As announced earlier by the Company, MTS Finance, a 100%-owned subsidiary of MTS registered in Luxembourg, acquired a 51% stake in Tarino Limited from Nomihold at the end of 2005. Tarino Limited was at that time the indirect owner, through its 100% owned subsidiaries, of Bitel. Bitel’s offices were seized by Reservspetzmet in Bishkek three days after the official announcement of the acquisition. From that moment on the owners of Tarino Limited have no control over Bitel.

At the time of the transaction between MTS and Nomihold regarding the acquisition of 51% stake in Tarino Limited and signing of the put option for the remaining stake, MTS’ actions were dictated by the fact that Tarino Limited had complete control over Bitel.  

As announced in December 2005, MTS acquired a 51% stake in Tarino Limited. Tarino Limited was at that time the indirect owner, through its 100% owned subsidiaries, of Bitel.

At the end of last week MTS received a letter from Nomihold, the owner of a 49% stake of Tarino Limited, stating its intent to exercise the put option and sell its stake for $170 million to MTS.

Were Nomihold able to comply fully with its contractual and legal duties, MTS would honor its obligations under its agreement with Nomihold. However, circumstances with respect to certain Tarino subsidiaries including Bitel – the transfer of which was the basic objective of the agreement – would appear to make it impossible for Nomihold to comply with its obligations during the option period.

In these circumstances, the Company believes that if Nomihold insists on exercising the put option, Nomihold’s notice will be without legal basis and MTS will vigorously defend its rights.

MTS confirms that in case of a dispute regarding the exercise of the aforementioned put option, shareholders of Sistema will assist MTS in defending its rights. If the arbitrage decision does not favor MTS, shareholders of Sistema made the decision to compensate MTS for a loss in the amount of $170 million.

In spite of the received guarantees that are aimed at defending the interests of all MTS shareholders independent of the proceedings with Nomihold, the Company as always intends to employ all of its resources in defending its interests over its ownership rights over Bitel and the option agreement.