB except through action by the Trustee.
This Drawdown Prospectus is to be read and construed in conjunction with the documents which are deemed to be incorporated herein by
reference (see "Documents Incorporated by Reference" beginning on page 2), including the entirety of the Base Prospectus.
AN INVESTMENT IN THE SERIES 9 NOTES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 3.
THE SERIES 9 NOTES AND THE CORRESPONDING SERIES 9 LOAN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, SUBJECT TO CERTAIN
EXCEPTIONS, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ("REGULATION S")). THE SERIES 9 NOTES
MAY ONLY BE OFFERED AND SOLD TO NON-U.S. PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION
S. THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT. SEE
"SUBSCRIPTION AND SALE" AND "TRANSFER RESTRICTIONS" IN THE BASE PROSPECTUS (INCORPORATED BY
REFERENCE HEREIN) FOR FURTHER DETAILS.
This Drawdown Prospectus has been approved by the Central Bank of Ireland, as competent authority under Directive 2003/71/EC (the "Prospectus
Directive"). The Central Bank of Ireland only approves this Drawdown Prospectus as meeting the requirements imposed under Irish and EU law
pursuant to the Prospectus Directive. Application has been made to The Irish Stock Exchange Limited (the "Irish Stock Exchange") for the Series 9
Notes to be admitted to the Official List and trading on its regulated market (the "Main Securities Market"). The Main Securities Market is a
regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments. There
is no guarantee that a trading market in the Series 9 Notes will develop or be maintained. References to the Series 9 Notes being "listed" and all
related references shall mean that the Series 9 Notes have been admitted to trading on the Main Securities Market.
The Series 9 Notes will be offered and sold in minimum denominations of RUB 3,000,000 and integral multiples of RUB 100,000 in excess thereof.
The Series 9 Notes will initially be represented by interests in a global unrestricted Note in registered form (the "RUB Global Note Certificate")
registered in the name of the Bank of New York Depositary (Nominees) Limited and will be deposited on or around 17 February 2012 with a
common depositary for Euroclear Bank SA/NV ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream"). Interests in the RUB
Global Note Certificate will be shown on, and transfers effected only through, records maintained by Euroclear and/or Clearstream. Individual note
certificates ("Individual Note Certificates") in registered form will only be available in certain limited circumstances as described herein.
Lead Manager
Citigroup
- iii -
This Drawdown Prospectus (when read and construed in conjunction with the Base Prospectus and other
documents incorporated herein by reference) comprises a prospectus for the purposes of Article 5.4 of the
Prospectus Directive and for the purpose of giving information with regard to the Issuer, RAB and RAB and
its subsidiaries and associates taken as a whole (the "RAB Group") which, according to the particular nature
of the Issuer, RAB, the RAB Group, the Series 9 Notes and the Series 9 Loan, is necessary to enable
investors to make an informed assessment of the assets and liabilities, financial position, profit and losses or
prospects of the Issuer, RAB and the RAB Group.
Each of the Issuer and RAB accepts responsibility for the information contained in this Drawdown
Prospectus. To the best of the knowledge and belief of each of the Issuer and RAB (having taken all
reasonable care to ensure that such is the case) the information contained in this Drawdown Prospectus is in
accordance with the facts and does not omit anything likely to affect the import of such information.
RAB's legal name is Russian Agricultural Bank and its registered address is 3 Gagarinsky Lane, 119034
Moscow, the Russian Federation. RAB is registered under main state registration number 1027700342890.
The phone number of RAB is +7 495 662 1599.
The Issuer's legal name is RSHB Capital S.A., the address of the Issuer's registered office is 46 A, Avenue
J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg and it is registered with the Register of
Commerce and Companies of Luxembourg under number B.111.968. The phone number of the Issuer is
+352 427 1711.
Each of RAB and the Issuer has derived certain information in this Drawdown Prospectus, including certain
information concerning the Russian banking market and its competitors, which in each case may include
estimates or approximations, from publicly available information, including industry publications, market
research, press releases, filings under various securities laws and official data published by certain Russian
Government agencies, such as the Central Bank of the Russian Federation (the "CBR"), the Ministry of
Economic Development of the Russian Federation and the Russian Committee for State Statistics. Each of
RAB and the Issuer has accurately reproduced such information. As far as each of the Issuer and RAB are
aware, no facts have been omitted that would render the reproduced information inaccurate or misleading.
However, RAB and the Issuer have relied on the accuracy of such information without carrying out
independent verification and do not accept responsibility for the accuracy of such information. The official
data published by Russian federal, regional and local governments may be substantially less complete or
researched than data published by governmental agencies of member states of the Organisation for Economic
Co-Operation and Development (the "OECD"). Official statistics may be compiled on different bases than
those used in the OECD countries. Any discussion of matters relating to the Russian Federation in this
Drawdown Prospectus may, therefore, be subject to uncertainty due to concerns about the completeness or
reliability of available official and public information. See "Risk Factors – Economic Risks – RAB has not
independently verified official data from Russian Government agencies, nor has it independently verified
information regarding the banking sector" in the Base Prospectus.
To the extent that there is any inconsistency between (a) any statement in this Drawdown Prospectus and (b)
any statement in the Base Prospectus, the statement in this Drawdown Prospectus will prevail in respect of
the Series 9 Notes only.
This Drawdown Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Issuer,
RAB, the Trustee or Citigroup Global Markets Limited (the "Lead Manager") to subscribe for or purchase
any of the Series 9 Notes.
- iv -
The distribution of this Drawdown Prospectus and the offer or sale of the Series 9 Notes in certain
jurisdictions may be restricted by law. Persons into whose possession this Drawdown Prospectus comes are
required by the Issuer, RAB, the RAB Group and the Lead Manager to inform themselves about and to
observe any such restrictions. Further information with regard to restrictions on offers and sales of the Series
9 Notes and the distribution of this Drawdown Prospectus is set out under "Issue Terms of the Series 9
Notes" and "Subscription and Sale".
Under Russian law, the Series 9 Notes are securities of a foreign issuer. The Series 9 Notes are not eligible
for offering and circulation in the Russian Federation unless otherwise permitted by Russian law. No sale,
exchange or transfer of the Series 9 Notes may take place in the Russian Federation or to or for the benefit of
any Russian person or entity unless otherwise permitted by Russian law. Neither the issue of the Series 9
Notes nor a securities prospectus in respect of the Series 9 Notes has been, or is intended to be, registered in
the Russian Federation. The information set forth in this Drawdown Prospectus is not an offer of, or an
invitation to make offers, sell, exchange or otherwise transfer, the Series 9 Notes in the Russian Federation
or to or for the benefit of any Russian person or entity. Information set forth in this Drawdown Prospectus is
not an advertisement of the Series 9 Notes in the Russian Federation and is not intended to create or maintain
an interest in the Issuer or the Series 9 Notes or to facilitate any sale, exchange or transfer of the Series 9
Notes in the Russian Federation or to or for the benefit of any Russian person or entity.
No person is authorised to provide any information or to make any representation not contained in this
Drawdown Prospectus and any information or representation not so contained must not be relied upon as
having been authorised by or on behalf of any of the Issuer, RAB, the RAB Group, the Trustee or the Lead
Manager. Neither the delivery of this Drawdown Prospectus nor any sale made in connection herewith shall,
under any circumstances, create any implication that there has been no change in the affairs of the Issuer,
RAB or the RAB Group since the date hereof or that there has been no adverse change (financial or
otherwise) in the condition of the Issuer, RAB or the RAB Group since the date hereof. The delivery of this
Drawdown Prospectus at any time does not imply that the information set forth in it is correct as of any time
after its date.
None of RAB's website, any website of any member of the RAB Group nor any websites referred to in this
Drawdown Prospectus form part of this Drawdown Prospectus.
The Lead Manager has not separately verified the information contained in this Drawdown Prospectus. The
Lead Manager makes no representation, express or implied, or accept any responsibility, with respect to the
accuracy or completeness of any of the information in this Drawdown Prospectus. The Lead Manager shall
not be deemed to have approved the contents of this Drawdown Prospectus nor be deemed to have made any
representation, express or implied, or accept any responsibility, with respect to the accuracy or completeness
of any of the information in this Drawdown Prospectus. In particular, this Drawdown Prospectus is not
intended, and does not, apply to any Notes issued under the Programme other than the Series 9 Notes. This
Drawdown Prospectus is not intended to provide the basis of any credit or other evaluation and should not be
considered as a recommendation by any of the Issuer, RAB, the Trustee or the Lead Manager that any
recipient of this Drawdown Prospectus or any financial statements should purchase the Series 9 Notes. Any
potential purchaser of the Series 9 Notes should determine for itself the relevance of the information
contained in this Drawdown Prospectus, read and construed in conjunction with the Base Prospectus and
other documents deemed incorporated herein by reference, and its purchase of the Series 9 Notes should be
based upon such investigation as it deems necessary. The Lead Manager has not undertaken to review the
financial condition or affairs of RAB or the Issuer while the Series 9 Notes are outstanding nor to advise any
investor or potential investor in the Series 9 Notes of any information coming to the attention of the Lead
- v -
Manager. Furthermore, none of the Issuer, RAB, the Trustee, the Lead Manager or any of their respective
representatives is making any representation to any offeree or purchaser of the Series 9 Notes regarding the
legality of an investment by such offeree or purchaser under relevant legal investment or similar laws. Any
investor should consult with its own advisers as to the legal, tax, business, financial and related aspects of
purchase of the Series 9 Notes.
Prospective purchasers must comply with all laws that apply to them in any place in which they buy, offer or
sell any Series 9 Notes or possess this Drawdown Prospectus or the Base Prospectus. Persons into whose
possession this Drawdown Prospectus or the Base Prospectus comes are required by RAB, the RAB Group,
the Issuer, the Trustee and the Lead Manager to inform themselves about and to observe such restrictions.
Any consents or approvals that are needed in order to purchase any of the Series 9 Notes must be obtained.
RAB, the RAB Group, the Issuer, the Trustee and the Lead Manager are not responsible for compliance with
these legal requirements. The appropriate characterisation of any of the Series 9 Notes under various legal
investment restrictions, and thus the ability of investors subject to these restrictions to purchase such Series 9
Notes, is subject to significant interpretative uncertainties.
This Drawdown Prospectus is only being distributed to and is only directed at (i) persons who are outside the
United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") and (iii) high net worth entities, and
other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order
(all such persons together being referred to as "relevant persons"). The Series 9 Notes are only available to,
and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Series 9 Notes will be
engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this
Drawdown Prospectus or any of its contents, or on the Base Prospectus.
This Drawdown Prospectus contains ratings of RAB, as well as ratings of securities or issuers of securities
held by RAB, that are provided by ratings agencies. A rating is not a recommendation to buy, sell or hold
securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating
agency. In general, European regulated investors are restricted from using a rating for regulatory purposes
unless such rating is issued by a credit rating agency established in the European Community and registered
under Regulation (EC) No. 1060/2009 of the European Parliament and of the Council dated 16 September
2009 on credit rating agencies (the "CRA Regulation") and such registration has not been withdrawn or
suspended, subject to transitional provisions that apply in certain circumstances whilst the registration
application is pending. Such general restriction will also apply in the case of credit ratings issued by non-EU
credit rating agencies, unless the relevant credit ratings are endorsed by an EU-registered credit rating
agency or the relevant non-EU rating agency is certified in accordance with the CRA Regulation (and such
endorsement action or certification, as the case may be, has not been withdrawn or suspended). Fitch Ratings
CIS Limited ("Fitch") is a credit rating agency established in the European Union and is registered under
Regulation (EC) No. 1060/2009 (as amended). Moody's Investors Service Limited ("Moody's") is a credit
rating agency established in the European Union and is registered under Regulation (EC) No. 1060/2009 (as
amended).
In connection with the issue of the Series 9 Notes, the Stabilising Manager (as defined in the Issue
Terms of the Series 9 Notes set out herein), or persons acting on behalf of the Stabilising Manager, may
over-allot the Series 9 Notes or effect transactions with a view to supporting the market price of the
Series 9 Notes at a level higher than that which might otherwise prevail. However, there is no
assurance that the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) will
undertake stabilisation action. Any stabilisation action may begin on or after the date on which
- vi -
adequate public disclosure of the terms of the offer of the Series 9 Notes is made and, if begun, may be
ended at any time, but it must end no later than the earlier of 30 days after the Issue Date and 60 days
after the date of allotment of the Series 9 Notes. Any stabilisation action or over-allotment must be
conducted by the Stabilising Manager in accordance with all applicable laws and rules.
NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE LEAD
MANAGER AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET
FORTH IN THIS DRAWDOWN PROSPECTUS, AND NOTHING CONTAINED IN THIS
DRAWDOWN PROSPECTUS IS, OR SHALL BE RELIED UPON AS, A PROMISE OR
REPRESENTATION, WHETHER AS TO THE PAST OR THE FUTURE. TO THE FULLEST
EXTENT PERMITTED BY LAW THE LEAD MANAGER DOES NOT ACCEPT ANY
RESPONSIBILITY FOR THE CONTENTS OF THIS DRAWDOWN PROSPECTUS OR FOR ANY
OTHER STATEMENT, MADE OR PURPORTED TO BE MADE BY THE LEAD MANAGER OR
ON ITS BEHALF IN CONNECTION WITH THE ISSUER, RAB OR THE RAB GROUP OR IN
CONNECTION WITH THE ISSUE AND OFFERING OF THE SERIES 9 NOTES. THE LEAD
MANAGER ACCORDINGLY DISCLAIMS ALL AND ANY LIABILITY WHETHER ARISING IN
TORT OR CONTRACT OR OTHERWISE (SAVE AS REFERRED TO ABOVE) WHICH IT
MIGHT OTHERWISE HAVE IN RESPECT OF THIS DRAWDOWN PROSPECTUS OR ANY
SUCH STATEMENT.
ANY PERSON CONTEMPLATING MAKING AN INVESTMENT IN ANY SERIES 9 NOTES
MUST MAKE ITS OWN INVESTIGATION AND ANALYSIS OF THE CREDITWORTHINESS OF
RAB, THE RAB GROUP AND THE ISSUER AND ITS OWN DETERMINATION OF THE
SUITABILITY AND RISKS OF ANY SUCH INVESTMENT, WITH PARTICULAR REFERENCE
TO ITS OWN INVESTMENT OBJECTIVES AND EXPERIENCE AND ANY OTHER FACTORS
WHICH MAY BE RELEVANT TO IT IN CONNECTION WITH SUCH INVESTMENT.
THE SERIES 9 NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION IN
THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAVE ANY
OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE
SERIES 9 NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS DRAWDOWN
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN
THE UNITED STATES.
- 1 -
CONTENTS
CLAUSE PAGE
DOCUMENTS INCORPORATED BY REFERENCE.......................................................................... 2
RISK FACTORS .................................................................................................................................... 3
PRESENTATION OF FINANCIAL AND OTHER INFORMATION ............................................... 10
CAPITALISATION OF THE RAB GROUP ....................................................................................... 13
SELECTED CONSOLIDATED FINANCIAL INFORMATION ....................................................... 15
FINANCIAL REVIEW ........................................................................................................................ 18
RELATED PARTY TRANSACTIONS ............................................................................................... 32
RECENT DEVELOPMENTS .............................................................................................................. 34
RUSSIAN TAXATION ........................................................................................................................ 37
TERMS AND CONDITIONS OF THE SERIES 9 NOTES ................................................................ 42
ISSUE TERMS OF THE SERIES 9 NOTES ....................................................................................... 43
SERIES 9 LOAN SUPPLEMENT ....................................................................................................... 50
GENERAL INFORMATION ............................................................................................................... 54
INDEX TO FINANCIAL STATEMENTS ........................................................................................ F-1
- 2 -
DOCUMENTS INCORPORATED BY REFERENCE
The Base Prospectus (which Base Prospectus constitutes a base prospectus for the purposes of
Article 5.4 of the Prospectus Directive) shall be deemed to be incorporated into and form part of
this Drawdown Prospectus in its entirety.
Any statement contained in the Base Prospectus shall be deemed to be modified or superseded for
the purpose of this Drawdown Prospectus to the extent that a statement contained herein modifies
or supersedes such earlier statement (whether expressly, by implication or otherwise). Any
statement so modified or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Drawdown Prospectus.
Terms used herein but not otherwise defined shall have the meanings given to them in the Base
Prospectus. This Drawdown Prospectus must be read in conjunction with the Base Prospectus. Full
information on RAB, the RAB Group, the Issuer and the Series 9 Notes is only available on the
basis of the combination of disclosure and provisions set out within this document (including the
Terms and Conditions of the Series 9 Notes, the Issue Terms of the Series 9 Notes and the Series 9
Loan Supplement, each of which is set out herein) and the Base Prospectus.
In addition the Issuer's audited financial statements as of and for the years ended 31 December
2010, 2009 and 2008 (collectively, the "Issuer Financial Statements"), as filed with the register
of commerce and companies in Luxembourg, shall be deemed to be incorporated in, and to form
part of, this Drawdown Prospectus. The Issuer Financial Statements have been prepared in
accordance with generally accepted accounting principles in Luxembourg and the International
Financial Reporting Standards as issued by the International Accounting Standards Board. The
Issuer Financial Statements have been audited by L'Alliance Révision SARL, with its registered
office at 1, rue des Glacis, L-1628 Luxembourg, Grand Duchy of Luxembourg and trade register
number RCS Luxembourg B46 498, approved statutory auditor. The Issuer's approved statutory
auditor is a member of the Institut des Réviseurs d'Entreprises and is a cabinet de révision agréé is
subject to the supervision of the Commission de Surveillance du Secteur Financier.
- 3 -
RISK FACTORS
Investment in the Series 9 Notes involves a high degree of risk. Prospective Noteholders should
carefully review this Drawdown Prospectus (including the Base Prospectus and other documents
incorporated by reference herein – see "Documents Incorporated by Reference") and, in
particular, should consider carefully the risks set forth below and the other information contained
in this Drawdown Prospectus and the documents incorporated by reference herein.
Attention is drawn particularly to the information under the heading "Risk Factors" on pages
27 to 58 (inclusive) of the Base Prospectus, which must be read in conjunction with the
additional risk factors set out below.
Prospective Noteholders should note that the risks described under the heading "Risk Factors" on
pages 27 to 58 (inclusive) of the Base Prospectus and those described below are not the only risks
that RAB and the Issuer face. These are the risks that RAB and the Issuer currently consider to be
material. There may be additional risks that RAB and the Issuer currently consider to be
immaterial or of which RAB and the Issuer are currently unaware, and any of these risks could
have similar effects to those set forth below. Prospective Noteholders should also read the detailed
information set out elsewhere in this Drawdown Prospectus and the Base Prospectus and reach
their own views prior to making any investment decision.
Additional Risks Relating to the Series 9 Notes
Instability of the Global and Russian Banking Sectors
The volatility and market disruption in the global banking sector has continued throughout 2010,
2011 and into 2012. In particular, global financial markets experienced increased volatility since
the second half of 2011, a period which has seen the sovereign rating downgrades of, amongst
others, the United States, France, Austria, Greece, Ireland, Portugal, Spain and Italy and continued
concerns over the stability of the European monetary system and the stability of certain European
economies, notably Greece, Ireland, Portugal, Spain and Italy. Repeated attempts by European
leaders to find a lasting solution to market concerns about such countries' ability to repay their debt
have not yet resulted in a bail-out package and there remain continuing doubts concerning the
stability of the European monetary system and economy. No assurance can be given that a further
economic downturn or financial crisis will not occur, or that measures to support the banking
system, if taken to overcome a crisis, will be sufficient to restore stability in the global banking
sector and financial markets in the short term or beyond. Although RAB does not have exposure to
Eurozone sovereign debt, the default, or a significant decline in the credit rating, of one or more
sovereigns or financial institutions could cause severe stress in the financial system generally and
could adversely affect, directly or indirectly, the business and economic condition and prospects of
RAB's counterparties, customers or creditors.
The European debt crisis of 2011 so far has had limited impact on the Russian economy since it
has not led to significant declines in the prices of Russia's key exports, mainly natural resource
commodities, including oil and gas, as well as due to Russia's relatively healthy fiscal finances
including a low debt to GDP ratio and high level of international reserves. Nevertheless, in October
2011, Moody's adjusted its ratings outlook for the Russian banking system from "stable" to
- 4 -
"negative". The change reflected concerns that market volatility was weakening Russia's operating
environment, which could potentially negatively affect Russian banks through a systemwide
liquidity contraction, slower credit growth and pressured asset quality over the next 12 to 18
months. In January 2012, the World Bank cut its 2012 global economy growth forecast to 2.5 per
cent. from 3.6 per cent., and the Russian economy growth forecast to 3.5 per cent. from 4.0 per
cent. In January 2011, Fitch Ratings Ltd. lowered its credit rating of the Russian Federation from
"positive" to "stable" based on perceived increased political uncertainty and the global economic
outlook. Should the ongoing crisis lead to a meaningfully worsening global macroeconomic
situation, Russia's overall economic and financial position in the medium term could also be
negatively affected. In addition, the global political unrest, including in the Middle East, may
impact global trade flows and drive commodity prices to higher or lower than existing levels, the
effect of which is difficult to predict.
The Russian taxation system is relatively undeveloped
RAB is subject to a broad range of taxes and other compulsory payments imposed at the federal,
regional and local levels, including, but not limited to, profit tax, value added tax, property taxes
and other taxes. The existing Russian tax legislation, including the Tax Code of Russia (the "Tax
Code"), has been in force for a short period relative to tax laws in more developed market
economies, and the implementation of these tax laws is often unclear or inconsistent.
Despite the Russian Government's taking steps to reduce the overall tax burden in recent years in
line with its objectives, Russia's largely ineffective tax collection system and continuing budgetary
funding requirements increase the likelihood that the Russian Government will impose arbitrary
and/or onerous taxes and penalties in the future, which could have a material adverse effect on
RAB's business, financial condition, results of operations and prospects. Additionally, tax has been
utilised as a tool for significant state intervention in certain key industries.
Since Russian federal, regional and local tax laws and regulations are subject to frequent change
and some of the sections of the Tax Code are comparatively new, interpretation of these laws and
regulations is often unclear or non-existent. Taxpayers and the Russian tax authorities often
interpret tax laws differently. In some instances, Russian tax authorities have applied new
interpretations of tax laws retroactively. Differing interpretations of tax regulations exist both
among and within government ministries and organisations at the federal, regional and local levels,
creating uncertainties and inconsistent enforcement. Furthermore, in the absence of binding
precedent, court rulings on tax or other related matters by different courts relating to the same or
similar circumstances may also be inconsistent or contradictory. Taxpayers often have to resort to
court proceedings to defend their position against the tax authorities. Recent events within Russia
suggest that the tax authorities may be taking a more assertive position in their assessments.
In addition to the usual tax burden imposed on Russian taxpayers, these conditions complicate tax
planning and related business decisions. For example, tax laws are unclear with respect to
deductibility of certain expenses. Despite RAB's best efforts to comply with applicable tax laws,
these uncertainties could possibly expose RAB to significant fines and penalties and to potentially
severe enforcement measures, result in a greater than expected tax burden and have a material
adverse effect on RAB's business, financial condition, results of operations and prospects.
- 5 -
Generally, tax returns remain open and subject to inspection by the tax authorities for a period of
three years immediately preceding the year in which the decision to conduct a tax audit is taken.
The fact that a particular year has been reviewed by the tax authorities does not mean that any tax
returns applicable to that year will not be subject to further review by a superior tax authority
during the three-year limitation period. In addition, on 14 July 2005, the Constitutional Court of
Russia issued a decision that allows the statute of limitations for tax penalties to be extended
beyond the three-year term set forth in the Tax Code if a court determines that a taxpayer has
obstructed or hindered a field tax audit. Moreover, amendments introduced to the first part of the
Tax Code, which came into effect on 1 January 2007, provide for the extension of the three year
statute of limitations if the actions of a taxpayer create insurmountable obstacles for a tax audit.
Because none of the relevant terms is defined in Russian law, the tax authorities may have broad
discretion to argue that a taxpayer has "obstructed" or "hindered" or "created insurmountable
obstacles" in respect of an inspection and to ultimately seek review and possibly apply penalties
beyond the three-year term. However, on 17 March 2009, the Constitutional Court issued a
decision preventing the Russian tax authorities from carrying out a subsequent tax audits for the
same tax period as an initial audit if the court decision which was taken in respect of the tax
dispute between the relevant taxpayer and the relevant tax authority and covered taxation matters
raised during the initial tax audit has not been revised or discharged. Currently, it is unclear how
this decision will be applied by the Russian tax authorities.
