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UTK

November 23, 2004

Standard & Poor`s lowers Southern Telecommunications Company corporate governance score

Krasnodar, November 23, 2004: Southern Telecommunications Company (“UTK”) (RTS: KUBN, KUBNP; OTC: STJSY), the principal telecommunications provider for Russia’s Southern Federal District, reported today that on November 22, 2004 the rating agency “Standard & Poor’s” lowered its corporate governance score (CGS) on the Company from ‘CGS-5+’ to 'CGS-5'. The Russia national scale CGS on the Company was also lowered from ‘CGS-5.6’ to 'CGS-5.2'.

The overall CGS on Southern Telecommunications Company is the result of four component scores on a scale of 1 (low) to 10 (high):

  • Ownership structure and external influences - 5.5
  • Shareholder rights and stakeholder relations - 6.7
  • Transparency, disclosure, and audit - 4.8
  • Board structure and effectiveness - 3.7

According to Standard & Poor’s, the revision of CGS is related to substantial deviation from budgeted investment spending plans in the first half of 2004 that has led to the revision of budget targets for the full year and has resulted in substantially increased debt leverage. In addition, the publication of IFRS financial statements for 2003 was seriously delayed. The revised CGS has also been influenced by amendments to Standard & Poor's analytical methodology, which now places greater emphasis on the level of independent control over the audit process, and board independence and effectiveness. However, Standard & Poor’s analysts note that improving Board processes indicate the Board’s and management’s commitment to the correction of weaknesses.

The Company’s management considers the significant capex growth to be caused by the necessity to satisfy high growing demand for telecommunications services in the Southern Federal District and to increase the Company’s market share of the regional telecom market. Due to overfulfillment of UTK’s investment spending plans for 2003 and 2004 resulted in deviation from budget targets, "UTK" PJSC provided itself with long-term stable competitive positions in the fixed-line and value-added regional markets, thereby contributing to steady improvements in UTK’s operating and financial performance going forward.

 

 

 

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