| Moscow, Russia – November 2, 2007 – “COMSTAR – United TeleSystems” JSC (“Comstar” or “the Company”) (LSE: CMST), the leading combined telecommunications operator in Russia and the CIS, today announced that its third quarter 2007 results will be impacted by a non-cash charge of approximately US$ 196 million, which will be reported below the ‘Operating Income’ line and above the ‘Income before Tax’ line of the income statement. The charge arises from the ongoing quarterly revaluation of the call and put option issued as part payment for the 25% + 1 share stake in Telecommunications Investment company ‘Svyazinvest’ in December 2006, and reflects the 40% increase in the market price of the Comstar Global Depositary Receipt from US$ 9.25 on June 30, 2007 to US$ 12.95 on September 30, 2007. The year to date impact of the revaluation of the financial instrument totals a non-cash charge of approximately US$ 222 million.
As described in the Company’s audited financial statements for the twelve months ended December 31, 2006, the call option must be exercised before December 11, 2007 or it will expire. The call option will, therefore, cease to impact on Comstar’s income statement after December 11, 2007 at the latest. If exercised, the remaining put option can be exercised for a period of two years after the exercise of the call option, but is expected to impact on Comstar’s income statement to a far lesser extent. Such impact will be calculated according to the difference between the fair value of the put option at the beginning and end of each reporting period, which is estimated with reference to the market price of the Comstar GDR and the mathematically derived likely exercise price of the put option.
The call and put option agreement signed between Comstar subsidiary MGTS Finance S.A. and 2711 Centerville Cooperatief U.A. in December 2006 gives 2711 Centerville Cooperatief U.A. the right to purchase 46,232,000 Comstar shares from MGTS Finance S.A. for US$ 6.97 per share up until December 11, 2007. The option must be called before this date or it will expire. If called, 2711 Centerville Cooperatief U.A. may then exercise the put option to sell the shares back to MGTS Finance S.A., at the trailing ninety trading day weighted average price of the Comstar GDR, during a two year period from the date of exercising the call option.
Irina Matveeva, CFO of Comstar, commented: “The acquisition of the blocking stake in Svyazinvest was a strategic acquisition, which has already proved a highly successful financial investment. The stake has risen by 69% in value from the US$ 1.3 billion paid in December 2006 to US$ 2.2 billion as at the end of the third quarter of 2007, based on the combined market value of the listed Svyazinvest subsidiaries.
“This accounting treatment reflects the substantial appreciation of the Comstar share price during the third quarter. It is a non-cash charge and does not, therefore, affect the underlying cash position in the Company. We only have a maximum of less than one quarter’s further impact of the call option, while any impact arising thereafter from the re-valuation of the put option is expected to have considerably less impact on our income statement moving forward”.
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