Tax audits may result in additional costs to RAB if the relevant tax authorities conclude that RAB
did not satisfy its tax obligations in any given year. Such audits may also impose additional
burdens on RAB by diverting the attention of management resources. The outcome of these audits
could have a material adverse effect on RAB's business, financial condition, results of operations
and prospects or the trading price of the Series 9 Notes.
On 12 October 2006, the Plenum of the Supreme Arbitration Court of the Russian Federation (the
"Supreme Arbitration Court") issued Resolution No. 53, formulating a new concept of
"unjustified tax benefit", which is described in the Resolution by reference to circumstances, such
as absence of business purpose or transactions where the form does not match the substance, and
which could lead to the disallowance of tax benefits resulting the transaction or the re-
characterisation of the transaction for tax purposes. Tax authorities are actively seeking to apply
this concept in practice when challenging tax positions taken by taxpayers. In practice there can be
no assurance that the tax authorities will not seek to apply this concept in a broader sense than may
have been intended by the Supreme Arbitration Court. Furthermore, Ruling No. 64 of the Plenum
of the Supreme Court of Russia "Concerning the Practical Application by Courts of Criminal
Legislation Concerning Liability for Tax Crimes" dated 28 December 2006 is indicative of the
trend to broaden application of criminal liability for tax violations.
The above conditions create tax risks in the Russian Federation that are more significant than the
tax risks typically found in countries with more developed taxation, legislative and judicial
systems. These tax risks impose additional burdens and costs on RAB's operations, including
management resources. Further, these risks and uncertainties complicate RAB's tax planning and
related business decisions, potentially exposing RAB to significant fines, penalties and
enforcement measures, and could materially adversely affect RAB's business, results of operations
and financial condition.
- 6 -
Russian transfer pricing legislation became effective in the Russian Federation on January 1, 1999.
This legislation allowed the tax authorities to make transfer-pricing adjustments and impose
additional tax liabilities in respect of certain types of transactions ("controlled" transactions).
Special transfer pricing provisions were established for operations with securities and derivatives.
However, Russian transfer pricing rules were vaguely drafted, generally leaving wide scope for
interpretation by Russian tax authorities and courts. There was little guidance (although some court
decisions are available) as to how these rules should be applied.
Following the adoption of Federal Law No. 227-FZ "On amendments to certain legislative acts of
the Russian Federation in connection with the improvement of pricing principles" dated 18 July
2011, the new Russian transfer pricing rules became effective from 1 January 2012. The new rules
are more detailed and, to a certain extent, better aligned with the international transfer pricing
principles developed by the Organisation for Economic Cooperation and Development.
The amendments considerably toughen the previous version of the law, by, among other things,
effectively shifting the burden of proving market prices from the tax authorities to the taxpayer and
obliging the taxpayer to keep specific documentation.
The introduction of the new transfer pricing rules may increase the risk of transfer pricing
adjustments being made by the tax authorities and, therefore, may have a material impact on RAB's
business and the results of operations. It will also require RAB to ensure compliance with the new
transfer pricing documentation requirements proposed in such rules.
A large number of changes have been introduced to the Tax Code since its adoption. Among the
most important recent changes are amendments introduced to alleviate the tax burden on
businesses in the context of the financial and economic downturn. One of these amendments was
introduced to decrease deductibility limits applicable to taxpayer’s interest expenses, which are
calculated on the basis of the Central Bank of Russia refinance rate (for obligations denominated in
foreign currency). The amendment decreasing deductibility limits was introduced as a temporary
measure to be in effect for a time period specified in the law, and according to the current wording
of the law this period expires on 31 December 2012. These amendments may result in additional
tax costs for RAB.
It is expected that Russian tax legislation will become more sophisticated, which may result in the
introduction of additional revenue raising measures. Although it is unclear how these measures
would operate, the introduction of such measures may affect RAB's overall tax efficiency and may
result in significant additional taxes becoming payable. RAB cannot offer prospective investors
any assurance that additional tax exposures will not arise while the Series 9 Notes are outstanding.
Additional tax exposures could have a material adverse effect on RAB's business, financial
condition, results of operations and prospects.
Payments on the Series 9 Loan may be subject to withholding tax
In general, interest payments on borrowed funds made by a Russian legal entity or organisation to
a non-resident are subject to Russian withholding tax at a rate of 20 per cent. in respect of legal
entities or organisations and 30 per cent. in respect of individuals, unless such withholding is
reduced or eliminated pursuant to the terms of an applicable double tax treaty. RAB believes that
- 7 -
interest payments on the Series 9 Loan made to the Issuer should not be subject to withholding tax
under the terms of the applicable double tax treaty between the Russian Federation and the Grand
Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion
with respect to Taxes on Income and on Capital signed on 28 June 1993 (the "Russia-
Luxembourg Tax Treaty"). However, there can be no assurance that such double tax treaty relief
will be available or will continue to be available throughout the term of such Loan.
In particular, application of the Russia-Luxembourg Tax Treaty may be affected by the change in
the position of the Russian tax authorities to look beyond the mere legal form of the transaction
and through intermediary entities when assessing the availability of treaty benefits. Such position
was reflected in the letter of the Ministry of Finance of the Russian Federation #03-08-13/1 dated
30 December 2011 (the "Ministry of Finance Letter"), which is addressed to the Federal Tax
Service of the Russian Federation. The Ministry of Finance Letter considers a Eurobond structure
and concludes that the issuer of Eurobonds cannot be regarded as the beneficial owner of the
interest income because such issuer does not determine "the economic fate of the income
received". Although the Ministry of Finance Letter refers to a deal structure which is different to
the structure of the transaction described in this Drawdown Prospectus, and to an issuer domiciled
in a jurisdiction which is different to the jurisdiction of the Issuer, RAB cannot exclude the risk
that conclusions made in the Ministry of Finance Letter may potentially be applied by the Russian
tax authorities to the payments of interest in respect of the Series 9 Loan.
It should also be noted that RAB is aware of one recent case where the Russian tax authorities
challenged a transaction similar to the one described in this Drawdown Prospectus arguing that the
noteholders rather than the issuer should be regarded as actual recipients of interest income. The
issuer in that particular transaction was located in a jurisdiction which is different to the Issuer's
jurisdiction. This case is currently pending and, to the best of RAB's knowledge, has not been
brought to court yet. If this issue is brought before a Russian court and such court upholds the
position of the Russian tax authorities, this may prevent the Issuer and RAB from benefiting from
the withholding tax exemption provided by the Russia-Luxembourg Tax Treaty and may mean that
payments of interest in respect of the Series 9 Loan would become subject to withholding tax in
Russia.
Application of the double tax treaty benefits may also be affected by the announced plans of the
Ministry of Finance of the Russian Federation to introduce into the Tax Code a change to the
interpretation of exemptions from the withholding tax for interest paid in connection with similar
transactions, provided that "the actual recipient" of income is resident for tax purposes in a state
which has a double tax treaty in effect with Russia. Currently it is unclear whether such "actual
recipient" concept will be introduced and how it may impact the application of the Russia-
Luxembourg Tax Treaty to interest paid pursuant to the Series 9 Loan Agreement.
If any payments in respect of the Series 9 Loan become subject to any Russian or Luxembourg
withholding tax, RAB will be obliged to increase the amounts payable as may be necessary to
ensure that the Issuer receives a net amount equal to the amount it would have received in the
absence of such withholding taxes. In addition, payments in respect of the Series 9 Notes will,
except in certain limited circumstances, be made without deduction or withholding for or on
account of Luxembourg taxes except as required by law. RAB believes that payments in respect of
- 8 -
the Series 9 Notes will only be subject to deduction or withholding for or on account of
Luxembourg taxes as described in "Taxation — Luxembourg" of the Base Prospectus. In the event
of such a deduction or withholding, the Issuer will only be required to increase payments to the
extent that it receives corresponding amounts from RAB under the Series 9 Loan Agreement.
While the Series 9 Loan Agreement provides for RAB to pay such corresponding amounts in these
circumstances, there are some doubts as to whether a tax gross-up clause such as that contained in
the Series 9 Loan Agreement is enforceable in the Russian Federation. Due to the limited recourse
nature of the Series 9 Notes, if RAB fails to pay any such gross-up amounts, the amount payable
by the Issuer under the Series 9 Notes will be correspondingly reduced. Any failure by RAB to
increase such payments would constitute an Event of Default under the Series 9 Loan Agreement.
If, as a result of the application of or any amendment or clarification to, or change (including a
change in interpretation or application) in, the Russia-Luxembourg Tax treaty or the laws or
regulations of the Russian Federation or Luxembourg or of any political subdivision thereof or any
authority therein, RAB is required to make or increase any payment due pursuant to the Series 9
Loan Agreement as described in this paragraph, and such additional amounts cannot be avoided by
RAB taking reasonable measures available to it, it may prepay the principal amount of the Series 9
Loan together with accrued interest and/or additional amounts payable (if any) thereon, and all
outstanding Series 9 Notes would be redeemed by the Issuer (to the extent that it has actually
received the relevant funds from RAB).
The Issuer will grant security over certain of its rights in the Series 9 Loan Agreement to the
Trustee in respect of its obligations under the Series 9 Notes. The security under the Trust Deed
will become enforceable upon the occurrence of an Event of Default or a Relevant Event. In these
circumstances, payments under the Series 9 Loan Agreement (other than in respect of Reserved
Rights) would be required to be made to, or to the order of, the Trustee. Under Russian tax law,
payments of interest and other payments made by RAB to the Trustee would in general be subject
to Russian withholding tax at a rate of 20 per cent. or such other rate as may be in force at the time
of payment (or potentially, 30 per cent. in respect of individual non-resident Noteholders). It is not
expected that the Trustee would, or would be able to, claim a withholding tax exemption under any
double tax treaty. In addition, while in theory it may be possible for some Noteholders who are
eligible for an exemption from Russian withholding tax under double tax treaties to claim a refund
of tax withheld, there would be considerable practical difficulties in obtaining any such refund.
If, during the life of the Series 9 Notes, the Issuer ceases to be resident for tax purposes in
Luxembourg and becomes resident for tax purposes in another jurisdiction, in the event that such
new jurisdiction requires the Issuer to effect deduction for or on account of any taxes (other than
taxes of Luxembourg or the Russian Federation) in respect of payments which the Issuer is obliged
to make under or in respect of the Series 9 Notes, under the terms of the Series 9 Loan Agreement
RAB will be under no obligation to increase payments to the Issuer under the Series 9 Loan
Agreement in respect of such withholding or deduction for or on account of any taxes (other than
taxes of Luxembourg or the Russian Federation). In such circumstances, the Noteholders will
receive payments under the Series 9 Notes net of such withholding or deduction and will have no
right to require that their Notes be repaid.
As indicated above, it is currently unclear whether the provisions requiring RAB to gross-up
payments will be enforceable in the Russian Federation. If, in the case of litigation in the Russian
- 9 -
Federation, a Russian court does not rule in favour of the Issuer or the Trustee and Noteholders,
there is a risk that the tax gross-up for withholding tax will not occur and that payments made by
RAB under the Series 9 Loan Agreement will be reduced by Russian income tax withheld by RAB
at a rate of 20 per cent. (or, potentially, 30 per cent. in respect of individual Noteholders).
It should also be noted, that the new protocol to the Russia-Luxemburg Tax Treaty was signed in
2011. The protocol introduces inter alia that income falling under the "other income" category may
be subject to Russian withholding tax. Once the protocol is ratified and becomes effective, it may
have an impact on future payments under the Series 9 Loan Agreement (other than interest income
and principal).
- 10 -
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Presentation of Financial Information
This Drawdown Prospectus includes the unaudited condensed consolidated interim financial
statements of RAB and its consolidated subsidiaries (the "RAB Group") as of and for the nine
months ended 30 September 2011 (the "Interim Financial Information") prepared in accordance
with International Accounting Standard ("IAS") 34, Interim Financial Reporting.
The Interim Financial Information is set out on pages F-2 through F-32 of this Drawdown
Prospectus.
Other
The Russian Rouble is the functional and reporting currency of the RAB Group.
In this Drawdown Prospectus, unless otherwise specified herein, (i) references to the RAB Group's
loan portfolio are references to the RAB Group's loans and advances to customers, which do not
include interbank loans and off-balance sheet credit-related commitments; (ii) references to the
RAB Group's gross loan portfolio and gross loans and advances to customers, respectively, are
references to the RAB Group's loan portfolio and the RAB Group's loans and advances to
customers, respectively, before provisions for loan impairment; (iii) references to the RAB Group's
net loan portfolio and net loans and advances to customers, respectively, are references to the RAB
Group's loan portfolio and the RAB Group's loans and advances to customers, respectively, after
provisions for loan impairment; and (iv) references to "Eurobonds" issued by RAB, the RAB
Group or the Issuer are references to loan participation notes issued by the Issuer, the proceeds of
which were used to fund loans or subordinated debts to RAB.
Auditors
With respect to the Interim Financial Information, ZAO PricewaterhouseCoopers Audit ("PwC")
conducted a review in accordance with International Standard on Review Engagements 2410,
Review of Interim Financial Information Performed by the Independent Auditor of the Entity, as
stated in their review report dated 30 January 2012 appearing on page F-4 of this Drawdown
Prospectus. The address of PwC is Butyrsky Val 10, Moscow 125047, Russian Federation.
PwC is a member of the Audit Chamber of the Russian Federation ("Auditorskaya Palata Rossii").
Currency
In this Drawdown Prospectus, the following currency terms are used:
"Russian Roubles" or "Roubles" means the lawful currency of the Russian Federation;
"U.S. Dollars" or "U.S.$" means the lawful currency of the United States;
"EUR" or "euro" means the lawful currency of the member states of the European Union
that adopted the single currency in accordance with the Treaty of Rome establishing the
- 11 -
European Economic Community, as amended by the Treaty on the European Union,
signed at Maastricht on 7 February 1992; and
"Swiss Francs" or "CHF" means the lawful currency of Switzerland.
Exchange Rates
The table below sets forth, for the periods indicated, certain information regarding the exchange
rate between the Rouble and the U.S. Dollar, based on the official exchange rate quoted by the
CBR. Fluctuations in the exchange rate between the Rouble and the U.S. Dollar in the past are not
necessarily indicative of fluctuations that may occur in the future.
RAB presented its Interim Financial Information in Russian Roubles. Solely for the convenience of
the reader, certain of the RAB Group's consolidated historical financial information as at and for
the nine months ended 30 September 2011 included in "Selected Consolidated Financial
Information" and elsewhere in this Drawdown Prospectus has been translated into U.S. Dollars at
the conversion rate quoted by the CBR as at 30 September 2011, which was 31.88 Roubles per
U.S.$1.00 (the "Financial Information in U.S. Dollars"). The Financial Information in U.S.
Dollars is not presented in line with IAS 21, The Effects of Changes in Foreign Exchange Rates,
and has not been audited or reviewed. The reader should not rely on the Financial Information in
U.S. Dollars as being indicative of RAB Group's historical financial results, had RAB Group's
reporting or functional currency been the U.S. Dollar. RAB does not make any representation that
the Rouble amounts referred to in this Drawdown Prospectus could have been or could be
converted into U.S. Dollars at the below exchange rates, at any other rate or at all.
Rouble/U.S. Dollar
High Low Average Period
end
Year
2008 ............................................................................................. 29.38 23.13 24.87 29.38
2009 ............................................................................................. 36.43 28.67 31.77 30.24
2010 ............................................................................................. 31.78 28.93 30.38 30.48
2011 .............................................................................................. 32.68 27.26 29.39 32.20
Rouble/U.S. Dollar
High Low
Month
January 2011 ................................................................................................................................. 30.63 29.67
February 2011 ............................................................................................................................... 29.80 28.94
March 2011 ................................................................................................................................... 28.90 28.16
April 2011 ..................................................................................................................................... 28.52 27.50
May 2011 ...................................................................................................................................... 28.48 27.26
June 2011 ...................................................................................................................................... 28.35 27.68
July 2011 ...................................................................................................................................... 28.38 27.44
August 2011 .................................................................................................................................. 29.45 27.52
September 2011 ............................................................................................................................ 32.46 28.89
October 2011 ................................................................................................................................ 32.68 29.90
November 2011 ............................................................................................................................ 31.58 30.10
- 12 -
December 2011 ............................................................................................................................. 32.20 30.81
January 2012 ................................................................................................................................. 31.93 30.36
Source: www.cbr.ru (CBR)
The official Rouble/U.S. Dollar exchange rate quoted by the CBR on 30 September 2011 was
31.88 Roubles per U.S.$1.00.
Rounding
Some numerical figures included in this Drawdown Prospectus have been subject to rounding
adjustments. Accordingly, numerical figures shown as totals in certain tables may not be an
arithmetic aggregation of the figures that preceded them. Unless otherwise specified, all
percentages have been rounded to the nearest one-tenth of one per cent.
- 13 -
CAPITALISATION OF THE RAB GROUP
The table below sets out the RAB Group's consolidated capitalisation, which RAB considers to be
equal to the total equity and liabilities, as at 30 September 2011. This information should be read in
conjunction with "Financial Review" and the Interim Financial Information included elsewhere in
this Drawdown Prospectus.
As at 30 September 2011
(unaudited) (unaudited)
(in millions of
Roubles)
(in millions of
U.S.$)(1)
EQUITY
Share capital ................................................................................................................... 108,798 3,413
Revaluation reserve for premises .................................................................................... 887 28
Revaluation reserve for investment securities available for sale .................................... (1,467) (46)
Retained earnings ........................................................................................................... 6,939 218
Non-controlling interest .................................................................................................. 858 27
Total equity ................................................................................................................... 116,015 3,640
LIABILITIES
Derivative financial instruments ..................................................................................... 43 1
Due to other banks .......................................................................................................... 94,813 2,974
Customer accounts ......................................................................................................... 603,517 18,931
Promissory notes issued ................................................................................................. 16,828 528
Other borrowed funds ..................................................................................................... 312,209 9,793
Deferred income tax liability .......................................................................................... 1,347 42
Current income tax liability ............................................................................................. 10 -
Other liabilities ............................................................................................................... 4,663 146
Subordinated debts ......................................................................................................... 57,267 1,796
Liabilities directly associated with disposal groups held for sale ................................... 1,224 38
Total liabilities .............................................................................................................. 1,091,921 34,249
TOTAL EQUITY AND LIABILITIES ....................................................................... 1,207,936 37,889
______________
(1) Solely for the convenience of the reader, financial information in Roubles as at 30 September 2011 has been
translated into U.S. Dollars at 31.88 Roubles per U.S.$1.00, the conversion rate quoted by the CBR as at 30
September 2011. See "Presentation of Financial and Other Information – Exchange Rates".
In November 2011, RAB issued Rouble-denominated bonds in the aggregate principal amount of
10 billion Roubles maturing in October 2021. The interest rate set for the first four semi-annual
interest periods is 8.75 per cent. per annum.
In November 2011, the RAB Group issued Eurobonds denominated in Roubles in the aggregate
principal amount of 20 billion Roubles maturing in November 2016 with semi-annual payment of
interest at 6-month MOSPRIME floating rate per annum.
In December 2011, the Russian Government contributed an additional 40 billion Roubles to RAB's
share capital.
- 14 -
In February 2012, RAB issued Rouble-denominated bonds in the aggregate principal amount of 10
billion Roubles maturing in February 2015 with the interest rate of 8.2 per cent. per annum in
respect of the first three semi-annual interest periods.
Save as described above, there has been no material adverse change in the consolidated
capitalisation, indebtedness, guarantees or contingent liabilities of the RAB Group since 30
September 2011.
- 15 -
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables present selected consolidated financial information for the RAB Group as at
30 September 2011 and 31 December 2010 and for the nine months ended 30 September 2011 and
2010, which has been derived without material adjustment, subject to rounding, from and should
be read in conjunction with the Interim Financial Information, including the notes to the Interim
Financial Information, "Presentation of Financial and Other Information" and "Financial Review",
included elsewhere in the Drawdown Prospectus.
Condensed Consolidated Interim Statement of Comprehensive Income Data
For the nine months ended 30 September
2011
(unaudited)
2010
(unaudited)
(in millions of
U.S.$)(1)
(in millions of Roubles)
Interest income ............................................................................................ 2,595 82,743 77,078
Interest expense ........................................................................................... (1,320) (42,093) (40,093)
Net interest income .................................................................................... 1,275 40,650 36,985
Provision for loan impairment ..................................................................... (564) (17,973) (20,764)
Net interest income after provision for loan impairment ....................... 711 22,677 16,221
Fee and commission income ........................................................................ 104 3,328 2,285
Fee and commission expense ....................................................................... (13) (401) (280)
(Losses net of gains)/gains less losses arising from trading securities ......... (2) (74) 739
Losses net of gains arising from financial instruments designated at fair
value through profit or loss .......................................................................... (25) (783) (136)
Gains less losses arising from disposal of investment securities
available for sale .......................................................................................... 8 248 341
Foreign exchange translation losses net of gains .......................................... (191) (6,102) (1,107)
Gains less losses from foreign exchange swaps with settlement dates of
more than 30 working days .......................................................................... 129 4,112 450
Losses net of gains arising from other derivative financial instruments ...... (5) (168) (186)
(Losses net of gains)/gains less losses arising from dealings in foreign
currencies ..................................................................................................... (35) (1,109) 195
(Provision for)/recovery of other assets impairment ..................................... (2) (70) 158
Gains from early redemption of other borrowed funds ................................. - 15 36
(Losses net of gains)/gains less losses from non-banking activities ............ (19) (600) 159
Gains on disposal of subsidiaries ................................................................. 1 21 -
Other operating income ............................................................................... 7 214 215
Administrative and other operating expenses .............................................. (659) (21,032) (16,965)
Profit before tax ......................................................................................... 9 276 2,125
Income tax expense ..................................................................................... (8) (240) (442)
Profit for the period ................................................................................... 1 36 1,683
Other comprehensive (expense)/income:
Securities available for sale:
- Revaluation of securities at fair value during the period ........................ (46) (1,459) 94
- Realised revaluation reserve (at disposal) .............................................. (8) (248) (341)
Income tax recorded directly in other comprehensive income ..................... 11 341 48
Other comprehensive expense for the period, net of tax ........................ (43) (1,366) (199)
Total comprehensive (expense)/income for the period ........................... (42) (1,330) 1,484
______________ (1) Solely for the convenience of the reader, financial information in Roubles for the nine months ended 30
September 2011 has been translated into U.S. Dollars at 31.88 Roubles per U.S.$1.00, the conversion rate
quoted by the CBR as at 30 September 2011. See "Presentation of Financial and Other Information –
Exchange Rates".
- 16 -
Condensed Consolidated Interim Statement of Financial Position Data
As at 30 September As at 31 December
2011
(unaudited)
2011
(unaudited)
2010
(in millions
of U.S.$)(1) (in millions of Roubles)
ASSETS
Cash and cash equivalents ......................................................................... 3,898 124,253 81,010
Mandatory cash balances with the CBR .................................................... 238 7,600 3,468
Trading securities ...................................................................................... - - 3,563
Repurchase receivables ............................................................................. 197 6,290 15,240
Financial instruments designated at fair value through profit or loss ........ 437 13,924 9,686
Derivative financial instruments ................................................................ 742 23,655 20,621
Due from other banks ................................................................................ 1,079 34,392 34,477
Loans and advances to customers ............................................................. 27,150 865,551 688,556
Investment securities available for sale ..................................................... 2,019 64,355 15,687
Investment securities held to maturity ...................................................... 473 15,088 14,922
Deferred income tax asset ......................................................................... 162 5,170 1,930
Intangible assets ........................................................................................ 48 1,525 1,563
Premises and equipment ........................................................................... 790 25,187 25,985
Current income tax prepayment ................................................................ 23 724 191
Other assets ............................................................................................... 475 15,187 11,052
Assets of disposal groups held for sale ...................................................... 158 5,035 2,849
Total assets .............................................................................................. 37,889 1,207,936 930,800
LIABILITIES
Derivative financial instruments ............................................................... 1 43 541
Due to other banks .................................................................................... 2,974 94,813 105,578
Customer accounts .................................................................................... 18,931 603,517 386,279
Promissory notes issued ............................................................................ 528 16,828 9,874
Other borrowed funds ............................................................................... 9,793 312,209 257,559
Deferred income tax liability .................................................................... 42 1,347 1,405
Current income tax liability ...................................................................... - 10 17
Other liabilities ......................................................................................... 146 4,663 4,389
Subordinated debts .................................................................................... 1,796 57,267 46,545
Liabilities directly associated with disposal groups held for sale .............. 38 1,224 1,015
Total liabilities ......................................................................................... 34,249 1,091,921 813,202
EQUITY
Share capital ............................................................................................. 3,413 108,798 108,798
Revaluation reserve for premises .............................................................. 28 887 933
Revaluation reserve for investment securities available for sale ............... (46) (1,467) (101)
Retained earnings ...................................................................................... 218 6,939 6,851
Equity attributable to the Bank's shareholder ..................................... 3,613 115,157 116,481
Non-controlling interest .......................................................................... 27 858 1,117
Total equity ............................................................................................. 3,640 116,015 117,598
Total liabilities and equity ...................................................................... 37,889 1,207,936 930,800
______________
(1) Solely for the convenience of the reader, financial information in Roubles as at 30 September 2011 has been
translated into U.S. Dollars at 31.88 Roubles per U.S.$1.00, the conversion rate quoted by the CBR as at 30
September 2011. See "Presentation of Financial and Other Information – Exchange Rates".
- 17 -
Selected Financial Ratios
For the nine months ended
30 September
2011
(unaudited)
2010
(unaudited)
(in percentages)
Profitability
Internal capital generation ratio(1) ..................................................................... (0.2) 1.3
As at 30
September
As at 31
December
2011
(unaudited)
2010
(unaudited)
(in percentages)
Liquidity
Loans and advances to customers/Total assets ................................................. 71.7 74.0
Loans and advances to customers/Customer accounts ...................................... 143.4 178.3
Customer accounts/Total liabilities ................................................................... 55.3 47.5
______________
(1) Profit for the period less dividends declared during the period divided by total equity at the beginning of the
related period.
- 18 -
FINANCIAL REVIEW
The following financial review covers the nine months ended 30 September 2011 and 2010. Unless
otherwise specified, the financial information presented in this financial review has been derived
without material adjustment, subject to rounding, from the Interim Financial Information included
elsewhere in this Drawdown Prospectus. This section should be read in conjunction with the
Interim Financial Information and the notes thereto, "Presentation of Financial and Other
Information", "Capitalisation of the RAB Group" and "Selected Consolidated Financial
Information" of this Drawdown Prospectus. Certain information contained in the financial review
below and elsewhere in this Drawdown Prospectus includes "forward-looking statements". Such
forward-looking statements are subject to risks, uncertainties and other factors that could cause
actual results to differ materially from those expressed or implied by such forward-looking
statements. See "Forward-Looking Statements" in the Base Prospectus.
Summary
The RAB Group provides a wide range of banking services to companies and individuals with a
primary focus on lending to businesses and individuals operating in the Russian agricultural sector.
RAB's credit policy provides that at least 70 per cent. of its loan portfolio consist of loans to
companies and individuals operating in the agricultural sector and related sub-sectors such as, for
example, food processing and the production of agricultural machinery or fertilisers. The RAB
Group participates in several programmes of the Russian Government to support the agricultural
sector and related sub-sectors. The RAB Group's participation in such programmes includes
lending to individuals involved in producing agricultural products on their domestic property,
lending for grain purchase interventions, providing loans to agricultural consumer and credit
cooperatives, lending secured by mortgages on agricultural land plots in connection with the
Russian Government's efforts to develop an agricultural land mortgage system in the Russian
Federation and lending for the purchase or construction of residential buildings. The RAB Group
also focuses on financing purchases of modern agricultural machinery and equipment and, since
2006, has placed a greater emphasis on making consumer loans to individuals residing in small
towns and rural areas in the Russian Federation who are involved in agricultural production.
As at 30 September 2011, the RAB Group's total assets amounted to 1,207,936 million Roubles,
representing an increase of 29.8 per cent. from 930,800 million Roubles as at 31 December 2010.
As at 30 September 2011 the RAB Group's total liabilities amounted to 1,091,921 million Roubles,
representing an increase of 34.3 per cent. from 813,202 million Roubles as at 31 December 2010.
As at 30 September 2011, the RAB Group's total equity amounted to 116,015 million Roubles,
representing a slight decrease of 1.3 per cent. from 117,598 million Roubles as at 31 December
2010.
General Market Conditions and Operating Environment
Due to the substantial concentration of the assets of the RAB Group in Russia, the RAB Group is
materially affected by Russian economic conditions. Whilst there have been improvements in
economic trends in the country after the financial crisis which commenced in September 2008, the
Russian Federation continues to display certain characteristics of an emerging market. These
- 19 -
characteristics include, but are not limited to, the existence of a currency that is not widely
convertible outside of the Russian Federation and relatively high inflation.
The following table sets forth certain Russian economic indicators as at or for the nine months
ended 30 September 2011 and 2010.
As at and for the nine months
ended 30 September
2011 2010
Nominal gross domestic product ("GDP") (in billions of Roubles) ............................... 14,056 11,773
Real GDP growth (in %) ................................................................................................ 4.8 3.1
Surplus/(deficit) of federal budget of the Russian Federation
(in billions of Roubles) ................................................................................................... 1,130.9 (692.6)
Official reserves (in billions of U.S. Dollars) ................................................................ 516.8 490.1
Inflation(1) (in %) ........................................................................................................... 4.7 6.2
Nominal appreciation of the Russian Rouble against the
U.S. Dollar(2) (in %) ....................................................................................................... 5.2 7.3
Real appreciation of the Russian Rouble against the U.S.
Dollar(2)(3) (in %) ............................................................................................................ 11.3 12.3
______________
Sources: CBR, Russian Federal State Statistics Service, Ministry of Economic Development in Russia
(1) Inflation is measured as change in the consumer price index.
(2) Nominal and real appreciation of the Russian Rouble against the U.S. Dollar are measured by comparing the
change in the reporting period with the change in the corresponding period of the previous year.
(3) Real appreciation is distinguished from nominal appreciation because the former also takes into account
inflation in Russia and the United States, as well as taking into account certain other macroeconomic
parameters that are calculated by the CBR.
Results of Operations for the Nine Months Ended 30 September 2011 and 2010
Interest Income, Interest Expense, Net Interest Income and Provision for Loan Impairment
The table below sets out the principal components of the RAB Group's net interest income after
provision for loan impairment for the nine months ended 30 September 2011 and 2010.
For the nine months ended
30 September
2011
(unaudited)
2010
(unaudited)
(in millions of Roubles)
Interest income
Loans and advances to customers .................................................................................. 75,731 71,717
Investment securities available for sale and appropriate repurchase receivables ........... 2,949 864
Due from other banks .................................................................................................... 1,897 2,516
Financial instruments designated at fair value through profit and loss .......................... 824 538
Investment securities held to maturity ........................................................................... 698 452
Trading securities and appropriate repurchase receivables ............................................. 314 845
Cash equivalents ............................................................................................................. 330 146
- 20 -
Total interest income ................................................................................................... 82,743 77,078
Total interest expense .................................................................................................. (42,093) (40,093)
Net interest income ........................................................................................................ 40,650 36,985
Provision for loan impairment ....................................................................................... (17,973) (20,764)
Net interest income after provision for loan impairment ......................................... 22,677 16,221
The amount of net interest income earned by the RAB Group is affected by a number of factors. It
is primarily determined by the volumes of interest-earning assets and interest-bearing liabilities, as
well as the differential between rates earned on interest-earning assets and rates paid on interest-
bearing liabilities. Interest-earning assets are composed primarily of the RAB Group's loan
portfolio, as well as cash equivalents, due from other banks, investment securities available for sale
and repurchase receivables. Interest-bearing liabilities are composed primarily of customer
accounts, other borrowed funds, due to other banks, subordinated debts and promissory notes
issued.
Interest Income
For the nine months ended 30 September 2011, total interest income increased by 5,665 million
Roubles, or 7.3 per cent., to 82,743 million Roubles from 77,078 million Roubles for the nine
months ended 30 September 2010. This increase is primarily attributable to an increase in interest
income on loans and advances to customers reflecting the increase in RAB's loan portfolio and, to
a lesser extent, to an increase in investment securities available for sale and related repurchase
receivables. Interest-earning investment securities available for sale consist of (i) Rouble-
denominated corporate bonds issued by large Russian companies; (ii) the Russian Government
bonds; and (iii) other securities.
Interest Expense
Interest expense principally consists of amounts paid by RAB as interest on (a) borrowings
obtained from other credit institutions; (b) customer accounts, which include term deposits and
current/settlement accounts; (c) other borrowed funds, which include proceeds from the issuance of
U.S. Dollar-denominated, Swiss Franc-denominated and Rouble-denominated Eurobonds issued
by the RAB Group through the Issuer, as well as Rouble-denominated domestic bonds issued by
RAB; and (d) promissory notes issued.
For the nine months ended 30 September 2011, total interest expense increased by 2,000 million
Roubles, or 5.0 per cent., to 42,093 million Roubles from 40,093 million Roubles for the nine
months ended 30 September 2010. This increase is primarily attributable to an increase in interest
expense on customer accounts mainly as a result of the increase in related customer accounts
balance.
Net Interest Income before Provision for Loan Impairment
For the nine months ended 30 September 2011, net interest income increased by 9.9 per cent. to
40,650 million Roubles from 36,985 million Roubles for the nine months ended 30 September
2010. This increase was primarily attributable to an increase in interest income on loans and
- 21 -
advances to customers, reflecting the growth of RAB's loan portfolio (in particular, retail loans),
which was partly offset by an increase in interest expense on customer accounts.
Provision for Loan Impairment
Provision for loan impairment primarily consists of provision for impairment of loans and
advances to customers. For the nine months ended 30 September 2011, the RAB Group's provision
for loan impairment decreased by 13.4 per cent. to 17,973 million Roubles from 20,764 million
Roubles for the nine months ended 30 September 2010. Provision for loan impairment for the nine
months ended 30 September 2010 was negatively influenced by the 2010 summer drought and
borrowers' deteriorated creditworthiness.
Non-Interest Income and Expense
The table below sets forth the principal components of the RAB Group's non-interest income and
expense for the nine months ended 30 September 2011 and 2010.
For the nine months ended
30 September
2011
(unaudited)
2010
(unaudited)
(in millions of Roubles)
Non-interest income and expense
Gains less losses from foreign exchange swaps with settlement dates of more than 30
working days ........................................................................................................................ 4,112 450
Fee and commission income(1) .............................................................................................. 3,328 2,285
Gains less losses arising from disposal of investment securities available for sale ............... 248 341
Other operating income ....................................................................................................... 214 215
Gains on disposal of subsidiaries .......................................................................................... 21 -
Gains from early redemption of other borrowed funds ......................................................... 15 36
(Provision for)/recovery of other assets impairment ............................................................. (70) 158
(Losses net of gains)/gains less losses arising from trading securities .................................. (74) 739
Losses net of gains arising from other derivative financial instruments .............................. (168) (186)
Fee and commission expense ............................................................................................... (401) (280)
(Losses net of gains)/gains less losses from non-banking activities ...................................... (600) 159
Losses net of gains arising from financial instruments designated at fair value through
profit or loss ......................................................................................................................... (783) (136)
(Losses net of gains)/gains less losses arising from dealings in foreign currencies ............. (1,109) 195
Foreign exchange translation losses net of gains ................................................................. (6,102) (1,107)
Administrative and other operating expenses ...................................................................... (21,032) (16,965)
Total non-interest income less expense ............................................................................. (22,401) (14,096)
______________
(1)Fee and commission income consists mainly of commission received on cash transactions.
The following six components of non-interest income and expense are further discussed below: (i)
gains less losses from foreign exchange swaps with settlement dates of more than 30 working days;
(ii) fee and commission income; (iii) (losses net of gains)/gains less losses arising from trading
securities; (iv) (losses net of gains)/gains less losses arising from dealings in foreign currencies; (v)
- 22 -
foreign exchange translation losses net of gains; and (vi) administrative and other operating
expenses.
Gains less losses from foreign exchange swaps with settlement dates of more than 30 working days
For the nine months ended 30 September 2011, the RAB Group's gains less losses from foreign
exchange swaps with settlement dates of more than 30 working days increased by 813.8 per cent.
to 4,112 million Roubles from 450 million Roubles for the nine months ended 30 September 2010
due to an increase in fair value of such instruments as a result of foreign exchange rate fluctuations
and growth of interest rates during the respective periods.
Fee and commission income
For the nine months ended 30 September 2011, the RAB Group's fee and commission income
increased by 1,043 million Roubles, or 45.6 per cent., to 3,328 million Roubles from 2,285 million
Roubles for the nine months ended 30 September 2010. This increase is primarily due to a 36.0 per
cent. increase in commissions from cash transactions to 2,469 million Roubles for the nine months
ended 30 September 2011 from 1,816 million Roubles for the nine months ended 30 September
2010.
(Losses net of gains)/gains less losses arising from trading securities
For the nine months ended 30 September 2011, the RAB Group's losses net of gains arising from
trading securities amounted to 74 million Roubles as compared with the RAB Group's gains less
losses from trading securities of 739 million Roubles for the nine months ended 30 September
2010. This change is explained by full disposal by the RAB Group of its trading securities portfolio
in the first half of 2011.
(Losses net of gains)/gains less losses arising from dealings in foreign currencies
For the nine months ended 30 September 2011, the RAB Group's losses net of gains arising from
dealings in foreign currencies amounted to 1,109 million Roubles as compared with the RAB
Group's gains less losses arising from dealings in foreign currencies of 195 million Roubles for the
nine months ended 30 September 2010. This change is mainly due to higher foreign exchange rate
fluctuations and increased volume of dealing operations with foreign currency during the nine
months ended 30 September 2011 as compared to the nine months ended 30 September 2010.
Foreign exchange translation losses net of gains
For the nine months ended 30 September 2011, the RAB Group's foreign exchange translation
losses net of gains increased by 451.2 per cent. to 6,102 million Roubles from 1,107 million
Roubles for the nine months ended 30 September 2010. This increase was primarily due to the
depreciation of the Russian Rouble against foreign currencies in the third quarter 2011 as
compared to 30 June 2011, which was partly offset by the appreciation of the Russian Rouble
against foreign currencies in the first half of 2011, while the balances in foreign currencies
remained relatively stable.
Administrative and other operating expenses
- 23 -
Administrative and other operating expenses primarily consist of staff costs, rental expenses,
depreciation of premises and equipment and other costs of premises and equipment. In the nine
months ended 30 September 2011 the RAB Group's administrative and other operating expenses
increased by 4,067 million Roubles, or 24.0 per cent., to 21,032 million Roubles from 16,965
million Roubles in the nine months ended 30 September 2010. This increase is primarily
attributable to a 18.4 per cent. increase in staff costs to 13,133 million Roubles in the nine months
ended 30 September 2011 from 11,093 million Roubles in the nine months ended 30 September
2010. Such increase in staff costs is primarily attributable to wage indexation adjusted for inflation
during the period.
Profit for the Period
The RAB Group's profit for the nine months ended 30 September 2011 amounted to 36 million
Roubles as compared to 1,683 million Roubles for the nine months ended 30 September 2010,
representing a 97.9 per cent. decrease which is mainly explained by an increase in foreign
exchange translation losses net of gains and administrative and other operating expenses which
were partly offset by an increase in net interest income and a decrease in provision for loan
impairment.
Financial Position as at 30 September 2011 and 31 December 2010
Total Assets
As at 30 September 2011, the RAB Group's total assets amounted to 1,207,936 million Roubles,
representing an increase of 29.8 per cent. from 930,800 million Roubles as at 31 December 2010.
This increase is primarily attributable to (i) an increase in loans and advances to customers by
176,995 million Roubles, or 25.7 per cent., to 865,551 million Roubles as at 30 September 2011
from 688,556 million Roubles as at 31 December 2010, (ii) an increase in cash and cash
equivalents by 43,243 million Roubles, or 53.4 per cent., to 124,253 million Roubles as at 30
September 2011 from 81,010 million Roubles as at 31 December 2010, and (iii) an increase in
investment securities available for sale by 48,668 million Roubles, or 310.2 per cent., to 64,355
million Roubles as at 30 September 2011 from 15,687 million Roubles as at 31 December 2010.
Total Liabilities
As at 30 September 2011, the RAB Group's total liabilities amounted to 1,091,921 million
Roubles, representing an increase of 34.3 per cent. from 813,202 million Roubles as at 31
December 2010. This increase is primarily attributable to (i) an increase in customer accounts by
217,238 million Roubles, or 56.2 per cent., to 603,517 million Roubles as at 30 September 2011
from 386,279 million Roubles as at 31 December 2010, and (ii) an increase in other borrowed
funds by 54,650 million Roubles, or 21.2 per cent., to 312,209 million Roubles as at 30 September
2011 from 257,559 million Roubles as at 31 December 2010.
Total Equity
As at 30 September 2011, the RAB Group's total equity amounted to 116,015 million Roubles as
compared to 117,598 million Roubles as at 31 December 2010, representing a decrease of 1.3 per
cent. This slight decrease is mainly explained by an increase in negative revaluation reserve for
- 24 -
investment securities available for sale by 1,366 million Roubles from 101 million Roubles as at 31
December 2010 to 1,467 million Roubles as at 30 September 2011.
Liquidity and Capital Resources
Liquidity
The RAB Group's liquidity needs have arisen primarily from making loans and advances to
customers principally in the agricultural sector, which have been funded through a combination of
debt issuances (including promissory notes issued, Eurobonds and Rouble-denominated domestic
bonds), increase in customer accounts and equity contributions from the Russian Government.
Funding
The principal sources of funding for the RAB Group are (i) customer accounts (clients' balances in
current/demand/settlement accounts and term deposits); (ii) other borrowed funds (that include
proceeds from the issuance of U.S. Dollar-denominated, Swiss Franc-denominated and Rouble-
denominated Eurobonds, as well as Rouble-denominated domestic bonds); (iii) due to other banks;
(iv) capital contributions from the Russian Government; (v) subordinated debts; and (vi)
promissory notes issued.
The table below sets out the RAB Group's sources of funding, other than capital contributions from
the Russian Government, as at 30 September 2011 and 31 December 2010.
As at 30 September 2011
(unaudited)
As at 31 December 2010
Amount % of total Amount % of total
(in millions of Roubles, except percentages)
Customer accounts
Term deposits ....................................................................... 513,793 47.4 313,599 38.9
Current/demand/settlement accounts .................................... 88,911 8.2 72,485 9.0
Sale and repurchase agreements with securities..................... 813 0.0 195 0.0
Total for customer accounts ............................................... 603,517 55.6 386,279 47.9
Due to other banks
Term borrowings from other banks ....................................... 94,575 8.7 101,484 12.6
Term borrowings from the CBR ........................................... - - 3,853 0.5
Correspondent accounts and overnight placements of
other banks ............................................................................ 238 0.0 241 0.0
Total for due to other banks .............................................. 94,813 8.7 105,578 13.1
Promissory notes issued
Promissory notes issued ........................................................ 16,828 1.6 9,874 1.2
Total for promissory notes issued ...................................... 16,828 1.6 9,874 1.2
Others
Subordinated debts ................................................................ 57,267 5.3 46,545 5.8
Other borrowed funds ........................................................... 312,209 28.8 257,559 32.0
Total for others ................................................................... 369,476 34.1 304,104 37.8
Total for all categories of funding ..................................... 1,084,634 100.0 805,835 100.0
- 25 -
See "Capitalisation of the RAB Group" for a description of material changes in the RAB Group's
indebtedness after 30 September 2011.
Customer Accounts
Customer accounts continue to be one of the RAB Group's main sources of funding.
The table below sets out the RAB Group's customer accounts by type of depositor and type of
account as at 30 September 2011 and 31 December 2010.
As at
30 September 2011
As at
31 December 2010
(unaudited)
(in millions of Roubles)
State and public organisations
Term deposits ...................................................................................................................... 252,049 74,300
Current/settlement accounts ................................................................................................. 15,876 5,333
Total state and public organisations ................................................................................. 267,925 79,633
Other legal entities
Term deposits ...................................................................................................................... 140,892 128,443
Current/settlement accounts ................................................................................................. 53,757 50,317
Sale and repurchase agreements with securities.................................................................... 813 195
Total other legal entities .................................................................................................... 195,462 178,955
Individuals
Term deposits ...................................................................................................................... 120,852 110,856
Current/demand accounts ..................................................................................................... 19,278 16,835
Total individuals ................................................................................................................ 140,130 127,691
Total customer accounts .................................................................................................... 603,517 386,279
As at 30 September 2011, total customer accounts held with the RAB Group amounted to 603,517
million Roubles, or 55.3 per cent., of the RAB Group's total liabilities, as compared to 386,279
million Roubles, or 47.5 per cent., of the RAB Group's total liabilities as at 31 December 2010.
This increase is primarily attributable to an increase in term deposits of state and public
organisations by 177,749 million Roubles, or 239.2 per cent., to 252,049 million Roubles as at 30
September 2011 from 74,300 million Roubles as at 31 December 2010. The overall simultaneous
increase in term deposits of state and public organisations, of other legal entities and individuals
from 313,599 million Roubles as at 31 December 2010 to 513,793 million Roubles as at 30
September 2011 is mainly explained by successful implementation of RAB's policy to attract term
deposits.
The table below sets out the RAB Group's customer accounts by sector as at 30 September 2011
and 31 December 2010.
As at 30 September 2011
(unaudited)
As at 31 December 2010
Amount % of total Amount % of total
(in millions of Roubles, except percentages)
State and public organisations ........................................ 267,925 44.4 79,633 20.6
Individuals ...................................................................... 140,130 23.2 127,691 33.2
- 26 -
Manufacturing ................................................................. 40,269 6.7 35,371 9.2
Financial services and pension security .......................... 36,506 6.0 33,260 8.6
Insurance ......................................................................... 32,479 5.4 29,444 7.6
Agriculture ...................................................................... 23,805 3.9 25,203 6.5
Trading ........................................................................... 14,547 2.4 13,685 3.5
Telecommunications ........................................................ 12,429 2.1 7,404 1.9
Construction .................................................................... 8,243 1.4 12,738 3.3
Leasing ........................................................................... 6,483 1.1 8,920 2.3
Other ............................................................................... 20,701 3.4 12,930 3.3
Total customer accounts ............................................... 603,517 100.0 386,279 100.0
As at 30 September 2011, the RAB Group had five customers with balances in excess of 10.0 per
cent. of the RAB Group's total equity, as compared to three customers as at 31 December 2010.
The aggregate balance of these five customer accounts was 272,496 million Roubles, or 45.2 per
cent. of the RAB Group's total customer accounts as at 30 September 2011, as compared to the
aggregate balance of the three customer accounts in the amount of 60,639 million Roubles, or 15.7
per cent. of the RAB Group's total customer accounts as at 31 December 2010.
Other Borrowed Funds
As at 30 September 2011, other borrowed funds consisted of U.S. Dollar-denominated, Swiss
Franc-denominated and Rouble-denominated Eurobonds issued by the RAB Group through the
Issuer, as well as Rouble-denominated bonds issued on the domestic market. A 21.2 per cent.
increase in the other borrowed funds in the nine months ended 30 September 2011 was primarily
due to the issue of Rouble-denominated Eurobonds in March and April 2011 in the aggregate
principal amount of 32 billion Roubles and the issue of Rouble-denominated bonds on the
domestic market in July 2011 in the aggregate principal amount of 20 billion Roubles.
The table below sets out certain information on the RAB Group's outstanding Eurobonds issues
and Rouble-denominated bonds as at 30 September 2011.
Currency of
denomination
Nominal
value, in
millions
of
relevant
currency
units
Issue date Maturity date Put option date Annual
coupon
rate
Coupon
payment
frequency
Yield to
maturity/
next
repricing
date
Eurobonds issued
U.S. Dollars 630 16 May 2006 16 May 2013 - 7.175% 6 months 5.31%
U.S. Dollars 1,137 14 May 2007 15 May 2017 - 6.299% 6 months 6.61%
Swiss Francs 150 30 April 2008 30 April 2012 - 6.263% 1 year 4.27%
U.S. Dollars -
- tranche A 702 29 May 2008 14 January 2014 - 7.125% 6 months 5.90%
- tranche B 901 29 May 2008 29 May 2018 - 7.750% 6 months 6.85%
U.S. Dollars 1,000 11 June 2009 11 June 2014 - 9.000% 6 months 5.93%
Russian Roubles 30,000 25 March 2010 25 March 2013 - 7.500% 6 months 8.78%
Russian Roubles 20,000 17 March 2011 17 March 2016 - 8.700% 6 months 9.84%
Russian Roubles 12,000 20 April 2011 17 March 2016 - 8.700% 6 months 9.84%
Bonds issued on domestic market
- 27 -
Russian Roubles 10,000 22 February 2007 9 February 2017 17 February 2014 9.250% 6 months 8.48%
Russian Roubles 10,000 10 October 2007 27 September 2017 7 October 2011 11.500% 6 months 9.95%
Russian Roubles 583 22 February 2008 9 February 2018 19 August 2014 7.800% 6 months 7.70%
Russian Roubles 5,000 17 June 2008 5 June 2018 14 June 2013 6.850% 6 months 7.39%
Russian Roubles 10,000 9 December 2008 27 November 2018 8 December 2011 13.500% 6 months 13.66%
Russian Roubles 5,000 26 November 2009 14 November 2019 26 November 2012 10.100% 6 months 7.73%
Russian Roubles 5,000 26 November 2009 14 November 2019 26 November 2012 10.100% 6 months 7.32%
Russian Roubles 5,000 10 February 2010 29 January 2020 8 February 2013 9.000% 6 months 7.95%
Russian Roubles 5,000 11 February 2010 30 January 2020 11 February 2013 9.000% 6 months 7.97%
Russian Roubles 5,000 1 September 2010 28 August 2013 31 August 2012 7.200% 6 months 6.52%
Russian Roubles 10,000 1 September 2010 28 August 2013 31 August 2012 7.200% 6 months 6.90%
Russian Roubles 10,000 2 November 2010 29 October 2013 3 May 2012 6.600% 6 months 6.35%
Russian Roubles 10,000 12 July 2011 29 June 2021 9 July 2015 7.700% 6 months 8.08%
Russian Roubles 5,000 14 July 2011 1 July 2021 13 July 2015 7.700% 6 months 8.41%
Russian Roubles 5,000 15 July 2011 2 July 2021 14 July 2015 7.700% 6 months 7.87%
Subordinated Debts
As at 30 September 2011, the RAB Group's subordinated debts increased by 23.0 per cent. to
57,267 million Roubles from 46,545 million Roubles as at 31 December 2010 due to attraction of
new subordinated loan in the amount of 800 million U.S. Dollars through the issuance of
Eurobonds in June 2011 which was partly offset by an executed put option on early termination of
the subordinated debt in the amount of 500 million U.S. Dollars in September 2011.
Interbank Borrowings (Due to Other Banks)
As at 30 September 2011, total due to other banks decreased by 10,765 million Roubles, or 10.2
per cent., to 94,813 million Roubles from 105,578 million Roubles as at 31 December 2010, and
accounted for 8.7 per cent. of the RAB Group's total liabilities as at 30 September 2011 as
compared to 13.0 per cent. of the RAB Group's total liabilities as at 31 December 2010. This
decrease is primarily attributable to repayment of all borrowings from the CBR as at 30 September
2011, and a decrease in borrowings from other banks relating to sale and repurchase agreements
with maturity of less than 30 days and borrowings from other banks with maturity from 1 year to 3
years, which was partly offset by an increase in borrowings from other banks with maturity from
181 days to 1 year.
Loan Portfolio
The following table sets forth information on the RAB Group's loans and advances to customers
before provision for loan impairment by sector as at 30 September 2011 and 31 December 2010.
As at 30 September 2011
(unaudited)
As at 31 December 2010
Amount % of total Amount % of total
(in millions of Roubles, except percentages)
Loans and advances to customers before provision
for loan impairment
Agriculture ...................................................................... 538,370 57.2 467,876 62.7
Individuals ...................................................................... 130,214 13.8 85,031 11.4
Manufacturing ................................................................. 127,552 13.6 99,002 13.3
- 28 -
Trading ........................................................................... 83,542 8.9 54,179 7.3
Construction .................................................................... 33,866 3.6 25,898 3.5
Other ............................................................................... 27,009 2.9 13,599 1.8
Total loans and advances to customers before
provision for loan impairment ..................................... 940,553 100.0 745,585 100.0
Less: Provision for loan impairment (75,002) (57,029)
Total loans and advances to customers 865,551 688,556
The RAB Group's total loans and advances to customers before provision for loan impairment
increased by 26.1 per cent. to 940,553 million Roubles as at 30 September 2011 from 745,585
million Roubles as at 31 December 2010.
The table below sets out the RAB Group's movements in the provision for loan impairment during
the nine months ended 30 September 2011 and 2010.
For the nine months ended 30
September
2011
(unaudited)
2010
(unaudited)
(in millions of Roubles)
Provision for loan impairment as at 1 January ......................................................... 57,029 29,950
Provision for loan impairment during the period ........................................................... 17,985 20,755
Reclassification to assets of disposal groups held for sale ............................................. (12) -
Provision for loan impairment as at 30 September ................................................... 75,002 50,705
Provision for loan impairment primarily consists of provision for impairment of loans and
advances to customers. The RAB Group's provision for loan impairment increased by 31.5 per
cent. to 75,002 million Roubles, or 8.0 per cent. of the RAB Group's total loans and advances to
customers before provision for loan impairment, as at 30 September 2011 from 57,029 million
Roubles, or 7.6 per cent. of the RAB Group's total loans and advances to customers before
provision for loan impairment, as at 31 December 2010. Such increase is primarily attributable to
growth of RAB's loan portfolio during the period.
Securities Portfolio
The table below sets out information relating to the RAB Group's securities portfolio as at 30
September 2011 and 31 December 2010.
As at 30 September 2011
(unaudited)
As at 31 December 2010
Amount % of total Amount % of total
(in millions of Roubles, except percentages)
Investment securities available for sale
Corporate bonds .................................................................... 43,922 68.2 7,139 45.5
Federal loan bonds ("OFZ") ................................................... 7,510 11.7 - -
State Eurobonds .................................................................... 5,137 8.0 3,054 19.5
Corporate Eurobonds ............................................................ 4,196 6.5 4,955 31.6
Municipal and subfederal bonds ........................................... 3,577 5.6 524 3.3
- 29 -
Corporate shares ................................................................... 13 0.0 15 0.1
Total investment securities available for sale ................... 64,355 100.0 15,687 100.0
Repurchase receivables ...................................................... 6,290 100.0 15,240 100.0
Investment securities held to maturity
State Eurobonds ................................................................................................ 7,072 46.9 6,682 44.8
Federal loan bonds ("OFZ") .............................................................................. 3,159 20.9 3,317 22.1
Corporate Eurobonds ............................................................ 1,553 10.3 1,473 9.9
Promissory notes ................................................................... 1,420 9.4 1,281 8.6
Corporate bonds .................................................................... 786 5.2 1,087 7.3
Municipal and subfederal bonds ........................................... 1,098 7.3 1,082 7.3
Total investment securities held to maturity .................... 15,088 100.0 14,922 100.0
Trading securities ............................................................... - - 3,563 100.0
Financial instruments designated at fair value through
profit or loss
Due from other banks with embedded derivatives ................. 13,208 94.9 8,861 91.5
Credit Linked Note ............................................................... 716 5.1 825 8.5
Total financial instruments designated at fair value
through profit or loss .......................................................... 13,924 100.0 9,686 100.0
A 310.2 per cent. increase in investment securities available for sale from 15,687 million Roubles
as at 31 December 2010 to 64,355 million Roubles as at 30 September 2011 occurred due to
increased purchase of securities, mainly corporate bonds and federal loan bonds ("OFZ").
Capital Adequacy
RAB's capital adequacy ratio (the "CAR") is calculated in accordance with the international
framework for capital measurement and capital standards for banking institutions set by the Basel
Committee on Banking Supervision.
The following table sets forth the principal components of RAB's CAR as at 30 September 2011
and 31 December 2010.
As at 30 September
(unaudited)
2011
As at 31 December
(unaudited)
2010
(in millions of Roubles, except percentages)
Tier I capital
Share capital ............................................................................................... 108,798 108,798
Retained earnings ........................................................................................ 6,939 6,851
Goodwill ..................................................................................................... (8) -
Total Tier I capital .................................................................................... 115,729 115,649
Tier II capital
Revaluation reserves ................................................................................... (580) 832
Subordinated debts ...................................................................................... 57,267 46,545
Total Tier II capital .................................................................................. 56,687 47,377
Total capital ............................................................................................... 172,416 163,026
Total Risk-Weighted Assets(1) ................................................................... 1,097,794 872,070
- 30 -
Capital Adequacy Ratios
Total Tier I capital divided by total risk-weighted assets ............................ 10.5% 13.3%
Risk Adjusted Capital Ratio(2) .................................................................... 15.7% 18.7 %
______________
(1) Total risk-weighted assets are determined by multiplying the capital requirement for market risk and
operational risk by 12.5 and adding the resulting figures to the sum of risk-weighted assets for credit risk. Risk-
weighted assets for credit risk are calculated as the sum of weighted banking and trading book values. Banking
book value takes into account assets and off-balance sheet exposure weighted according to credit risk and is
calculated as the sum of the values of assets and off-balance sheet items after each such value is multiplied by
the relevant risk factor. Weighting factors for assets and conversion factors for off-balance sheet items are
determined in accordance with the Basel framework. Trading book value takes into account assets and off-
balance sheet exposure weighted according to market risks, i.e. interest rate, equity, and commodity risks. RAB
uses the standardised approach to market risks assessment, which involves separate assessment of specific and
general market risks.
(2) Total Tier I capital plus total Tier II capital divided by total risk-weighted assets.
As at 30 September 2011, RAB's total Tier I capital divided by total risk-weighted assets, as
calculated under the standards set by the Basel Committee on Banking Supervision, amounted to
10.5 per cent. as compared to 13.3 per cent. as at 31 December 2010. This decrease is primarily
attributable to an increase in total risk-weighted assets by 25.9 per cent. to 1,097,794 million
Roubles as at 30 September 2011 from 872,070 million Roubles as at 31 December 2010 due to an
increase in total assets. The CBR requires banks to maintain a capital adequacy ratio of 10.0 per
cent. of total risk-weighted assets, computed based on the statutory accounting records. As at 1
October 2011, RAB's capital adequacy ratio calculated on this basis was 14.6 per cent. as
compared to 18.9 per cent. as at 1 January 2011.
Contingencies and Commitments
Certain commitments and contingencies are anticipated by the RAB Group.
Capital expenditure commitments. As at 30 September 2011, the RAB Group had contractual
capital expenditure commitments in the amount of 189 million Roubles as compared to 307 million
Roubles as at 31 December 2010.
Assets pledged and restricted. The table below sets out the principal components of the RAB
Group's assets pledged and restricted as at 30 September 2011 and 31 December 2010.
As at
30 September
2011
As at
31 December 2010
(unaudited)
(in millions of Roubles)
Under secured loans from the CBR
Loans to customers ................................................................................... - 7,101
Under term deposits from clients
State Eurobonds ........................................................................................ 7,072 6,682
Under repo agreements
Corporate bonds ........................................................................................ 6,290 12,547
State Eurobonds ........................................................................................ - 2,658
- 31 -
Municipal and subfederal bonds ............................................................... - 35
Restricted cash ........................................................................................ 208 -
For further information on the RAB Group's contingencies and commitments, see Note 13 to the
Interim Financial Information.
- 32 -
RELATED PARTY TRANSACTIONS
In the ordinary course of business the RAB Group enters into transactions with companies
controlled by its controlling shareholder, its directors and managers and associated parties. These
transactions include settlements, loans, securities trading, deposit taking, guarantees, trade finance
and foreign currency transactions. RAB believes that these transactions are entered into on an
"arm's length" basis and their terms do not substantially differ from standard market terms.
For the purposes of the Interim Financial Information, parties are considered to be related, in line
with requirements of IAS 24 (Revised), Related party disclosure ("IAS 24 (Revised)") if one party
has the ability to control the other party, is under common control, or can exercise significant
influence over the other party in making financial or operational decisions. The RAB Group's sole
shareholder is the Government of the Russian Federation represented by the SPMA. Currently the
Russian Government does not provide to the general public or entities under its ownership/control
a complete list of the entities which are owned or controlled directly or indirectly by the Russian
state. Judgement is applied by the RAB Group's management in identification of related parties to
be disclosed in the consolidated financial statements.
RAB Group included in key management personnel only members of the RAB's Management
Board and the Chief Accountant.
As at 1 January 2008, the RAB Group early adopted IAS 24 (Revised), which results in the
disclosure of only individually significant transactions and balances, including commitments.
The table below sets out the outstanding balances with related parties as at 30 September 2011 and
31 December 2010.
As at
30 September 2011
(unaudited)
As at
31 December 2010
(in millions of Roubles)
Loans and advances to customers (before impairment)
State-controlled entities (contractual interest rate: 7%-12% p.a. (2010: 7%-
12% p.a.)) ...................................................................................................... 37,026 45,937
Key management and their family members (2010 contractual interest rate:
5% p.a.) .......................................................................................................... - 21
Provision for loan impairment at period end
State-controlled entities .................................................................................. (57) (8)
Customer accounts
State-controlled entities (contractual interest rate for term deposits: 3%-8%
p.a. (2010: 1%-9% p.a.)) ................................................................................ 274,932 89,763
Key management and their family members (contractual interest rate for
term deposits: 1%-7% p.a. (2010: 1%-7% p.a.)) ............................................ 158 235
Subordinated debts
State-controlled entities (contractual interest rate: 6.5% p.a. (2010: 6.5%
p.a.)) ............................................................................................................... 25,000 25,000
The table below sets out the income and expense items with related parties for the nine months
ended 30 September 2011 and 2010.
- 33 -
For the nine months ended 30 September
2011
(unaudited)
2010
(unaudited)
(in millions of Roubles)
Interest income on loans and advances to customers
State-controlled entities ................................................................................. 2,284 2,574
Key management and their family members .................................................. - 1
Interest expense on customer accounts
State-controlled entities ................................................................................. (5,940) (4,039)
Key management and their family members .................................................. (9) (28)
Interest expense on subordinated debts
State-controlled entities ................................................................................. (1,215) (1,458)
Short-term benefits of the members of the RAB's Management Board and the Chief Accountant
amounted to 84 million Roubles and 109 million Roubles for the nine months ended 30 September
2011 and 2010, respectively.
For further information on related party transactions, see Note 15 to the Interim Financial
Information.
- 34 -
RECENT DEVELOPMENTS
Development of Retail Business
In addition to its core business of lending to the Russian agricultural sector, the RAB Group has
increased its focus on the development of retail business and fee and commission-based products
and services. In particular, the RAB Group's loans and advances to individuals before provision for
loan impairment increased by 45,183 million Roubles, or 53.1 per cent., to 130,214 million
Roubles as at 30 September 2011 from 85,031 million Roubles as at 31 December 2010.
Management – Updated Organisational Structure
A diagrammatic overview of the updated management organisational structure of the RAB is set
out below.
General Shareholders Meeting
Supervisory Board
Management Board
Chairman of the Management
Board
Human Resources
and Remuneration
Committee
Strategic Planning
and Development
Committee
Audit Committee
Board of Auditors
Corporate Secretary
Member of
the Board
Member of the
Board
Member of the
Board Chief
Accountant
Corporate
Business Unit Finance Unit Problem Assets
Management
Unit
Operating Unit Risk
Management and
Activities Unit
Strategy and
Corporate
Governance Unit
Accounting and
reporting Unit
Legal
Department
Treasury
Department
Capital Markets
Department
Finance and
Planning
Department
Financial
Institutions
Department
Accounting and
Tax Department
Corporate
Business
Development
Department
Credit
Department
Government
Purchases
Financing
Department
Branch Network
Administration
and
Development
Department
Problem Assets
Management
Department
Automatisation
Systems
Department
Administrative
Department
Financial
Monitoring
Service
Internal Control
Service
Banking
Operations
Department
Risk Department
Member of the
Board
Member of the
Board
Member of the
Board
Marketing and
Lending Process
Management
Department
Retail
Development
Department
Reporting
Department
Strategic
Development
and Corporate
Governance
Department
LLC Trading
House
"Agrotorg"
Security Department Corporate Secretary Division
Public Relations
Department
Additional office
Secretariat of the Chairman of the
Management Board
Document Processing Department
Small Business
Development
Department
Human resources
Department
- 35 -
Management – Management Board
As of the date of this Drawdown Prospectus, RAB's Management Board consists of 7 members, the
names of whom are set out below.
Name Age Position Date of Appointment
Dmitry N. Patrushev .................................................................................... 34 Chairman 2010
Boris P. Listov ............................................................................................. 42 First Deputy Chairman 2009
Alexey A. Zhdanov ...................................................................................... 49 Deputy Chairman 2011
Andrey A. Alyakin ....................................................................................... 43 Deputy Chairman 2010
Victoria V. Kirina ........................................................................................ 55 Deputy Chairman 2010
Kirill U. Levin ............................................................................................. 43 Deputy Chairman 2011
Dmitry G. Sergeev ....................................................................................... 37 Deputy Chairman 2010
Alexey A. Zhdanov Mr. Zhdanov graduated from the Moscow Finance Institute in 1984. Prior to
joining RAB in 2011, Mr. Zhdanov was the head of the Strategic department in OJSC "Rosbank".
In January 2012, Mr. Zhdanov was appointed as a deputy chairman of the Management Board.
The biographical data of other members of the Management Board is provided on pages 176 and
177 of the Base Prospectus.
Management – Supervisory Board
As of the date of this Drawdown Prospectus, RAB's Supervisory Board consists of seven members,
the names of whom are set out below.
Name Age Position Date of Appointment
Ilya V. Lomakin-Rumyantsev ..................................................................... 54 Chairman 30 June 2011
Anatoly B. Ballo ......................................................................................... 50 Member 30 June 2011
Anna G. Belova .......................................................................................... 51 Member 30 June 2011
Tatyana B. Kulkina ..................................................................................... 59 Member 30 June 2011
Dmitry N. Patrushev ................................................................................... 34 Member 30 June 2011
Alexandr I. Sobol ........................................................................................ 42 Member 30 June 2011
Mihail A. Eskindarov .................................................................................. 60 Member 30 June 2011
Ilya V. Lomakin-Rumyantsev. Mr. Lomakin-Rumyantsev graduated from the Moscow State
University in 1979. Prior to joining RAB in 2011, Mr. Lomakin-Rumyantsev was the head of the
Presidential Experts' Directorate from 2009 to 2011.
Anna G. Belova. Mrs. Belova graduated from the Moscow Engineering Physics Institute in 1984.
Prior to joining RAB in 2011, Mrs. Belova worked for the Siberian coal energy company from
2007 to 2011.
- 36 -
Mihail A. Eskindarov. Mr. Eskindarov graduated from the Moscow Finance Institute in 1976.
Since 2010, Mr. Eskindarov has also been the head of the Financial University under the
Government of Russian Federation.
The biographical data of other members of the Supervisory Board is provided on page 174 and 175
of the Base Prospectus.
Overhaul of IT Systems
RAB considers improved technology to be a key strategic initiative and continues its efforts to
modernise its IT systems to meet the needs of its growing business and customer expectations,
while simplifying its internal processes to improve its operational efficiency. By introducing new
banking technologies and processes, RAB believes it will be able to manage risks more efficiently
and capable of providing improved customer service.
- 37 -
RUSSIAN TAXATION
General
The following is a summary of certain Russian tax considerations relevant to the purchase,
ownership and disposal of the Series 9 Notes, as well as the taxation of interest on the Series 9
Loan. The summary is based on the laws of the Russian Federation in effect on the date of this
Supplement, which are subject to change (possibly with retroactive effect). The summary does not
seek to address the applicability of, and procedures in relation to, taxes levied by regions,
municipalities or other non-federal authorities of the Russian Federation. Nor does the summary
seek to address the availability of double tax treaty relief in respect of the Series 9 Notes, and it
should be noted that there may be practical difficulties, including satisfying certain documentation
requirements, involved in claiming double tax treaty relief. Prospective investors should consult
their own advisers regarding the tax consequences of investing in the Series 9 Notes. No
representations with respect to the Russian tax consequences of investing, owning or disposing of
the Series 9 Notes to any particular Noteholder are made hereby.
The provisions of the Tax Code applicable to Noteholders and transactions involving the Series 9
Notes are ambiguous and lack interpretive guidance. Both the substantive provisions of the Tax
Code applicable to financial instruments and the interpretation and application of those provisions
by the Russian tax authorities may be more inconsistent and subject to more rapid and
unpredictable change than in jurisdictions with more developed capital markets or more developed
taxation systems. In particular, the interpretation and application of such provisions will in practice
rest substantially with local tax inspectorates.
For the purposes of this summary, a "non-resident Noteholder" means:
an individual Noteholder actually present in Russia for an aggregate period of less than 183
calendar days (including days of arrival to Russia and including days of departure from
Russia) in any period comprising 12 consecutive months. Presence in Russia for tax residency
purposes is not considered interrupted for an individual’s short term departure (less than 6
months) from Russia for medical treatment or education, in any period comprising 12 months;
or
a legal entity or organisation, in each case not organised under Russian law, which purchases,
holds and/or disposes of the Series 9 Notes otherwise than through a permanent establishment
in Russia (as defined by Russian tax law).
A "resident Noteholder" means any Noteholder (including any individual and any legal entity or
organisation) who is not a non-resident Noteholder.
Russian tax residency rules may be affected by an applicable double tax treaty. Based on published
comment of the Russian authorities, it is anticipated that the Russian tax residency rules applicable
to legal entities may change in the future.
- 38 -
The Russian tax treatment of interest payments made by RAB to the Issuer under the Series 9 Loan
Agreement may affect the holders of the Series 9 Notes. See "Taxation of Interest on the Series 9
Loan" below.
Taxation of the Series 9 Notes
Non-Resident Noteholders
A non-resident Noteholder should not be subject to any Russian taxes on receipt from the Issuer of
amounts payable in respect of principal or interest on the Series 9 Notes, subject to what is stated
in "Taxation of Interest on the Series 9 Loan".
A non-resident Noteholder generally should not be subject to any Russian taxes in respect of gain
or other income realised on the redemption, sale or other disposal of the Series 9 Notes outside the
Russian Federation, provided that the proceeds of such sale, redemption, or other disposal of the
Series 9 Notes are not received from a source within the Russian Federation.
In the event that proceeds from a sale, redemption or disposal of Notes are received from a source
within the Russian Federation, a non-resident Noteholder that is a legal entity or organisation
generally should not be subject to Russian withholding tax in respect of such proceeds, although
there is some residual uncertainty regarding the treatment of the portion of the proceeds, if any,
from the sale or other disposal of the Series 9 Notes that is attributable to accrued interest on the
Series 9 Notes. If the payment upon sale or other disposal of the Series 9 Notes is received from
within Russia, accrued interest may be distinguished from the total gain and may be subject to a 20
per cent. Russian withholding tax. The separate taxation of the interest accrued may create a tax
liability in relation to interest even if disposal is made at a loss. The withholding tax on any part of
the payment relating to interest may potentially be subject to reduction or elimination under
provisions of an applicable double tax treaty (depending on the tax residence of the non-resident
Noteholder).
If income from a sale, redemption or disposal of Notes is received from a source within Russia, a
non-resident Noteholder who is an individual will generally be subject to personal income tax at a
rate of 30% on the gain from such disposal (the gain generally being calculated as the gross
proceeds from such disposal less any available cost deduction which includes the purchase price of
the Series 9 Notes), subject to any available double tax treaty relief. According to Russian tax law,
income received from a sale, redemption or other disposal of the Series 9 Notes should be treated
as having been received from a source within Russia if such sale, exchange, redemption or other
disposal occurs in Russia. Russian tax law gives no clear indication as to how to identify the source
of income received from a sale, redemption or other disposal of securities except that income
received from the sale of securities "in Russia" will be treated as having been received from a
source within Russia. The taxable base should be calculated in Roubles and, therefore, may be
affected by fluctuations in the exchange rates between the currency of acquisition of the Series 9
Notes, the currency of sale of the Series 9 Notes and Roubles. The tax may be withheld at source
of payment or, if the tax is not withheld, then the non-resident Noteholder would be liable to pay
the tax.
- 39 -
Additionally, acquisition of the Series 9 Notes by a non-resident Noteholder who is an individual
may constitute a taxable event pursuant to provisions of the Tax Code relating to the material
benefit (deemed income) received by individuals as a result of acquisition of securities. If the
acquisition price of the Series 9 Notes is below the lower threshold of the range of fair market
value calculated under a specific procedure for the determination of market prices of securities for
tax purposes, the difference may be subject to the Russian personal income tax at the rate of 30 per
cent. (arguably, this would be subject to reduction or elimination under the applicable double tax
treaty). As noted above with respect to the disposal of the Series 9 Notes, under Russian tax
legislation, taxation of the income of non-resident Noteholders who are individuals will depend on
whether this income would be assessed as received from Russian or non-Russian sources.
Although Russian tax legislation does not contain any provisions on how the related material
benefit should be sourced, the tax authorities may infer that such income should be considered as
Russian source income if the Series 9 Notes are purchased in the Russian Federation. In the
absence of any additional guidance as to what should be considered as a purchase of securities in
the Russian Federation, the Russian tax authorities may apply various criteria in order to determine
the source of the related material benefit, including looking at the place of conclusion of the
acquisition transaction, the location of the Issuer, or other similar criteria.
Non-resident Noteholders that are legal entities or organisations and non-resident Noteholders who
are individuals should consult their own tax advisers with respect to the tax consequences of a
disposition of the Series 9 Notes and the tax consequences of the receipt of proceeds from a source
within the Russian Federation in respect of a disposition of the Series 9 Notes.
Double Tax Treaty Relief
Where proceeds from the disposition of Notes are received from a Russian source, withholding tax
on interest or on capital gains (if applicable under Russian domestic tax law) may be reduced or
eliminated in accordance with the provisions of an applicable double tax treaty. Advance treaty
relief should be available for those eligible, subject to the requirements of the laws of the Russian
Federation. In order for a non-resident Noteholder, whether an individual, legal entity or
organisation, to enjoy the benefits of an applicable double tax treaty, documentary evidence is
required to confirm the applicability of the double tax treaty for which benefits are claimed.
Currently, a non-resident Noteholder would need to provide a certificate of tax residence issued by
the competent tax authority of the relevant treaty country (apostilled or legalised, translated into
Russian). The tax residency confirmation needs to be renewed on an annual basis, and provided
before the first payment of income in each calendar year. In addition, an individual must provide
appropriate documentary proof of tax payments outside of Russia on income with respect to which
treaty benefits are claimed. Because of uncertainties regarding the form and procedures for
providing such documentary proof, individuals in practice may not be able to obtain advance treaty
benefits on receipt of proceeds from a source within Russia and obtaining a refund can be
extremely difficult.
Refund of Tax Withheld
Where double tax treaty relief is available but Russian income tax has nevertheless been withheld
at source by the payer of the proceeds, an application for the refund of the taxes withheld may be
- 40 -
filed within three years from the end of the tax period in which the tax was withheld for non-
resident Noteholders.
In order to obtain a refund, the non-resident Noteholder would need to file with the Russian tax
authorities a duly notarised, apostilled and translated certificate of tax residence issued by the
competent tax authority of the relevant treaty country, as well as documents confirming receipt of
income and withholding of Russian tax. In addition, a non-resident Noteholder who is an
individual would need to provide appropriate documentary proof of tax payments made outside of
Russia on income with respect to which tax refund is claimed. The supporting papers shall be
provided within one year after the year to which the treaty benefits relates for non-resident
Noteholders who are individuals. The Russian tax authorities may, in practice, require a wide
variety of documentation confirming the right to benefits under a double tax treaty. Such
documentation, in practice, may not be explicitly required by the Russian Tax Code. Obtaining a
refund of Russian tax withheld may be a time consuming process and can involve considerable
practicable difficulties.
Noteholders whether individuals or legal entities or organisations should consult their own tax
advisers should they need to obtain treaty relief on any payments from the Series 9 Notes.
Resident Noteholders
A resident Noteholder is subject to all applicable Russian taxes and responsible for complying with
any documentation requirements that may be required by law or practice in respect of gains from
disposal of the Series 9 Notes and interest received on the Series 9 Notes. Resident Noteholders
should consult their own tax advisers with respect to their tax position regarding the Series 9
Notes.
Taxation of Interest on the Series 9 Loan
In general, payments of interest on borrowed funds by a Russian entity to a non-resident legal
entity or organisation are subject to Russian withholding income tax at a rate of 20 per cent. (or 30
per cent. in respect of non-resident individual Noteholders), subject to reduction or elimination
pursuant to the terms of an applicable double tax treaty. RAB's management believes that
payments of interest on the Series 9 Loan made by RAB to the Issuer should not be subject to
withholding taxes under the terms of the double tax treaty between the Russian Federation and the
Grand Duchy of Luxembourg, provided the Russian tax documentation requirements (annual
advance confirmation of the Issuer's tax residency) are satisfied. However, because of a recent
change in the approach of the Russian tax authorities towards application of benefits envisaged by
double tax treaties, there can be no assurance that such double tax treaty relief will be obtained in
practice or will continue to be available. See "Risk Factors — Payments on the loan may be subject
to withholding tax".
In addition, if, as a result of the enforcement by the Trustee of the security granted to it by the
Issuer by way of the Security interests in the Trust Deed, interest under the Series 9 Loan becomes
payable to the Trustee, the benefit of the double tax treaty between Russia and the Grand Duchy of
Luxembourg may cease and payments of interest may be subject to Russian withholding tax at a
rate of 20 per cent.
- 41 -
Application of tax benefits under the double tax treaty could be influenced by the recently
proposed changes to Russian tax legislation (as discussed in section "Risk factors"). Currently, it is
not clear when or if such changes will come into force and how they will be applied in practice. At
this time it is not possible to determine the extent to which such amendments could impact the
application of the double tax treaty benefits to the interest payments made by RAB under the Series
9 Loan. Therefore, there can be no assurance that such double tax treaty relief will continue to be
available.
If the payments under the Series 9 Loan are subject to any withholding taxes for any reason (as a
result of which the Issuer would reduce payments under the Series 9 Notes in the amount of such
withholding taxes), RAB is required to increase payments as may be necessary so that the Issuer
receives the net amount equal to the full amount it would have received in the absence of such
withholding. It should be noted, however, that gross-up provisions in contracts may not be
enforceable in the Russian Federation. In the event that RAB fails to increase the payments, such
failure would constitute an Event of Default. If RAB is obliged to increase payments, it may
prepay the Series 9 Loan in full. In such case, all outstanding Notes would be redeemable at par
with accrued interest.
Value added tax (VAT)
Russian VAT is not applied to the rendering of financial services involving the provision of a loan
in monetary form. Therefore, no VAT will be payable in the Russian Federation on any payment of
interest or principal in respect of the Series 9 Loan.
- 42 -
TERMS AND CONDITIONS OF THE SERIES 9 NOTES
The terms of conditions of the Series 9 Notes shall comprise the "Terms and Conditions of the
Notes" set out on pages 222 to 237 (inclusive) of the Base Prospectus (the "Conditions"), as
modified and completed by the Issue Terms in respect of the Series 9 Notes set out in the "Issue
Terms of the Series 9 Notes" section (the "Issue Terms of the Series 9 Notes") and as further
modified as set out below.
All references in this Drawdown Prospectus or (in respect of the Series 9 Notes only) in the Base
Prospectus to Conditions or to a numbered Condition shall be to the Terms and Conditions or the
relevant numbered Condition, respectively, as modified and completed by the Issue Terms of the
Series 9 Notes. References in the Terms and Conditions, this Drawdown Prospectus and (in respect
of the Series 9 Notes only) the Base Prospectus to Final Terms shall be to the Issue Terms of the
Series 9 Notes.
- 43 -
ISSUE TERMS OF THE SERIES 9 NOTES
Issue Terms dated 15 February 2012
RUSSIAN AGRICULTURAL BANK
Issue of RUB 10,000,000,000 8.625 per cent. Loan Participation Notes due 2017 (the "Series 9
Notes") by RSHB Capital S.A. (the "Issuer") for the purpose of financing a senior loan (the
"Loan") to Russian Agricultural Bank ("RAB") under a U.S.$ 10,000,000,000 Programme for the
Issuance of Loan Participation Notes to be issued by, but with limited recourse to, the Issuer (the
"Programme").
PART A – CONTRACTUAL TERMS
Terms used herein shall be deemed to be defined as such for the purposes of the Terms and
Conditions of the Notes (the "Conditions") set forth in the base prospectus dated 17 May 2011 (the
"Base Prospectus") and incorporated in relation to the Series 9 Notes only into a drawdown
prospectus dated 15 February 2012 (the "Drawdown Prospectus") which constitutes a prospectus
for the purposes of the Prospectus Directive (Directive 2003/71/EC) (the "Prospectus Directive").
These Issue Terms modify and complete the Conditions in relation to the Series 9 Notes only.
References in the Conditions to Notes shall be deemed to include references to the Series 9 Notes.
1. (i) Issuer: RSHB Capital S.A.
(ii) Borrower: Russian Agricultural Bank
2. Series Number: 9
3. Specified Currency: Roubles (RUB)
4. (i) Aggregate Nominal
Amount of Series 9 Notes:
RUB 10,000,000,000
(ii) Principal Amount of Loan: RUB 10,000,000,000
5. Issue Price: 100 per cent. of the Aggregate Nominal Amount
6. Specified Denominations: RUB 3,000,000 and integral multiples of RUB
100,000 in excess thereof
7. (i) Issue Date: 17 February 2012
(ii) Interest Commencement
Date:
Issue Date
8. (i) Maturity Date:
(ii) Repayment Date:
17 February 2017
17 February 2017
- 44 -
9. Interest Basis: 8.625 per cent. Fixed Rate
(further particulars specified below)
10. Redemption/Payment Basis: Redemption at par
11. Change of Interest or
Redemption/Payment Basis:
Not Applicable
12. Put/Call Options: Not Applicable
13. (i) Status of the Series 9
Notes:
(ii) Status of the Loan:
Senior
Senior
(iii) Dates of Board approval
for issuance of Series 9
Notes and borrowing of
the Loan obtained:
The issue of the Series 9 Notes and the making of
the Loan were approved by the Board of Directors
of the Issuer on 14 February 2012 and by the
Management Board of RAB on 9 February 2012,
respectively.
14. Method of distribution: Syndicated
15. Financial Centres: London and Moscow
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
16. Fixed Rate Note Provisions: Applicable
(i) Rate of Interest: 8.625 per cent. per annum payable semi-annually in
arrear
(ii) Interest Payment Date(s): 17 August and 17 February in each year, provided
that if any Interest Payment Date is not a business
day in London, payment shall not be made until the
next following business day in London and no
further interest or other payment shall be made in
respect of any such delay.
(iii) Fixed Coupon Amount: RUB 4,312.50 per RUB 100,000 in Principal
Amount
(iv) Broken Amount: Not Applicable
(v) Day Count Fraction: Actual/Actual ICMA
(vi) Determination Dates: 17 August and 17 February in each year
- 45 -
(vii) Other terms relating to the
method of calculating
interest for Fixed Rate
Notes:
Not Applicable
17. Floating Rate Note Provisions: Not Applicable
PROVISIONS RELATING TO REDEMPTION
18. Final Redemption Amount of each
Note:
RUB 100,000 per RUB 100,000 in Principal
Amount
19. Early Redemption Amount(s) per
RUB100,000 in Principal Amount
payable on redemption for taxation
reasons or on event of default or
other early redemption and/or the
method of calculating the same (if
required or if different from that
set out in the Conditions):
As set out in the Conditions
GENERAL PROVISIONS APPLICABLE TO THE SERIES 9 NOTES
20. Form of the Series 9 Notes: Registered Notes.
The Series 9 Notes will initially be represented by a
Regulation S Global Note Certificate which will be
exchangeable for Individual Note Certificates in the
limited circumstances set out therein.
21. Other issue terms: Not Applicable
DISTRIBUTION
22. (i) If syndicated, names of
Managers:
Not Applicable
(ii) Stabilisation Manager (if
any):
Citigroup Global Markets Limited
23. If non-syndicated, name of Dealer: Citigroup Global Markets Limited
24. U.S. Selling Restrictions: Reg S
25. Additional selling restrictions: Not Applicable
PURPOSE OF ISSUE TERMS
- 46 -
These Issue Terms comprise the Issue Terms which complete the Conditions in relation to the
Series 9 Notes to be issued pursuant to the U.S.$ 10,000,000,000 Programme for the Issuance of
Loan Participation Notes by, but with limited recourse to, RSHB Capital S.A. for the purpose of
financing a loan to RAB.
RESPONSIBILITY
The Issuer and RAB accept responsibility for the information contained in these Issue Terms and
acknowledge and agree that these Issue Terms modify and complete the Conditions in respect of
the Series 9 Notes only.
Signed on behalf of RSHB Capital S.A.:
By: By:
Duly authorised Duly authorised
Signed on behalf of Russian Agricultural Bank:
By: By:
- 47 -
PART B– OTHER INFORMATION
1. LISTING
(i) Admission to trading: Application has been made by the Issuer (or on its
behalf) for the Series 9 Notes to be admitted to the
Official List and trading on the regulated market of
the Irish Stock Exchange with effect from 17
February 2012.
(ii) Estimate of total expenses
related to admission to
trading:
EUR 1,500
2. RATINGS
Ratings: The Series 9 Notes to be issued have been rated:
Fitch: BBB
Moody's: Baa1
A rating is not recommendation to buy, sell or hold
securities and can be revised, suspended or
withdrawn at any time by the assigning rating
agency. Similar ratings of different types of notes
may not necessarily bear the same meanings.
In general, European regulated investors are
restricted from using a rating for regulatory
purposes if such rating is not issued by a credit
rating agency established in the European
Community and registered under Regulation (EC)
No. 1060/2009 of the European Parliament and of
the Council dated 16 September 2009 on credit
rating agencies (the "CRA Regulation") unless the
rating is issued by a credit rating agency established
in the EU and registered under the CRA Regulation
(and such registration has not been withdrawn or
suspended), subject to transitional provisions that
apply in certain circumstances whilst the
registration application is pending. Such general
restriction will also apply in the case of credit
ratings issued by non-EU credit rating agencies,
unless the relevant credit ratings are endorsed by an
EU-registered credit rating agency or the relevant
non-EU rating agency is certified in accordance
- 48 -
with the CRA Regulation (and such endorsement
action or certification, as the case may be, has not
been withdrawn or suspended).
Fitch Ratings CIS Limited ("Fitch"), established
under English law and operating in Russia through
its Russian Branch, is a credit rating agency
established in the European Union and is registered
under Regulation (EC) No. 1060/2009 (as
amended).
Moody's Investors Service Limited ("Moody's")
established under English law and operating in
Russia through its Russian Branch, is a credit rating
agency established in the European Union and is
registered under Regulation (EC) No. 1060/2009 (as
amended).
3. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE
Save as discussed in "Subscription and Sale" in the Base Prospectus, so far as the Issuer is
aware, no person involved in the offer of the Series 9 Notes has an interest material to the
offer.
4. REASONS FOR THE OFFER, ESTIMATED NET PROCEEDS AND TOTAL
EXPENSES
(i) Reasons for the offer: See "Use of Proceeds" wording in the Base
Prospectus.
(ii) Estimated net proceeds of the
Issue:
The net proceeds will be equal to the gross
proceeds of the Series 9 Notes in the amount of
RUB 10,000,000,000.
(iii) Estimated total expenses: U.S.$ 300,000
(iv) Estimated proceeds of the Loan
from the Issuer to the Borrower,
less the estimated fees and
expenses payable by the
Borrower in connection with
the Loan:
RUB 10,000,000,000
5. FIXED RATE NOTES ONLY – YIELD
Indication of yield: 8.625 per cent. per annum
The yield is calculated at the Issue Date on the
basis of the Issue Price. It is not an indication of
- 49 -
future yield.
6. OPERATIONAL INFORMATION
ISIN Code: XS0748114005
Common Code: 074811400
Any clearing system(s) other than
Euroclear Bank SA/NV and
Clearstream Banking société anonyme
and the relevant identification
number(s):
Not Applicable
Delivery: Delivery against payment.
Names and addresses of initial Paying
Agent(s):
As stated in the Drawdown Prospectus
Names and addresses of additional
Paying Agent(s) (if any):
Not Applicable
- 50 -
SERIES 9 LOAN SUPPLEMENT
The Series 9 Loan Supplement will be entered into between the Issuer and RAB in or substantially
in the form set out below
THIS SENIOR LOAN SUPPLEMENT is made on 15 February 2012
BETWEEN:
(1) RSHB CAPITAL S.A., a public limited liability company (société anonyme),
incorporated in the Grand Duchy of Luxembourg, whose registered office is at 46 A,
Avenue J.F.Kennedy, L-1855, Luxembourg, Grand Duchy of Luxembourg and registered
with the Register of Commerce and Companies of Luxembourg under number B111 968
(the "Lender"); and
(2) RUSSIAN AGRICULTURAL BANK, an open joint-stock company established under
the laws of the Russian Federation whose registered office is at 3 Gagarinsky Pereulok,
Moscow 119034, Russian Federation ("RAB").
WHEREAS:
(A) RAB has entered into an amended and restated senior facility agreement dated 17 May
2011 (as may be amended or supplemented from time to time, the "Senior Facility
Agreement") with the Lender in respect of RAB's U.S. $10,000,000,000 Programme for
the Issuance of Loan Participation Notes (the "Programme").
(B) RAB proposes to borrow RUB 10,000,000,000 (the "Senior Loan") and the Lender wishes
to make such Senior Loan on the terms set out in the Senior Facility Agreement and this
Senior Loan Supplement.
IT IS AGREED as follows:
1. DEFINITIONS
Capitalised terms used but not defined in this Senior Loan Supplement shall have the
meaning given to them in the Facility Agreement save to the extent supplemented or
modified herein.
2. ADDITIONAL DEFINITIONS
For the purpose of this Senior Loan Supplement, the following expressions used in the
Facility Agreement shall have the following meanings:
"Account" means the account opened in connection with the Series 9 Notes in the name of
the Lender with The Bank of New York Mellon, London;
"Closing Date" means 17 February 2012;
- 51 -
"Facility Fee" means the fee payable by RAB to the Lender in connection with the
provision of the Senior Loan as separately set out in the Fees and Expenses Side Letter
dated 15 February 2012;
"Notes" means RUB 10,000,000,000 8.625 per cent. Loan Participation Notes due 2017
issued by the Lender as Series 9 under the Programme;
"RAB Account" means the account in the name of RAB with OPERU MGTU Bank of
Russia, BIC 044525111, INN 7725114488, Nostro Account Number
30101810200000000111, for account of 00000000000000000000, in favour of Russian
Agricultural Bank, SWIFT RUAGRUMM, VO Code VO41010 Debt Securities;
"Repayment Date" means 17 February 2017;
"Senior Loan Agreement" means the Senior Facility Agreement as amended and
supplemented by this Senior Loan Supplement;
"Specified Currency" means Russian Roubles;
"Subscription Agreement" means the subscription agreement between the Lender, RAB
and Citigroup Global Markets Limited dated 15 February 2012 relating to the Notes; and
"Trust Deed" means the Amended and Restated Principal Trust Deed between the Lender
and the Trustee dated 17 May 2011, as supplemented by a supplemental trust deed to be
dated 17 February 2012 (as may be amended or supplemented from time to time)
constituting and securing the Notes.
3. INCORPORATION BY REFERENCE
Except as otherwise provided, the terms of the Facility Agreement shall apply to this
Senior Loan Supplement as if they were set out herein and the Facility Agreement shall be
read and construed, only in relation to the Senior Loan constituted hereby, as one
document with this Senior Loan Supplement.
4. THE SENIOR LOAN
4.1 Drawdown
Subject to the terms and conditions of the Senior Loan Agreement, the Lender agrees to
make the Senior Loan on the Closing Date to RAB and RAB shall make a single drawing
in the full amount of the Senior Loan.
4.2 Interest
The Senior Loan is a Fixed Rate Senior Loan. Interest shall be calculated, and the
following terms used in the Senior Facility Agreement shall have the meanings, as set out
below:
- 52 -
4.2.1 Fixed Rate Senior Loan
Provisions
Applicable
(i) Rate of Interest: 8.625 per cent. per annum payable
semi-annually in arrear
(ii) Interest Payment Date(s): 17 August and 17 February in each year,
provided that if any Interest Payment Date is
not a business day in London and Moscow,
payment shall not be made until the next
following business day in London and
Moscow and no further interest or other
payment shall be made in respect of any
such delay.
(iii) Interest Commencement
Date:
17 February 2012
(iv) Fixed Amount: RUB 4,312.50 per RUB 100,000 in Principal
Amount
(v) Broken Amount(s): Not Applicable
(vi) Day Count Fraction: Actual/Actual ICMA
(vii) Determination Date(s): 17 August and 17 February in each year
(viii) Other terms relating to the
method of calculating
interest for Fixed Rate
Senior Loans:
Not Applicable
4.2.2 Floating Rate Senior Loan
Provisions
Not Applicable
4.3 Use of Proceeds
The proceeds of the Senior Loan will be applied to general corporate purposes.
5. FEES AND EXPENSES
Pursuant to Clause 3.2 of the Senior Facility Agreement and in consideration of the Lender
making the Senior Loan to RAB, RAB hereby agrees that it shall, one Business Day before
the Closing Date, pay to the Lender, in Same-Day Funds, the Facility Fee as increased by
the front end fees, commissions and expenses incurred by the Lender in connection with
financing the Senior Loan, pursuant to an invoice submitted by the Lender to RAB as
separately set out in the Fees and Expenses Side Letter dated 15 February 2012.
- 53 -
6. GOVERNING LAW
This Senior Loan Supplement and any non-contractual obligations arising herefrom shall
be governed by, and construed in accordance with, English law.
- 54 -
GENERAL INFORMATION
There has been no significant change in the financial or trading position or prospects of the Issuer,
RAB or the RAB Group since 30 September 2011 and no material adverse change in the financial
or trading position or prospects of the Issuer, RAB or the RAB Group since 31 December 2010.
The Issuer has no subsidiaries.
F-1
INDEX TO FINANCIAL STATEMENTS
RAB Group Condensed Consolidated Interim Financial Statements as of and for the
nine months ended 30 September 2011 ............................................................................. F-2
Review Report ...................................................................................................................... F-4
Condensed Consolidated Interim Statement of Financial Position ....................................... F-5
Condensed Consolidated Interim Statement of Comprehensive Income .............................. F-6
Condensed Consolidated Interim Statement of Changes in Equity ...................................... F-7
Condensed Consolidated Interim Statement of Cash Flows ................................................. F-8
Selected Notes to the Condensed Consolidated Interim Financial Statements ..................... F-9
RUSSIAN AGRICULTURAL BANK GROUP
International Financial Reporting StandardsCondensed Consolidated Interim FinancialStatements and Review Report
30 September 2011
F-2
Russian Agricultural Bank Group
CONTENTS
REVIEW REPORT
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Interim Statement of Financial Position………………………………… ..................................1Condensed Consolidated Interim Statement of Comprehensive Income…………………………. ..................................2Condensed Consolidated Interim Statement of Changes in Equity……………………………….....................................3Condensed Consolidated Interim Statement of Cash Flows……………………………………….. ..................................4
SELECTED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1 Introduction.........................................................................................................................................................52 Operating Environment of the Group..................................................................................................................53 Summary of Significant Accounting Policies.......................................................................................................64 Critical Accounting Estimates, and Judgements in Applying Accounting Policies ..............................................75 New Accounting Pronouncements......................................................................................................................86 Financial Instruments Designated at Fair Value through Profit or Loss ............................................................127 Loans and Advances to Customers..................................................................................................................138 Due to Other Banks ..........................................................................................................................................149 Other Borrowed Funds and Subordinated Debts..............................................................................................1410 (Losses net of Gains)/Gains less Losses from Non-banking Activities .............................................................1611 Significant Risk Concentrations ........................................................................................................................1712 Segment Analysis .............................................................................................................................................1813 Contingencies and Commitments.....................................................................................................................2114 Derivative Financial Instruments.......................................................................................................................2315 Related Party Transactions ..............................................................................................................................2516 Disposal of Subsidiaries and Groups Classified as Held for Sale.....................................................................2717 Events after the End of the Reporting Period ...................................................................................................28
F-3
pwc
Rep
ort
on
Rev
iew
of
Con
den
sed
Con
soli
date
d I
nte
rim
Fin
an
cial
Info
rmati
on
To
the
Shar
ehol
der a
nd th
e Su
perv
isor
y B
oard
of R
ussi
an A
gric
ultu
ral B
ank:
Intr
od
uct
ion
We
have
rev
iew
ed th
e ac
com
pany
ing
cond
ense
d co
nsol
idat
ed in
teri
m s
tate
men
t of
fina
ncia
l pos
ition
of
Ope
n Jo
int S
tock
Com
pany
Rus
sian
Agr
icul
tura
l Ban
k an
d its
sub
sidi
arie
s (h
erei
naft
er -
the
"Gro
up")
as o
f 3o
Sep
tem
ber
20
11
, an
d th
e re
late
d co
nden
sed
cons
olid
ated
inte
rim
sta
tem
ents
of
com
preh
ensi
vein
com
e, c
hang
es in
equ
ity a
nd c
ash
flow
s fo
r th
e th
ree
and
nine
mon
ths
then
end
ed. M
anag
emen
t is
resp
onsi
ble
for
the
prep
arat
ion
and
pres
enta
tion
of
this
con
dens
ed c
onso
lida
ted
inte
rim
fin
anci
alin
form
atio
n in
acc
orda
nce
with
Int
erna
tiona
l Acc
ount
ing
Stan
dard
34
"Int
erim
Fin
anci
al R
epor
ting"
.O
ur r
espo
nsib
ilit
y is
to
expr
ess
a co
nclu
sion
on
this
con
dens
ed c
onso
lida
ted
inte
rim
fin
anci
alin
form
atio
n ba
sed
on o
ur r
evie
w.
Sco
pe
of
Rev
iew
2W
e co
nduc
ted
our
revi
ew in
acc
orda
nce
with
Int
erna
tiona
l Sta
ndar
d on
Rev
iew
Eng
agem
ents
241
0
"Rev
iew
of
Inte
rim
Fin
anci
al I
nfor
mat
ion
Per
form
ed b
y th
e In
depe
nden
t Aud
itor
of
the
Ent
ity"
. Are
view
of
inte
rim
fin
anci
al in
form
atio
n co
nsis
ts o
f m
akin
g in
quir
ies,
pri
mar
ily o
f pe
rson
s re
spon
sibl
efo
r fi
nanc
ial a
nd a
ccou
ntin
g m
atte
rs, a
nd a
pply
ing
anal
ytic
al a
nd o
ther
rev
iew
pro
cedu
res.
A r
evie
w is
subs
tant
ially
less
in s
cope
than
an
audi
t con
duct
ed in
acc
orda
nce
wit
h In
tern
atio
nal S
tand
ards
on
Aud
iting
and
con
sequ
ently
doe
s no
t ena
ble
us to
obt
ain
assu
ranc
e th
at w
e w
ould
bec
ome
awar
e of
all
sign
ific
ant m
atte
rs th
at m
ight
be
iden
tifi
ed in
an
audi
t. A
ccor
ding
ly, w
e do
not
exp
ress
an
audi
top
inio
n.
Con
clu
sion
3B
ased
on
our
revi
ew, n
othi
ng h
as c
ome
to o
ur a
tten
tion
tha
t ca
uses
us
to b
elie
ve t
hat
the
acco
mpa
nyin
g co
nden
sed
cons
olid
ated
inte
rim
fin
anci
al in
form
atio
n is
not
pre
pare
d, in
all
mat
eria
lre
spec
ts, i
n ac
cord
ance
with
Inte
rnat
iona
l Acc
ount
ing
Stan
dard
34
"Int
erim
Fin
anci
al R
epor
ting"
.
1/ "
3o J
anua
ry 2
012
Mos
cow
, Rus
sian
Fed
erat
ion
ZA
O "
Pri
cew
ater
hous
eCoo
pers
Aud
it",
Whi
te S
quar
e O
ffic
e C
ente
r, 1
0 B
utyr
sky
Val
, Mos
cow
, Rus
sia,
125
047
Tel
epho
ne +
7 (4
95)
967 6
000, F
ax +
7 (4
95)
967
60
01
, w
ww
.pw
c.ru
F-4
Note
In millions of Russian Roubles
ASSETSCash and cash equivalentsMandatory cash balances with the Central Bank of the RussianFederation
Trading securitiesRepurchase receivablesFinancial instruments designated at fair value through profit orloss 6
Derivative financial instruments 14Due from other banksLoans and advances to customers 7Investment securities available for saleInvestment securities held to maturityDeferred income tax assetIntangible assetsPremises and equipmentCurrent income tax prepaymentOther assetsAssets of disposal groups held for sale 16
TOTAL ASSETS
LIABILITIESDerivative financial instruments 14Due to other banks 8Customer accountsPromissory notes issuedOther borrowed funds 9Deferred income tax liabilityCurrent income tax liabilityOther liabilitiesSubordinated debts 9Liabilities directly associated with disposal groups held for sale 16
TOTAL LIABILITIES
EQUITYShare capitalRevaluation reserve for premisesRevaluation reserve for investment securities available for saleRetained earnings
Equity attributable to the Bank's shareholderNon-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES A EQUITY
Russian Agricultural Bank GroupCondensed Consolidated Interim Statement of Financial Position
30 September2011
(unaudited)
31 December2010
124 253 81 010
7 600 3 4683 563
6 290 15 240
13 924 9 68623 655 20 62134 392 34 477
865 551 688 55664 355 15 68715 088 14 9225 170 1 9301 525 1 563
25 187 25 985724 191
15 187 11 0525 035 2 849
1 207 936 930 800
43 54194 813 105 578
603 517 386 27916 828 9 874
312 209 257 5591 347 1 405
10 174 663 4 389
57 267 46 5451 224 1 015
1 091 921 813 202
108 798 108 798887 933
(1 467) (101)6 939 6 851
115 157 116 481858 1 117
116 015 117 598
1 207 936 930 800
Approved fo Management Board on 30 January 2012.
D.N. PatChairma
E.A. RomankovaChief Accountant
F-5
Russian Agricultural Bank GroupCondensed Consolidated Interim Statement of Comprehensive Income
The notes set out on pages 5 to 28 form an integral part of these condensed consolidated interim financialstatements 2
(Unaudited) Note Nine months ended30 September
Three months ended30 September
In millions of Russian Roubles 2011 2010 2011 2010
Interest income 82 743 77 078 29 820 26 771Interest expense (42 093) (40 093) (15 444) (13 337)
Net interest income 40 650 36 985 14 376 13 434Provision for loan impairment (17 973) (20 764) (5 287) (7 855)
Net interest income after provision for loanimpairment 22 677 16 221 9 089 5 579
Fee and commission income 3 328 2 285 1 342 859Fee and commission expense (401) (280) (170) (116)(Losses net of gains)/gains less losses arising from
trading securities (74) 739 (1) (74)(Losses net of gains)/gains less losses arising from
financial instruments designated at fair value throughprofit or loss (783) (136) (1 607) 203
Gains less losses arising from disposal of investmentsecurities available for sale 248 341 147 235
Foreign exchange translation (losses net ofgains)/gains less losses (6 102) (1 107) (16 183) 2 219
Gains less losses/(losses net of gains) from foreignexchange swaps with settlement dates of more than30 working days 4 112 450 16 249 (1 317)
(Losses net of gains)/gains less losses arising fromother derivative financial instruments (168) (186) 4 (19)
(Losses net of gains)/gains less losses arising fromdealings in foreign currencies (1 109) 195 (1 414) 103
(Provision for)/recovery of other assets impairment (70) 158 (15) (49)Gains from early redemption of other borrowed funds 15 36 21 15(Losses net of gains)/gains less losses from non-
banking activities 10 (600) 159 75 (310)Gains on disposal of subsidiaries 16 21 - - -Other operating income 214 215 29 93Administrative and other operating expenses (21 032) (16 965) (7 432) (5 565)
Profit before tax 276 2 125 134 1 856Income tax expense (240) (442) (109) (336)
Profit for the period 36 1 683 25 1 520
Other comprehensive (expense)/income:Securities available for sale:- Revaluation of securities at fair value during the period (1 459) 94 (2 068) 1- Realised revaluation reserve (at disposal) (248) (341) (147) (235)Income tax recorded directly in other comprehensive
income 341 48 443 46
Other comprehensive expense for the period, net oftax (1 366) (199) (1 772) (188)
Total comprehensive (expense)/income for theperiod (1 330) 1 484 (1 747) 1 332
Profit/(loss) is attributable to:Shareholder of the Bank 295 1 685 70 1 578Non-controlling interest (259) (2) (45) (58)
Profit for the period 36 1 683 25 1 520
Total comprehensive (expense)/income isattributable to:
Shareholder of the Bank (1 071) 1 486 (1 702) 1 390Non-controlling interest (259) (2) (45) (58)
Total comprehensive (expense)/income for theperiod (1 330) 1 484 (1 747) 1 332
F-6
Russian Agricultural Bank GroupCondensed Consolidated Interim Statement of Changes in Equity
The notes set out on pages 5 to 28 form an integral part of these condensed consolidated interim financial statements 3
In millions of Russian Roubles
Attributable to shareholder of the Bank Non-controlling
interest
Total equity
Sharecapital
Revaluationreserve for
premises
Revaluationreserve forsecurities
available forsale
Retainedearnings
Total
Balance at 1 January 2010 106 973 842 14 6 572 114 401 1 135 115 536
Total comprehensive (expense)/income for the period, net oftax - - (199) 1 685 1 486 (2) 1 484
Realised revaluation reserve for premises, net of tax - (18) - 18 - - -Share issue 825 - - - 825 - 825Dividends declared - - - (232) (232) - (232)
Balance at 30 September 2010 (unaudited) 107 798 824 (185) 8 043 116 480 1 133 117 613
Balance at 1 January 2011 108 798 933 (101) 6 851 116 481 1 117 117 598
Total comprehensive expense for the period, net of tax - - (1 366) 295 (1 071) (259) (1 330)Realised revaluation reserve for premises, net of tax - (46) - 46 - - -Dividends declared - - - (253) (253) - (253)
Balance at 30 September 2011 (unaudited) 108 798 887 (1 467) 6 939 115 157 858 116 015
The dividends declared were fully paid in respective periods.
F-7
Russian Agricultural Bank GroupCondensed Consolidated Interim Statement of Cash Flows
The notes set out on pages 5 to 28 form an integral part of these condensed consolidated interim financialstatements 4
(Unaudited)
In millions of Russian Roubles
Note Nine monthsended 30
September 2011
Nine monthsended 30
September 2010
Cash flows from operating activitiesInterest received 75 221 73 061Interest paid (38 224) (36 444)Income received from trading in securities and financial instrumentsdesignated at fair value through profit or loss 362 981
Income received from foreign exchange swaps with settlement dates ofmore than 30 working days 566 7 684
Losses incurred from other derivative financial instruments (155) (250)(Losses incurred)/income received from dealings in foreign currencies (1 110) 194Fees and commissions received 3 313 2 285Fees and commissions paid (401) (280)Other operating income received 461 214Staff costs paid (12 663) (10 343)Administrative and other operating expenses paid (6 178) (4 799)Income tax paid (3 762) (1 321)
Cash flows from operating activities before changes in operatingassets and liabilities 17 430 30 982
Changes in operating assets and liabilitiesNet increase in mandatory cash balances with the Central Bank of theRussian Federation (4 132) (490)
Net decrease in trading securities and repurchase receivables 3 967 15 311Net increase in financial instruments designated at fair value throughprofit or loss (4 406) (6 055)
Net decrease/(increase) in due from other banks 1 361 (6 453)Net increase in loans and advances to customers (185 960) (98 720)Net increase in other assets (4 953) (386)Net decrease in due to other banks (15 959) (90 264)Net increase in customer accounts 215 505 112 581Net increase in promissory notes issued 6 430 1 516Net decrease in other liabilities (337) (1 078)
Net cash from/(used in) operating activities 28 946 (43 056)
Cash flows from investing activitiesAcquisition of premises and equipment (1 419) (2 012)Proceeds from disposal of premises and equipment 51 281Acquisition of intangible assets (296) (629)Acquisition of investment securities available for sale (76 891) (24 002)Proceeds from disposal of investment securities available for sale 35 823 12 600Acquisition of investment securities held to maturity (1 132) (1 195)Proceeds from redemption of investment securities held to maturity 1 554 729Cash outflow on disposal of subsidiaries, net of cash disposed of 16 (24) -Acquisition of subsidiaries net of cash acquired (17) -
Net cash used in investing activities (42 351) (14 228)
Cash flows from financing activitiesProceeds from subordinated debts 22 434 -Repayment of subordinated debts (15 748) -Proceeds from other borrowed funds 52 462 55 958Repayment of other borrowed funds (7 000) (16 017)Proceeds from sale of previously bought back other borrowed funds 794 -Buy back of other borrowed funds (102) -Issue of ordinary shares - 825Dividends paid (253) (232)Repayment of syndicated loans - (7 374)
Net cash from financing activities 52 587 33 160
Effect of exchange rate changes on cash and cash equivalents 4 072 (1 422)
Effect directly associated with disposal groups held for sale (11) -
Net increase/(decrease) in cash and cash equivalents 43 243 (25 546)Cash and cash equivalents at the beginning of the period 81 010 94 958
Cash and cash equivalents at the end of the period 124 253 69 412
F-8
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
5
1 Introduction
These condensed consolidated interim financial statements have been prepared in accordance withInternational Accounting Standard 34, Interim Financial Reporting (“IAS 34”) for the nine and threemonths ended 30 September 2011 for Open Joint Stock Company Russian Agricultural Bank (the “Bank”)and its subsidiaries (together referred to as the “Group”).
Principal activity. The Bank was incorporated and is domiciled in the Russian Federation. The Bank isan open joint-stock company limited by shares and was set up in accordance with Russian regulations.
The Bank’s only shareholder is the Government of the Russian Federation represented by the FederalAgency for Managing State Property. The Bank’s principal business activity is commercial and retailbanking operations in the Russian Federation with emphasis on lending to agricultural enterprises. Themain objectives of the Bank are:
to participate in realisation of the monetary policy of the Russian Federation in the area ofagricultural production;
to develop within the agricultural industry a national system of lending to the domestic agriculturalproducers; and
to maintain an effective and uninterrupted performance of the settlement system in the area ofagricultural production across the Russian Federation.
The Bank has operated under a full banking license issued by the Central Bank of the RussianFederation (“CBRF”) since 13 June 2000. The Bank participates in the State deposit insurance scheme,which was introduced by Federal Law #177-FZ “Deposits of individuals insurance in Russian Federation”dated 23 December 2003. The State Deposit Insurance Agency guarantees repayment of 100% ofindividual deposits up to RR 700 thousand per individual in case of the withdrawal of a licence of a bankor a CBRF imposed moratorium on payments.
The Bank has 78 (31 December 2010: 78) branches in the Russian Federation. The Bank’s registeredaddress is 119034 Russia, Moscow, Gagarinsky Pereulok, 3. The Bank’s principal place of business is119019 Russia, Moscow, Arbat, 1.
In August 2011 the Group acquired 100% of shares in Closed Joint-Stock Company «InsuranceCompany «GazGarant», which was later renamed to Closed Joint-Stock Company «RSHB-Insurance».
The number of the Group’s employees at 30 September 2011 was 35 842 (31 December 2010: 36 120).
Presentation currency. These condensed consolidated interim financial statements are presented inmillions of Russian Roubles (“RR millions”).
2 Operating Environment of the Group
The Russian Federation displays certain characteristics of an emerging market, including relatively highinflation and high interest rates. The financial situation in the Russian financial and corporate sectorssignificantly deteriorated since mid-2008. In 2010 and first half of 2011, the Russian economyexperienced a moderate recovery of economic growth. The recovery was accompanied by a gradualincrease of household incomes, lower refinancing rates, stabilisation of the exchange rate of the RussianRouble against major foreign currencies, and increased money market liquidity levels.
In the summer 2010, the Government declared a drought emergency in several Russian regions. Thisevent had significant negative consequences, including an increase in consumer prices for certain foodproducts. The Russian Government announced state support for drought-affected regions. In 2011 theharvest in Russia was significantly higher compared to the previous year harvest due to favourableweather conditions in major agricultural regions.
Borrowers of the Group were adversely affected by the financial and economic environment, which in turnhas had an impact on their ability to repay the amounts owed. Deteriorating economic conditions forborrowers were reflected in revised estimates of expected future cash flows in impairment assessments.
F-9
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
6
2 Operating Environment of the Group (Continued)
The market in Russia for many types of collateral, especially real estate, has been severely affected bythe volatile global financial markets, resulting in a low level of liquidity for certain types of assets. As aresult, the actual realisable value on future foreclosures may differ from the value ascribed in estimatingallowances for impairment at the end of the reporting period.
Under International Financial Reporting Standards (“IFRS”), impairment losses on financial assetsexpected as a result of future events, no matter how likely, cannot be recognised until such events arise.
The tax, currency and customs legislation within the Russian Federation is subject to varyinginterpretations and frequent changes. Furthermore, the need for further developments in the bankruptcylaws, the absence of formalised procedures for the registration and enforcement of collateral, and otherlegal and fiscal impediments contribute to the challenges faced by banks currently operating in theRussian Federation. The future economic direction of the Russian Federation is largely dependent uponthe effectiveness of economic, financial and monetary measures undertaken by the Government,together with tax, legal, regulatory and political developments.
Management is unable to reliably determine the effects on the Group's future financial position of anypotential further deterioration in the liquidity of the financial markets and the increased volatility in thecurrency and equity markets. Management believes it is taking all the necessary measures to support thesustainability and development of the Group’s business in the current circumstances.
3 Summary of Significant Accounting Policies
Basis of preparation. These condensed consolidated interim financial statements have been preparedin accordance with IAS 34, Interim Financial Reporting, and should be read in conjunction with theGroup’s annual consolidated financial statements for the year ended 31 December 2010, which havebeen prepared in accordance with IFRS.
The Group’s presentation currency is the national currency of the Russian Federation, Russian Roubles(“RR”).
At 30 September 2011 the principal rate of exchange used for translating foreign currency balances wasUSD 1 = RR 31.8751 (31 December 2010: USD 1 = RR 30.4769).
Changes in accounting policies. The accounting policies and methods of computation applied in thepreparation of these condensed consolidated interim financial statements are consistent with theaccounting policies applied in the preparation of the consolidated financial statements of the Group forthe year ended 31 December 2010. Certain new standards, interpretations and amendments to theexisting standards, as disclosed in the consolidated financial statements for the year ended 31 December2010, became effective for the Group from 1 January 2011. These have not significantly affected thecondensed consolidated interim financial statements of the Group.
Interim period tax measurement. The Group applied for the purposes of these condensed consolidatedinterim financial statements the income tax rate that is expected to be applied during the whole fiscalperiod, while the effects of individual transactions resulting in tax non-deductible expenditures or non-taxable income are taken into account in the period, in which they occur.
These condensed consolidated interim financial statements do not contain all the explanatory notes asrequired for a full set of financial statements, including certain disclosures introduced by IFRS 7,«Financial Instruments: Disclosures».
F-10
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
7
4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies
The accounting estimates and judgments applied in the preparation of these condensed consolidatedinterim financial statements are consistent with those applied in the preparation of the annualconsolidated financial statements of the Group for the year ended 31 December 2010.
Judgements that have the most significant effect on the amounts recognised in the condensedconsolidated interim financial statements and estimates that can cause a significant adjustment to thecarrying amount of assets and liabilities within the next financial period include:
Held-to-maturity financial assets. Management applies judgement in assessing whether financialassets can be categorised as held-to-maturity, in particular its intention and ability to hold the assets tomaturity. If the Group fails to keep these investments to maturity other than in certain specificcircumstances – for example, selling an insignificant amount close to maturity – it will be required toreclassify the entire class as available-for-sale. The investments would therefore be measured at fairvalue rather than amortised cost. The fair value of held-to-maturity securities is RR 14 634 million(31 December 2010: RR 14 753 million).
Impairment losses on loans and advances. The Group regularly reviews its loan portfolios to assessimpairment. In determining whether an impairment loss should be recorded in the profit or loss, the Groupmakes judgements as to whether there is any objective data indicating that there is a measurabledecrease in the estimated future cash flows from a portfolio of loans before the decrease can beidentified with an individual loan in that portfolio. This evidence may include observable data indicatingthat there has been an adverse change in borrowers’ financial situation (assessed on the basis of internalrating system) or an adverse change in the payment status of borrowers in a group, or national or localeconomic conditions that correlate with defaults on assets in the group. Management uses estimatesbased on historical loss experience for assets with credit risk characteristics and objective evidence ofimpairment similar to those in the portfolio when scheduling its future cash flows. The methodology andassumptions used for estimating both the amount and timing of future cash flows are reviewed regularlyto reduce any differences between loss estimates and actual loss experience.
A 5% increase or decrease in actual loss given default compared to estimated loss given default usedwould result in an increase or decrease in loan impairment losses of RR 2 132 million (31 December2010: RR 1 480 million).
Fair value of derivatives. The fair values of financial derivatives that are not quoted in active marketsare determined by using valuation techniques. Where valuation techniques (for example, models) areused to determine fair values, they are validated and periodically reviewed by qualified personnelindependent of the area that created them. All models are calibrated to ensure that outputs reflect actualdata and comparative market prices. To the extent practical, models use only observable data, howeverareas such as credit risk (both own and counterparty), volatilities and correlations require management tomake estimates. Changes in assumptions about these factors could affect fair values reported in thecondensed consolidated interim financial statements.
Accounting for subordinated debt from Vnesheconombank. The Russian Government providedassistance to the Russian financial system by instructing the Russian State Corporation Bank Razvitiya iVneshneekonomicheskoy Deyatelnosti (“Vnesheconombank”) to grant subordinated debts to selectedbanks. This subordinated debt was attracted in accordance with the Federal Law #173-FZ “Onsupplementary measures to support financial system of the Russian Federation”.
In October 2008 the Group attracted a subordinated debt from Vnesheconombank in the amount ofRR 25 000 million with maturity in December 2019 and interest rate of 8.0% p.a.
Due to its unique terms and conditions, subordinated nature and absence of observable current markettransactions providing evidence of a market rate for such instruments, the debt was originally recognizedand subsequently carried on the consolidated statement of financial position at amortised cost.
Had there been evidence that the market interest rate for such loans was higher than the contractualinterest rates, the amortised contractual value of the debt would has been replaced by (i) the amortisedvalue of the loans determined based on the fair value of the debt at the date of origination and (ii) theunamortised value of the government grant embedded in such low interest debt; there would have beenno impact on the profit or loss for the period since the increased effective interest rates would have beenoffset by amortisation of the government grant.
F-11
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
8
4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies(Continued)
Accounting for change of interest rate on the subordinated debt from Vnesheconombank. InJuly 2010, Federal Law #173-FZ was amended to reduce the interest rate on subordinated debt attractedby the Group from Vnesheconombank from 8.0% p.a. to 6.5% p.a. All other terms of the debt remainunchanged.
The Group accounted for such reduction in accordance with IAS 39 “Financial Instruments: Recognitionand Measurement” and tested whether the modification was substantial. As the modification was notsubstantial, the Group accounted for the change in the interest rate as a prospective adjustment of theeffective interest rate.
The alternative possible accounting treatment could have been to account for the above reduction ofinterest rate in accordance with IAS 20 “Accounting for Government Grants and Disclosure ofGovernment Assistance” and the difference between the previous and revised carrying value of the debtin the amount of RR 2 375 million would be recorded as government grant deferred income within otherliabilities and is to be amortised through interest expense until the debts’ maturity date.
5 New Accounting Pronouncements
Since the Group published its last annual consolidated financial statements, certain new standards andinterpretations have been issued which are effective for the annual accounting periods starting on or after1 January 2012 and which the Group has not early adopted:
IFRS 9, Financial Instruments Part 1: Classification and Measurement. IFRS 9, issued in November2009, replaces those parts of IAS 39 relating to the classification and measurement of financial assets.IFRS 9 was further amended in October 2010 to address the classification and measurement of financialliabilities and in December 2011 to (i) change its effective date to annual periods beginning on or after1 January 2015 and (ii) add transition disclosures. Key features of the standard are as follows:
Financial assets are required to be classified into two measurement categories: those to bemeasured subsequently at fair value, and those to be measured subsequently at amortised cost. Thedecision is to be made at initial recognition. The classification depends on the entity’s businessmodel for managing its financial instruments and the contractual cash flow characteristics of theinstrument.
An instrument is subsequently measured at amortised cost only if it is a debt instrument and both(i) the objective of the entity’s business model is to hold the asset to collect the contractual cashflows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only(that is, it has only “basic loan features”). All other debt instruments are to be measured at fair valuethrough profit or loss.
All equity instruments are to be measured subsequently at fair value. Equity instruments that areheld for trading will be measured at fair value through profit or loss. For all other equity investments,an irrevocable election can be made at initial recognition, to recognise unrealised and realised fairvalue gains and losses through other comprehensive income rather than profit or loss. There is to beno recycling of fair value gains and losses to profit or loss. This election may be made on aninstrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as theyrepresent a return on investment.
Most of the requirements in IAS 39 for classification and measurement of financial liabilities werecarried forward unchanged to IFRS 9. The key change is that an entity will be required to present theeffects of changes in own credit risk of financial liabilities designated at fair value through profit orloss in other comprehensive income.
While adoption of IFRS 9 is mandatory from 1 January 2015, earlier adoption is permitted. The Group isconsidering the implications of the standard, the impact on the Group and the timing of its adoption by theGroup.
F-12
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
9
5 New Accounting Pronouncements (Continued)
IFRS 10, Consolidated financial statements (issued in May 2011 and effective for annual periodsbeginning on or after 1 January 2013), replaces all of the guidance on control and consolidation inIAS 27 “Consolidated and separate financial statements” and SIC-12 “Consolidation - special purposeentities”. IFRS 10 changes the definition of control so that the same criteria are applied to all entities todetermine control. This definition is supported by extensive application guidance. The Group is currentlyassessing the impact of the standard on its financial statements.
IFRS 11, Joint arrangements, (issued in May 2011 and effective for annual periods beginning on orafter 1 January 2013), replaces IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly ControlledEntities - Non-Monetary Contributions by Ventures”. Changes in the definitions have reduced the numberof types of joint arrangements to two: joint operations and joint ventures. The existing policy choice ofproportionate consolidation for jointly controlled entities has been eliminated. Equity accounting ismandatory for participants in joint ventures. The Group is currently assessing the impact of the standardon its financial statements.
IFRS 12, Disclosure of interest in other entities, (issued in May 2011 and effective for annualperiods beginning on or after 1 January 2013), applies to entities that have an interest in a subsidiary,a joint arrangement, an associate or an unconsolidated structured entity; it replaces the disclosurerequirements currently found in IAS 28 “Investments in associates”. IFRS 12 requires entities to discloseinformation that helps financial statement readers to evaluate the nature, risks and financial effectsassociated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidatedstructured entities. To meet these objectives, the new standard requires disclosures in a number ofareas, including significant judgements and assumptions made in determining whether an entity controls,jointly controls or significantly influences its interests in other entities, extended disclosures on share ofnon-controlling interests in group activities and cash flows, summarised financial information ofsubsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidatedstructured entities. The Group is currently assessing the impact of the standard on its financialstatements.
IFRS 13, Fair value measurement, (issued in May 2011 and effective for annual periods beginningon or after 1 January 2013), aims to improve consistency and reduce complexity by providing a precisedefinition of fair value, and a single source of fair value measurement and disclosure requirements foruse across IFRSs. The Group is currently assessing the impact of the standard on its financialstatements.
IAS 27, Separate Financial Statements, (revised in May 2011 and effective for annual periodsbeginning on or after 1 January 2013), was changed and its objective is now to prescribe theaccounting and disclosure requirements for investments in subsidiaries, joint ventures andassociates when an entity prepares separate financial statements. The guidance on control andconsolidated financial statements was replaced by IFRS 10, Consolidated Financial Statements. TheGroup is currently assessing the impact of the amended standard on its financial statements.
IAS 28, Investments in Associates and Joint Ventures, (revised in May 2011 and effective forannual periods beginning on or after 1 January 2013). The amendment of IAS 28 resulted from theBoard’s project on joint ventures. When discussing that project, the Board decided to incorporate theaccounting for joint ventures using the equity method into IAS 28 because this method is applicable toboth joint ventures and associates. With this exception, other guidance remained unchanged. The Groupis currently assessing the impact of the amended standard on its financial statements.
F-13
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
10
5 New Accounting Pronouncements (Continued)
Amendment to IAS 1, Presentation of financial statements (issued in June 2011 and effective forannual periods beginning on or after 1 July 2012). The amendment requires the entities to separateitems presented in other comprehensive income into two groups, based on whether or not they may berecycled to profit or loss in the future. The amendment also changes the title for the statement ofcomprehensive income to ‘statement of profit or loss and other comprehensive income’. The Groupexpects the amended standard to change presentation of its financial statements, but have no impact onmeasurement of transactions and balances.
Amendment to IAS 19, Employee benefits (issued in June 2011 and effective for annual periodsbeginning on or after 1 January 2013). The amendment makes significant changes to the recognitionand measurement of defined benefit pension expense and termination benefits. The amendment alsochanges disclosures for all employee benefits. The Group is currently assessing the impact of thestandard on its financial statements.
Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments to IFRS 7(issued in December 2011 and effective for annual periods beginning on or after 1 January 2013).The amendment requires disclosures that will enable users of financial statements to evaluate the effector potential effect of netting arrangements, including rights of set-off. The amendment will have an impacton disclosures but will have no effect on measurement and recognition of financial instruments.
Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 (issued in December2011 and effective for annual periods beginning on or after 1 January 2014). The amendment addedapplication guidance to IAS 32 to address inconsistencies identified in applying some of the offsettingcriteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off’ andthat some gross settlement systems may be considered equivalent to net settlement. The Group isconsidering the implications of the amendment, the impact on the Group and the timing of its adoption bythe Group.
Other revised standards and interpretations: The amendments to IFRS 1 “First-time adoption ofIFRS”, relating to severe hyperinflation and eliminating references to fixed dates for certain exceptionsand exemptions, will not have any impact on these financial statements. The amendment to IAS 12“Income taxes”, which introduces a rebuttable presumption that an investment property carried at fairvalue is recovered entirely through sale, will not have any impact on these financial statements. IFRIC 20,Stripping Costs in the Production Phase of a Surface Mine, which considers when and how to account forthe benefits arising from the stripping activity in mining industry, will not have any impact on thesefinancial statements.
Certain new standards and interpretations became effective for the Group from 1 January 2011:
Classification of Rights Issues – Amendment to IAS 32 (issued on 8 October 2009; effective forannual periods beginning on or after 1 February 2010). The amendment exempts certain rights issuesof shares with proceeds denominated in foreign currencies from classification as financial derivatives. Theamendment did not have an impact on these condensed consolidated interim financial statements.
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for annual periodsbeginning on or after 1 July 2010). This IFRIC clarifies the accounting when an entity renegotiates theterms of its debt with the result that the liability is extinguished through the debtor issuing its own equityinstruments to the creditor. A gain or loss is recognised in profit or loss based on the fair value of theequity instruments compared to the carrying amount of the debt. IFRIC 19 did not have an impact onthese condensed consolidated interim financial statements.
Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14 (effective for annualperiods beginning on or after 1 January 2011). This amendment will have a limited impact as it appliesonly to companies that are required to make minimum funding contributions to a defined benefit pensionplan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments whenthere is a minimum funding requirement. IFRIC 14 did not have an impact on these condensedconsolidated interim financial statements.
F-14
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
11
5 New Accounting Pronouncements (Continued)
Improvements to International Financial Reporting Standards (issued in May 2010 and effectivefrom 1 January 2011). The improvements consist of a mixture of substantive changes and clarificationsin the following standards and interpretations:
IFRS 1 was amended (i) to allow previous GAAP carrying value to be used as deemed cost of anitem of property, plant and equipment or an intangible asset if that item was used in operationssubject to rate regulation, (ii) to allow an event driven revaluation to be used as deemed cost ofproperty, plant and equipment even if the revaluation occurs during a period covered by the firstIFRS financial statements and (iii) to require a first-time adopter to explain changes in accountingpolicies or in the IFRS 1 exemptions between its first IFRS interim report and its first IFRS financialstatements;
IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis isrequired by other IFRS standards) of non-controlling interest that are not present ownership interestor do not entitle the holder to a proportionate share of net assets in the event of liquidation, (ii) toprovide guidance on acquiree’s share-based payment arrangements that were not replaced or werevoluntarily replaced as a result of a business combination and (iii) to clarify that the contingentconsiderations from business combinations that occurred before the effective date of revised IFRS 3(issued in January 2008) will be accounted for in accordance with the guidance in the previousversion of IFRS 3;
IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicitemphasis on the interaction between qualitative and quantitative disclosures about the nature andextent of financial risks, (ii) by removing the requirement to disclose carrying amount of renegotiatedfinancial assets that would otherwise be past due or impaired, (iii) by replacing the requirement todisclose fair value of collateral by a more general requirement to disclose its financial effect, and(iv) by clarifying that an entity should disclose the amount of foreclosed collateral held at thereporting date and not the amount obtained during the reporting period;
IAS 1 was amended to clarify the requirements for the presentation and content of the statement ofchanges in equity;
IAS 27 was amended by clarifying the transition rules for amendments to IAS 21, 28 and 31 made bythe revised IAS 27 (as amended in January 2008);
IAS 34 was amended to add additional examples of significant events and transactions requiringdisclosure in a condensed interim financial report, including transfers between the levels of fair valuehierarchy, changes in classification of financial assets or changes in business or economicenvironment that affect the fair values of the entity’s financial instruments; and
IFRIC 13 was amended to clarify measurement of fair value of award credits.
Unless otherwise described above, the new standards and interpretations did not significantly affect theGroup’s financial reporting.
F-15
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
12
6 Financial Instruments Designated at Fair Value through Profit or Loss
In millions of Russian Roubles30 September 2011
(unaudited)31 December 2010
Credit Linked Note 716 825Due from other banks with embedded derivatives 13 208 8 861
Total financial instruments designated at fair value throughprofit or loss 13 924 9 686
International credit ratings of issuers of the notes and of counterparty banks were not less than BB-(S&P) as at 30 September 2011 (31 December 2010: not less than BB- (S&P)).
Management classified financial instruments with embedded derivatives as financial instrumentsdesignated at fair value through profit or loss, although there was an option to separate the embeddedderivative and value the host contract at amortised cost.
In May 2008, the Group purchased a Credit Linked Note from an OECD bank in the nominal amount ofRR 2 500 million at the net price of 19.5% of the nominal amount with maturity in May 2023 and a zerocoupon. The Note has an embedded Credit Default Swap linked to the Bank’s own credit risk.
Due from other banks with embedded derivatives are as follows:
In March 2010, the Group placed funds with the OECD bank in the total amount of USD 200 million, withmaturity in April 2014 and interest rates of 10.0% and 10.4% p.a. The contracts have embeddedderivatives FTD (“first to default”), linked to credit events associated with quasi-sovereign issuers.
In April 2010 and August 2010, the Group placed funds with the OECD bank in the total amount ofUSD 107 million, with maturity in March 2013 and August 2015 and interest rates of 10.3% and10.1% p.a. The contracts have embedded derivatives linked to a credit risk of a quasi-sovereign issuer.
In May 2011, the Group placed funds with the OECD bank in the total amount of USD 50 million, withmaturity in May 2016, an interest rate of 0.6% p.a. The contract has an embedded option linked to theperformance of commodity index.
In June 2011, the Group placed funds with the OECD bank in the total amount of RR 3 000 million, withmaturity in December 2011 and an interest rate of 5.0% p.a. The contract has an embedded derivativelinked to a credit risk of sovereign issuers.
F-16
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
13
7 Loans and Advances to Customers
In millions of Russian Roubles30 September 2011
(unaudited)31 December 2010
Loans to legal entities- Loans to corporates 776 293 615 385- Lending for food interventions 33 445 44 514- Investments in agricultural cooperatives 601 655Loans to individuals 130 214 85 031
Total loans and advances to customers (before impairment) 940 553 745 585
Less: Provision for loan impairment (75 002) (57 029)
Total loans and advances to customers 865 551 688 556
Lending for food interventions is represented by loans to a company, which is 100% owned by theGovernment of the Russian Federation.
Movements in the provisions for loan impairment during nine-month period ended 30 September are asfollows:
In millions of Russian Roubles
For the nine monthsended
30 September 2011(unaudited)
For the nine monthsended
30 September 2010(unaudited)
Provision for loan impairment at 1 January 57 029 29 950Provision for loan impairment during the period 17 985 20 755Reclassification to assets of disposal groups held for sale (12) -
Provision for loan impairment at 30 September 75 002 50 705
Movements in the provisions for loan impairment during three-month period ended 30 September are asfollows:
In millions of Russian Roubles
For the threemonths ended
30 September 2011(unaudited)
For the threemonths ended
30 September 2010(unaudited)
Provision for loan impairment at 30 June 69 713 42 825Provision for loan impairment during the period 5 289 7 880
Provision for loan impairment at 30 September 75 002 50 705
Information on related party balances is disclosed in Note 15.
F-17
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
14
8 Due to Other Banks
In millions of Russian Roubles30 September 2011
(unaudited)31 December 2010
Borrowings from other banks with term to maturity- sale and repurchase agreements less than 30 days 4 510 12 911- less than 30 days 6 749 7 378- from 31 to 180 days 4 567 4 793- from 181 days to 1 year 10 786 4 652- from 1 year to 3 years 49 325 53 558- more than 3 years 18 638 18 192Borrowings from the CBRF with term to maturity- less than 30 days - 1 058- from 31 to 180 days - 2 795Correspondent accounts and overnight placements of other banks 238 241
Total due to other banks 94 813 105 578
9 Other Borrowed Funds and Subordinated Debts
In millions of Russian Roubles30 September 2011
(unaudited)31 December 2010
Eurobonds issued 209 839 169 102Bonds issued on domestic market 102 370 88 457
Total other borrowed funds 312 209 257 559
Subordinated debts 57 267 46 545
F-18
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
15
9 Other Borrowed Funds and Subordinated Debts (Continued)
Other borrowed funds. As at 30 September 2011, other borrowed funds consist of US Dollars, RussianRoubles and Swiss Francs denominated Eurobonds issued by the Group through its special purposeentity, RSHB Capital S.A. as well as Russian Roubles denominated bonds issued on domestic market.
As at 31 December 2010 other borrowed funds comprise the following issues:
Currency ofdenomination
Nominalvalue, inmillions
ofcurrency
Issue date Maturity date Put option date Couponrate
Couponpayment
Yield tomaturity/
nextrepricing
date
Eurobonds issuedUS Dollars 630 16 May 2006 16 May 2013 - 7.175% 6 months 5.31%US Dollars 1 137 14 May 2007 15 May 2017 - 6.299% 6 months 6.61%Swiss Francs 150 30 April 2008 30 April 2012 - 6.263% 1 year 4.27%US Dollars- tranche A 702 29 May 2008 14 January 2014 - 7.125% 6 months 5.90%- tranche B 901 29 May 2008 29 May 2018 - 7.750% 6 months 6.85%US Dollars 1 000 11 June 2009 11 June 2014 - 9.000% 6 months 5.93%Russian Roubles 30 000 25 March 2010 25 March 2013 - 7.500% 6 months 8.78%Russian Roubles 20 000 17 March 2011 17 March 2016 - 8.700% 6 months 9.84%Russian Roubles 12 000 20 April 2011 17 March 2016 - 8.700% 6 months 9.84%
Bonds issued on domestic marketRussian Roubles 10 000 22 February 2007 9 February 2017 17 February 2014 9.250% 6 months 8.48%Russian Roubles 10 000 10 October 2007 27 September 2017 7 October 2011 11.500% 6 months 9.95%Russian Roubles 583 22 February 2008 9 February 2018 19 August 2014 7.800% 6 months 7.70%Russian Roubles 5 000 17 June 2008 5 June 2018 14 June 2013 6.850% 6 months 7.39%Russian Roubles 10 000 9 December 2008 27 November 2018 8 December 2011 13.500% 6 months 13.66%Russian Roubles 5 000 26 November 2009 14 November 2019 26 November 2012 10.100% 6 months 7.73%Russian Roubles 5 000 26 November 2009 14 November 2019 26 November 2012 10.100% 6 months 7.32%Russian Roubles 5 000 10 February 2010 29 January 2020 8 February 2013 9.000% 6 months 7.95%Russian Roubles 5 000 11 February 2010 30 January 2020 11 February 2013 9.000% 6 months 7.97%Russian Roubles 5 000 1 September 2010 28 August 2013 31 August 2012 7.200% 6 months 6.52%Russian Roubles 10 000 1 September 2010 28 August 2013 31 August 2012 7.200% 6 months 6.90%Russian Roubles 10 000 2 November 2010 29 October 2013 3 May 2012 6.600% 6 months 6.35%Russian Roubles 10 000 12 July 2011 29 June 2021 9 July 2015 7.700% 6 months 8.08%Russian Roubles 5 000 14 July 2011 1 July 2021 13 July 2015 7.700% 6 months 8.41%Russian Roubles 5 000 15 July 2011 2 July 2021 14 July 2015 7.700% 6 months 7.87%
Currency ofdenomination
Nominalvalue, inmillions
ofcurrency
Issue date Maturity date Put option date Couponrate
Couponpayment
Yield tomaturity/
nextrepricing
date
Eurobonds issuedUS Dollars 630 16 May 2006 16 May 2013 - 7.175% 6 months 4.17%US Dollars 1 127 14 May 2007 15 May 2017 - 6.299% 6 months 6.20%Swiss Francs 150 30 April 2008 30 April 2012 - 6.263% 1 year 3.50%US Dollars- tranche A 702 29 May 2008 14 January 2014 - 7.125% 6 months 4.76%- tranche B 898 29 May 2008 29 May 2018 - 7.750% 6 months 6.42%US Dollars 1 000 11 June 2009 11 June 2014 - 9.000% 6 months 5.02%Russian Roubles 29 700 25 March 2010 25 March 2013 - 7.500% 6 months 7.56%
Bonds issued on domestic marketRussian Roubles 7 000 22 February 2006 16 February 2011 - 7.850% 3 months 7.64%Russian Roubles 10 000 22 February 2007 9 February 2017 17 February 2014 9.250% 6 months 7.98%Russian Roubles 10 000 10 October 2007 27 September 2017 7 October 2011 11.500% 6 months 5.43%Russian Roubles 264 22 February 2008 9 February 2018 19 August 2014 7.800% 6 months 8.08%Russian Roubles 5 000 17 June 2008 5 June 2018 16 June 2011 6.900% 6 months 4.93%Russian Roubles 10 000 9 December 2008 27 November 2018 8 December 2011 13.500% 6 months 13.93%Russian Roubles 5 000 26 November 2009 14 November 2019 26 November 2012 10.100% 6 months 6.84%Russian Roubles 5 000 26 November 2009 14 November 2019 26 November 2012 10.100% 6 months 6.79%Russian Roubles 5 000 10 February 2010 29 January 2020 8 February 2013 9.000% 6 months 7.71%Russian Roubles 5 000 11 February 2010 30 January 2020 11 February 2013 9.000% 6 months 7.62%Russian Roubles 5 000 1 September 2010 28 August 2013 31 August 2012 7.200% 6 months 7.35%Russian Roubles 10 000 1 September 2010 28 August 2013 31 August 2012 7.200% 6 months 7.35%Russian Roubles 10 000 2 November 2010 29 October 2013 3 May 2012 6.600% 6 months 6.90%
F-19
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
16
9 Other Borrowed Funds and Subordinated Debts (Continued)
Subordinated debts. As at 30 September 2011, the Group’s subordinated debts totalledRR 57 267 million (31 December 2010: RR 46 545 million). In June 2007, the Group attracted asubordinated debt totalling USD 200 million maturing in June 2017 and bearing an interest rate of Libor+1.875%. The Group has an option to terminate this subordinated debt at the nominal value in the lastfive years before its maturity date.
In October 2008, the Group attracted from Vnesheconombank a subordinated debt totallingRR 25 000 million with maturity in December 2019 and an interest rate of 8.0% p.a. This subordinateddebt was attracted in accordance with the Federal Law #173-FZ “On supplementary measures to supportfinancial system of the Russian Federation”. In July 2010, Federal Law #173-FZ was amended to reducethe interest rate on subordinated debt attracted by the Group from Vnesheconombank from 8.0% p.a. to6.5% p.a. Refer to Note 4.
In June 2011, the Group attracted a subordinated debt totalling USD 800 million in Eurobonds issued bythe Group through its special purpose entity, RSHB Capital S.A. The Eurobonds mature in June 2021,have contractual interest rate of 6.0% p.a., and yield to the next repricing date, i.e. in June 2016 at10.04% p.a. The Group has an option to terminate this subordinated debt at the nominal value in June2016.
In September 2011, the Group executed its option to early terminate the subordinated debt attracted inSeptember 2006 in the total amount of USD 500 million.
Information on related party balances is disclosed in Note 15.
10 (Losses net of Gains)/Gains less Losses from Non-banking Activities
In millions of Russian Roubles
For the nine monthsended 30 September
2011 (unaudited)
For the nine monthsended 30 September
2010 (unaudited)
Sales of goods 5 363 2 134Cost of goods sold (5 226) (2 355)Financial result from netting receivables and payablesbefore impairment charge - 302
Impairment (charge)/recovery of trade receivables andprepayments (260) 310
Other (477) (232)
Total (losses net of gains)/gains less losses from non-banking activities (600) 159
F-20
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
17
10 (Losses net of Gains)/Gains less Losses from Non-banking Activities (Continued)
Movements in the losses net gains from non-banking activities during three-month period ended30 September are as follows:
In millions of Russian Roubles
For the three monthsended 30 September
2011 (unaudited)
For the three monthsended 30 September
2010 (unaudited)
Sales of goods 3 077 541Cost of goods sold (2 922) (534)Financial result from netting receivables and payablesbefore impairment charge - (2)
Impairment recovery of trade receivables and prepayments 146 -Other (226) (315)
Total gains less losses/(losses net of gains) from non-banking activities 75 (310)
Sales of goods mainly represent sales of grain, sugar, meat and milk products and animal feedstuff.
11 Significant Risk Concentrations
As at 30 September 2011, cash and cash equivalents and placements with other banks included thebalances with one Russian banking group and one foreign bank rated not less than BBB (S&P) in thetotal amount of RR 83 200 million, or 52% of total cash and cash equivalents and due from other banks(31 December 2010: balances with the same banks totalled RR 47 396 million, or 41% of total cash andcash equivalents and due from other banks).
As at 30 September 2011, cash and cash equivalents included the balances with the Bank of Russia inthe total amount of RR 19 081 million, or 15% of total cash and cash equivalents (31 December 2010:RR 37 361 million, or 46% of total cash and cash equivalents).
As at 30 September 2011, the Groups’ financial instruments designated at fair value through profit or lossincluded the balances with one foreign bank rated not less than BB- (S&P) in the total amount ofRR 11 093 million, or 80% of total financial instruments designated at fair value through profit or loss(31 December 2010: balances with the same bank totalled RR 6 683 million, or 69% of total financialinstruments designated at fair value through profit or loss).
As at 30 September 2011, the Group’s loan portfolio included loans issued to a state-controlled borrowerin the total amount of RR 33 445 million, or 4% of the gross loan portfolio (31 December 2010: loansissued to the same borrower in the total amount of RR 44 514 million, or 6% of the gross loan portfolio).
As at 30 September 2011, the Group had the balances due to three foreign banks with the balance above10% of the Group’s equity and the aggregate amount of RR 63 648 million, or 67% of total due to otherbanks (31 December 2010: due to the same banks with the balance above 10% of the Group's equityeach and the aggregate amount of RR 60 281 million, or 57% of total due to other banks).
As at 30 September 2011, the Group had five customers with the balance above 10% of the Group’sequity (31 December 2010: three customers). The aggregate balance of such customer accounts wasRR 272 496 million, or 45% of total customer accounts (31 December 2010: RR 60 639 million, or 16% oftotal customer accounts).
As at 30 September 2011, other assets included receivables and prepayments related to trade activity ofsubsidiaries in the total amount of RR 4 589 million (31 December 2010: RR 1 520 million).
As at 30 September 2011, other liabilities included payables related to activity of subsidiaries in the totalamount of RR 589 million (31 December 2010: RR 704 million).
As at 30 September 2011, the Group had guarantees issued to one company in the amount of RR 1 689million, or 68% of total guarantees issued (31 December 2010: no significant risk concentration).
F-21
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
18
12 Segment Analysis
Operational decision making is the responsibility of the Management Board of the Bank. TheManagement Board of the Bank reviews internal management reporting in order to assess efficiency andallocate resources.
The Management Board of the Bank performs geographic analysis of the Bank’s operations and thereforethe Bank’s regional branches have been designated as operating segments.
Taking into account the administrative-territorial division of Russia, federal districts of the RussianFederation have been designated as reportable segments, except for Krasnodar branch, which is a partof Southern federal district, however is monitored by the Management Board separately.
The Management Board of the Bank assesses efficiency of operating segments based on a financialperformance measure prepared from statutory accounting data.
The accounting policy of the operating segments is based on Russian Accounting Rules (RAR) and thusmaterially significantly differs from policies described in the summary of significant accounting policies inthese condensed consolidated interim financial statements.
F-22
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
19
12 Segment Analysis (Continued)
Segment reporting of the Group’s income and expenses for the nine months ended 30 September 2011 and for the nine months ended 30 September 2010 andsegment reporting of the Group’s assets at 30 September 2011 and 31 December 2010 are as follows:
In millions of Russian Roubles
Headoffice
Centralfederaldistrict
Far-Easternfederaldistrict
Volgafederaldistrict
North-West
federaldistrict
North-Cauca-
sianfederaldistrict
Siberianfederaldistrict
Uralfederaldistrict
Krasno-dar
branch
Sou-thern
federaldistrict
(withoutKrasno-
darbranch)
Total
For the nine months ended 30 September2011 (unaudited)
Revenue from external customers: 11 355 19 484 2 888 16 668 4 815 6 898 8 850 1 729 6 008 3 544 82 239- Income from loans and advances to customers,
due from other banks and other placed funds 10 345 18 394 2 645 15 849 4 556 6 534 8 314 1 648 5 696 3 328 77 309- Fee and commission income from credit related
operations 1 010 1 090 243 819 259 364 536 81 312 216 4 930Intersegment income/(expense) 39 517 (9 140) (1 328) (8 757) (2 676) (4 132) (4 632) (994) (5 937) (1 921) -
Profit/(loss) of the reportable segments (31 702) 6 660 662 12 464 1 508 5 017 6 017 552 (1 237) 2 132 2 073
For the nine months ended 30 September2010 (unaudited)
Revenue from external customers: 13 123 17 820 2 702 14 398 5 211 5 471 7 983 1 748 9 458 2 975 80 889- Income from loans and advances to customers,
due from other banks and other placed funds 12 101 16 836 2 505 13 729 4 988 5 250 7 530 1 650 8 956 2 835 76 380- Fee and commission income from credit related
operations 1 022 984 197 669 223 221 453 98 502 140 4 509Intersegment income/(expense) 37 505 (9 038) (1 274) (8 005) (2 844) (3 375) (4 332) (983) (5 894) (1 760) -
Profit/(loss) of the reportable segments (26 179) 7 017 767 5 439 225 4 070 1 785 377 6 647 1 085 1 233
Total assets30 September 2011 (unaudited) 1 584 933 384 598 53 815 281 033 98 532 116 632 155 530 33 249 154 234 59 165 2 921 72131 December 2010 1 183 530 311 373 44 238 237 058 99 122 94 890 131 428 26 113 150 337 47 362 2 325 451
F-23
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
20
12 Segment Analysis (Continued)
Segment reporting of the Group’s income and expenses for the three months ended 30 September 2011 and for the three months ended 30 September 2010 andsegment reporting of the Group’s assets at 30 September 2011 and 31 December 2010 are as follows:
In millions of Russian Roubles
Headoffice
Centralfederaldistrict
Far-Easternfederaldistrict
Volgafederaldistrict
North-West
federaldistrict
North-Cauca-
sianfederaldistrict
Siberianfederaldistrict
Uralfederaldistrict
Krasno-dar
branch
Sou-thern
federaldistrict
(withoutKrasno-
darbranch)
Total
For the three months ended 30 September2011 (unaudited)
Revenue from external customers: 3 633 7 048 996 5 819 1 756 2 562 3 410 654 2 214 1 308 29 400- Income from loans and advances to customers,
due from other banks and other placed funds 3 510 6 648 918 5 532 1 664 2 413 3 214 625 2 106 1 224 27 854- Fee and commission income from credit related
operations 123 400 78 287 92 149 196 29 108 84 1 546Intersegment income/(expense) 14 465 (3 328) (508) (3 217) (997) (1 515) (1 702) (392) (2 108) (698) -
Profit/(loss) of the reportable segments (12 453) (531) 337 3 770 969 1 791 2 811 398 2 902 778 772
For the three months ended 30 September2010 (unaudited)
Revenue from external customers: 3 768 5 999 949 4 900 1 697 1 908 2 701 574 3 183 1 054 26 733- Income from loans and advances to customers,
due from other banks and other placed funds 3 754 5 717 872 4 741 1 630 1 841 2 575 549 3 056 999 25 734- Fee and commission income from credit related
operations 14 282 77 159 67 67 126 25 127 55 999Intersegment income/(expense) 12 624 (2 916) (433) (2 761) (945) (1 207) (1 429) (319) (2 016) (598) -
Profit/(loss) of the reportable segments (8 948) 2 785 278 2 285 (700) 1 443 638 151 1 885 519 336
F-24
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
21
12 Segment Analysis (Continued)
Reconciliation of reportable segment result is presented below:
(Unaudited)For the nine months ended
30 SeptemberFor the three months ended
30 SeptemberIn millions of Russian Roubles 2011 2010 2011 2010
Total profit of reportable segments (aftertax) 2 073 1 233 772 336
Adjustment of deferred tax 2 902 914 794 118Adjustments of provision for impairment (2 481) 77 (633) (1 124)Accounting for derivative financialinstruments at fair value (1 928) 358 (486) 1 693
(Losses net of gains)/gains less lossesarising from revaluation of financialinstruments designated at fair valuethrough profit or loss (783) (136) (1 607) 203
Accounting for financial assets andliabilities carried at amortised cost 1 240 (437) 172 450
Adjustment of current income taxcredit/(expense) 460 (73) 827 (83)
Expenses of non-reportable segments,including effect of consolidation* (843) (129) (3) (252)
Accrued staff costs (473) (328) 179 186Other (131) 204 10 (7)
The Group’s profit under IFRS (after tax) 36 1 683 25 1 520
* Non-reportable segments are represented by subsidiaries of the Group.
Adjustments of provision for impairment are related to the difference between the methodology applied tocalculate provisions for loan impairment under RAR used for preparation of management reporting, andthe methodology used for IFRS reporting. The provision under RAR is calculated based mainly on formalcriteria depending on the financial position of the borrower, quality of debt service and collateral, whereasthe provision under IFRS requirement is calculated based on incurred loss model.
Adjustments of derivative financial instruments to their fair value arise from the difference in theaccounting treatment of currency swaps under RAR (which are the basis for management reporting) andIFRS reporting. Under RAR gross settled swap transactions are recognised as back-to-back deposits,whereas in the IFRS financial statement such transactions are recognised at fair value.
Adjustments to financial assets and liabilities carried at amortised cost resulted from accruals of interestincome/expenses using effective interest rate method.
There is no concept of deferred tax accounting in RAR for credit organizations.
All other differences also resulted from the differences between RAR (used as the basis for managementreporting) and IFRS.
13 Contingencies and Commitments
Legal proceedings. From time to time in the normal course of business, claims against the Group arereceived. As at 30 September 2011, based on its own estimates and both internal and externalprofessional advice the Group’s management is of the opinion that no material losses will be incurred inrespect of claims and accordingly no provision for cover of such losses has been made in thesecondensed consolidated interim financial statements (31 December 2010: nil).
F-25
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
22
13 Contingencies and Commitments (Continued)
Tax contingencies. Russian tax and customs legislation which was enacted or substantively enacted atthe end of the reporting period is subject to varying interpretations when being applied to the transactionsand activities of the Group. Consequently, tax positions taken by management and the formaldocumentation supporting the tax positions may be successfully challenged by relevant authorities.Russian tax administration is gradually strengthening, including the fact that there is a higher risk ofreview of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscalperiods remain open to review by the authorities in respect of taxes for three calendar years precedingthe year of review. Under certain circumstances reviews may cover longer periods.
Russian transfer pricing legislation enacted during the current period is effective prospectively to newtransactions from 1 January 2012. It introduces significant reporting and documentation requirements.The transfer pricing legislation that is applicable to transactions on or prior to 31 December 2011,provides the possibility for tax authorities to make transfer pricing adjustments and impose additional taxliabilities in respect of all controllable transactions, provided that the transaction price differs from themarket price by more than 20%. Controllable transactions include transactions with interdependentparties, as determined under the Russian Tax Code, all cross-border transactions (irrespective of whetherperformed between related or unrelated parties), transactions where the price applied by a taxpayerdiffers by more than 20% from the price applied in similar transactions by the same taxpayer within ashort period of time, and barter transactions. Significant difficulties exist in interpreting and applying thetransfer pricing legislation in practice. Any prior existing court decisions may provide guidance, but are notlegally binding for decisions by other or higher level courts in the future.
Tax liabilities arising from transactions between companies are determined using actual transactionprices. It is possible with the evolution of the interpretation of the transfer pricing rules that such transferprices could be challenged. The impact of any such challenge cannot be reliably estimated; however, itmay be significant to the financial position and/or the overall operations of the Group.
The management of the Group believes that its interpretation of the relevant legislation is appropriate andthe Group’s tax, currency and customs positions will be sustained. Therefore, as at 30 September 2011the management has not created any provision for potential tax liabilities (31 December 2010: nil).
Capital expenditure commitments. As at 30 September 2011, the Group has contractual capitalexpenditure commitments totalling RR 189 million (31 December 2010: RR 307 million).
Operating lease commitments. Where the Group is the lessee, the future minimum lease paymentsunder non-cancellable operating leases of premises and equipment are as follows:
In millions of Russian Roubles30 September 2011
(unaudited)31 December 2010
Not later than 1 year 1 289 1 676Later than 1 year and not later than 5 years 2 709 3 679Later than 5 years 2 031 2 391
Total operating lease commitments 6 029 7 746
Compliance with covenants. The Group is subject to certain covenants related primarily to its borrowings.Non-compliance with such covenants may result in negative consequences for the Group including anincrease of the borrowing costs and announcement of the default. The Group’s Management believes thatthe Group is in compliance with the covenants.
F-26
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
23
13 Contingencies and Commitments (Continued)
Assets pledged and restricted. The Group had the following assets pledged and restricted:
In millions of Russian Roubles30 September 2011
(unaudited)31 December 2010
Under secured loans from the CBRF- loans to customers - 7 101
Under term deposits from clients- State Eurobonds 7 072 6 682
Under repo agreements- Corporate bonds 6 290 12 547- State Eurobonds - 2 658- Municipal and subfederal bonds - 35
Restricted cash 208 -
In addition, mandatory cash balances with the CBRF in the amount of RR 7 600 million(31 December 2010: RR 3 468 million) represent mandatory reserve deposits which are not available tofinance the Group’s day to day operations.
As at 30 September 2011, the Bank’s subsidiaries pledged production premises and equipment underloan agreements with other banks for the total amount of RR 1 676 million (31 December 2010:RR 1 863 million).
14 Derivative Financial Instruments
Foreign exchange derivative financial instruments entered into by the Group are generally traded in anover-the-counter market with professional market counterparties on standardised contractual terms andconditions. Derivative financial instruments have potentially favourable (assets) or unfavourable(liabilities) conditions as a result of fluctuations in market interest rates, foreign exchange rates or othervariables relative to their terms.
The aggregate fair values of derivative financial instruments may fluctuate significantly from time to time.Liquidity risk on derivative financial instruments is managed by the Group’s Treasury and the CapitalMarkets Department within powers of the departments. Management of derivative financial instrumentportfolio risks is carried out by the authorized Group’s bodies through establishing limits.
Foreign exchange swaps with original settlement dates of more than 30 working days are structured asloans issued by the Bank in US Dollars, Swiss Francs and Japanese yen to four OECD banks and oneRussian banking group with maturities from January 2012 to May 2023, and deposits in Russian Roublesreceived from the same five counterparties with the same maturities (“back to back loans”). Thesetransactions are aimed at economically hedging the currency exposure of the Group.
As at 30 September 2011, international credit ratings of these banks were not less than BB- (S&P)(31 December 2010: not less than BB- (S&P)).
Most of these agreements contain special procedures for counterparties upon the occurrence of a creditevent or an event of default (including bankruptcy, failure to pay, obligation acceleration,repudiation/moratorium or restructuring of any Bank’s obligation on its debts, falling of ratings, providingincorrect and/or misleading representation). The subjects of such events are the Group, in someinstances, the counterparty of the agreement, and/or the Russian Federation. No further mutual paymentobligation between the parties is due, if a credit event or default event happens and the Group receives aformal Event Notice from its counterparty. Other of these swaps agreements, in case of a default event,will be terminated with a mark-to-market payment.
F-27
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
24
14 Derivative Financial Instruments (Continued)
The table below reflects gross positions in derivative financial instruments before the netting of anycounterparty positions as at 30 September 2011 and covers the contracts with settlement dates after therespective end of the reporting period:
In millions of Russian Roubles
Contracts withpositive fair
value(unaudited)
Contracts withnegative fair
value(unaudited)
Total
Foreign exchange swaps with settlement dates of morethan 30 working days: fair values at the end of thereporting period, of
USD receivable on settlement (+) 119 762 9 150 128 912RR payable on settlement (-) (98 467) (9 177) (107 644)CHF receivable on settlement (+) 5 559 - 5 559RR payable on settlement (-) (3 575) - (3 575)JPY receivable on settlement (+) 3 989 - 3 989RR payable on settlement (-) (3 628) - (3 628)
Foreign exchange forwards with settlement dates of up to2 working days: fair values at the end of the reportingperiod, of
USD receivable on settlement (+) 979 161 1 140RR payable on settlement (-) (978) (161) (1 139)RR receivable on settlement (+) 6 151 14 889 21 040USD payable on settlement (-) (6 149) (14 899) (21 048)RR receivable on settlement (+) - 9 9EUR payable on settlement (-) - (9) (9)
Foreign exchange forwards with settlement dates from 2 to30 working days: fair values at the end of the reportingperiod, of
JPY receivable on settlement (+) - 36 36USD payable on settlement (-) - (36) (36)EUR receivable on settlement (+) - 650 650USD payable on settlement (-) - (656) (656)USD receivable on settlement (+) 569 - 569EUR payable on settlement (-) (564) - (564)
Foreign exchange futures with settlement dates of morethan 30 working dates: fair value at the end of thereporting period, of
USD receivable on settlement (+) 983 - 983RR payable on settlement (-) (976) - (976)
Total net fair value 23 655 (43) 23 612
F-28
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
25
14 Derivative Financial Instruments (Continued)
The table below reflects gross positions before the netting of any counterparty positions as at31 December 2010 and covers the contracts with settlement dates after the respective end of reportingperiod:
In millions of Russian Roubles
Contracts withpositive fair
value
Contracts withnegative fair
value
Total
Foreign exchange swaps with settlement dates of more than 30working days: fair values at the end of the reporting period, of
USD receivable on settlement (+) 95 172 21 373 116 545RR payable on settlement (-) (76 548) (21 883) (98 431)CHF receivable on settlement (+) 5 313 - 5 313RR payable on settlement (-) (3 824) - (3 824)JPY receivable on settlement (+) 4 364 - 4 364RR payable on settlement (-) (3 898) - (3 898)
Foreign exchange forwards with settlement dates from 2 to30 working days: fair values at the end of the reporting period, of
RR receivable on settlement (+) 31 3 954 3 985USD payable on settlement (-) (31) (3 966) (3 997)USD receivable on settlement (+) 14 257 13 430 27 687RR payable on settlement (-) (14 215) (13 449) (27 664)
Total net fair value 20 621 (541) 20 080
15 Related Party Transactions
For the purposes of these condensed consolidated interim financial statements, parties are considered tobe related if one party has the ability to control the other party, is under common control, or can exercisesignificant influence over the other party in making financial or operational decisions. The Bank’s onlyshareholder is the Government of the Russian Federation represented by the Federal Agency forManaging State Property (Refer to Note 1).
The Group early adopted amendment to IAS 24, Related Party Disclosures (issued in November 2009and effective for annual periods beginning on or after 1 January 2011) in the consolidated financialstatements for the year ended 31 December 2009.
In these condensed consolidated interim financial statements, the most significant balances (in theaggregate amount of more than RR 1 000 million) with related parties controlled by the Russian Stateand balances with related parties represented by key management and their family members aredisclosed.
In millions of Russian Roubles30 September 2011
(unaudited)31 December 2010
Loans and advances to customers (before impairment)State-controlled entities (contractual interest rate: 7%-12% p.a. (2010: 7%-12% p.a.)) 37 026 45 937
Key management and their family members (2010: contractual interest rate5% p.a.) - 21
Provision for loan impairment at period endState-controlled entities (57) (8)
Customer accountsState-controlled entities (contractual interest rate for term deposits: 3%-8% p.a. (2010: 1%-9% p.a.)) 274 932 89 763
Key management and their family members (contractual interest rate for termdeposits: 1%-7% p.a. (2010: 1%-7% p.a.)) 158 235
Subordinated debtsState-controlled entities (contractual interest rate: 6.5% p.a. (2010: 6.5% p.a.)) 25 000 25 000
F-29
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
26
15 Related Party Transactions (Continued)
The income and expense items with related parties were as follows:
(Unaudited) For the nine months ended30 September
For the three months ended30 September
In millions of Russian Roubles 2011 2010 2011 2010
Interest income on loans andadvances to customers
State-controlled entities 2 284 2 574 717 886Key management and their familymembers - 1 - -
Interest expense on customeraccounts
State-controlled entities (5 940) (4 039) (2 414) (1 436)Key management and their familymembers (9) (28) (3) (6)
Interest expense onsubordinated debts
State-controlled entities (1 215) (1 458) (409) (466)
The Group has the following insignificant transactions with related parties:
interest income on cash equivalents, trading securities, due from other banks;
interest expenses on due to other banks;
results from operations with trading securities and available for sale; and
other.
Key management of the Group represents members of the Management Board of the Bank and ChiefAccountant. For the nine months ended 30 September 2011 short-term benefits of the key managementamounted to RR 84 million and for the three months then ended: RR 24 million (for the nine monthsended 30 September 2010: RR 109 million, for the three months then ended: RR 28 million).
As at 30 September 2011, investment securities available for sale and investment securities held tomaturity included securities issued by Russian Federation in the total amount of RR 22 873 million(31 December 2010: RR 15 710 million); interest income from these securities for the nine months ended30 September 2011 amounted to RR 730 million and for the three months then ended: RR 286 million(for the nine months ended 30 September 2010: RR 362 million, for the three months then ended:RR 132 million).
F-30
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
27
16 Disposal of Subsidiaries and Groups Classified as Held for Sale
a) Disposal of Subsidiaries
In June 2011 the Group completed disposal of its subsidiary Chelyabinskiy Commercial Land Bank.
In millions of Russian Roubles06 June 2011
(unaudited)
Cash and cash equivalents 250Mandatory cash balances with the Central Bank of the Russian Federation 2Intangible assets 1Premises and equipment 58Customer accounts (30)Current income tax liability (2)Other liabilities (74)
Net assets of subsidiary 205
Carrying amount of net assets disposed of 205
Total disposal consideration 226Less: cash and cash equivalents in subsidiary disposed of (250)
Cash outflow on disposal (24)
In millions of Russian Roubles Gain on disposal of subsidiary
Consideration for disposal of the subsidiary 226Carrying amount of net assets disposed of (205)
Gains on disposal of subsidiary 21
b) Groups Classified as Held for Sale
As at 30 September 2011 the Group has classified the assets and liabilities related to companies inBashkortostan and Leningrad Region as disposal groups held for sale (31 December 2010: the assetsand liabilities related to companies in Leningrad Region and Chelyabinskiy Commercial Land Bank).
Major classes of assets of disposal groups held for sale are as follows:
In millions of Russian Roubles30 September 2011
(unaudited)31 December 2010
Premises and equipment 2 715 2 122Trade receivables 1 300 364Inventory 655 125Loans and advances to customers 105 93Cash and cash equivalents 2 12Other 258 133
Total assets of disposal groups held for sale 5 035 2 849
F-31
Russian Agricultural Bank GroupSelected Notes to the Condensed Consolidated Interim Financial Statements – 30 September 2011
28
16 Disposal of Subsidiaries and Groups Classified as Held for Sale (Continued)
Major classes of liabilities directly associated with disposal groups held for sale are as follows:
In millions of Russian Roubles30 September
2011 (unaudited)31 December 2010
Trade payables 481 498Deferred income tax liability 298 309Due to other banks 102 158Customer accounts - 16Other 343 34
Total liabilities directly associated with disposal groups held forsale 1 224 1 015
17 Events after the End of the Reporting Period
In November 2011, the Group attracted RR 10 000 million through issue of bonds denominated inRussian Roubles maturing in October 2021. The first four semi-annual coupon payments due on thebonds were set at a rate of 8.75% p.a.
In November 2011, the Group attracted RR 20 000 million through issue of Eurobonds (loan participationnotes) denominated in Russian Roubles with semi-annual payment of coupon at 6M Mosprime floatinginterest rate p.a., maturing in November 2016.
In December 2011, share capital of the Bank was increased by RR 40 000 million.
In December 2011, the Group terminated the legal agreement on disposal of companies in LeningradRegion (Open Joint-Stock Company Rassvet, Open Joint-Stock Company Luzhskiy kombikormoviyzavod, Open Joint-Stock Company Luzhskiy Myasokombinat) classified as a disposal group held for sale.
F-32
RAB ISSUER
Russian Agricultural Bank RSHB Capital S.A. 3 Gagarinsky Lane 46 A, Avenue J.F. Kennedy
Moscow 119034 L-1855 Luxembourg
Russian Federation Grand Duchy of Luxembourg
THE LEAD MANAGER
Citigroup Global Markets Limited Citigroup Centre Canada Square Canary Wharf
London E14 5LB United Kingdom
LEGAL ADVISERS TO RAB
As to English law As to Russian law As to Luxembourg law
Clifford Chance LLP Clifford Chance CIS Limited Clifford Chance
10 Upper Bank Street 6 Ulitsa Gasheka 2-4, place de Paris
London E14 5JJ Moscow 125047 L-1011 Luxembourg
United Kingdom Russian Federation Grand Duchy of Luxembourg
LEGAL ADVISERS TO THE LEAD MANAGER
As to English law As to Russian law
Allen & Overy LLP Allen & Overy Legal Services
One Bishops Square Dmitrovsky pereulok 9
London E1 6AD
United Kingdom
Moscow 107031
Russian Federation
TRUSTEE
BNY Mellon Corporate Trustee Services
Limited One Canada Square
London E14 5AL
United Kingdom
PRINCIPAL PAYING AGENT,
TRANSFER AGENT AND CALCULATION AGENT
REGISTRAR, PAYING AGENT AND TRANSFER
AGENT
The Bank of New York Mellon
One Canada Square London E14 5AL United Kingdom
The Bank of New York Mellon (Luxembourg) S.A.
Vertigo Building - Polaris 2-4 rue Eugène Ruppert
L-2453 Luxembourg Attention: Peter Bun
LISTING AGENT IRISH PAYING AGENT
The Bank of New York Mellon (Ireland) Limited Hanover Building
Windmill Lane Dublin 2, Ireland
The Bank of New York Mellon (Ireland) Limited Hanover Building
Windmill Lane Dublin 2, Ireland
AUDITORS TO RAB
ZAO PricewaterhouseCoopers Audit Butyrsky Val 10
Moscow 125047
Russian Federation
AUDITORS TO THE ISSUER
L'Alliance Révision SARL 1, rue des Glacis
L-1628 Luxembourg
Grand Duchy of Luxembourg