S&P Assigns 'CGS-5.7' to Telco OJSC Sibirtelecom

MOSCOW (Standard & Poor's) July 3, 2003--Standard & Poor's Governance Services said today it assigned a corporate governance score (CGS) of 'CGS-5.7' to Russia-based fixed-line telecommunications service provider OJSC Sibirtelecom.

"Standard & Poor's believes that governance practices at Sibirtelecom are above average for Russian fixed-line telecoms operators. The company is constantly improving its governance procedures," said Julia Kochetygova, director of Standard & Poor's Governance Services. "There are, however, governance weaknesses arising from the active involvement of the majority shareholder and the limited influence of minority shareholders and independent directors."

In 2002, Sibirtelecom merged with 10 other telecoms operators in eastern Russia, and its governance structure has yet to be finalized.
The overall CGS is a result of four component scores on a scale of 1 (low) to 10 (high):

• Ownership structure and influence 5.5
• Financial stakeholder rights and relations 6.2
• Financial transparency and information disclosure 6.3
• Board structure and process 4.9

The ownership structure and influence component reflects the fact that only one beneficial owner, the controlling shareholder, stated-owned holding company JSC Svyazinvest, with 50.7% of the voting shares, is identified, and there are few details about other holders. This component score also reflects the high degree of regulatory influence and limited commercial freedom experienced by the company. It is further constrained by the sometimes controversial influence of Svyazinvest over the company owing to conflicts of interest within the wider Svyazinvest group.

In the area of financial stakeholder relations, all major shareholder rights appear to be respected, and shareholder meeting procedures are clearly articulated and observed. It is a negative governance feature, however, that the company's share registrar is indirectly controlled by Svyazinvest and cannot be regarded as fully independent. In terms of financial rights, some of the decisions imposed by Svyazinvest cannot be viewed as necessarily in the optimal interests of all other shareholders. Unpaid dividends relating to legacy companies, even after the merger, are assessed as a negative governance feature.

Sibirtelecom's relatively high standards of financial transparency and information disclosure in the Russian context are confirmed by its disclosure of IAS financial reports since 2001 and the additional disclosure of substantial amounts of operational information, efficiency analyses, and most related party transactions. Sibirtelecom is among the most transparent and proactive companies within Svyazinvest. Standard & Poor's notes, however, that there is limited disclosure concerning management remuneration, audit fees, and some ongoing transactions with Sibirtelecom's affiliates.

Sibirtelecom's board structure and process component score reflects the high level of participation by Svyazinvest and the minimal level of representation of minority interests by external directors. There are only three out of 11 external directors, and only two that can be considered independent. In addition, there are no dedicated board committees. There is, however, an internal audit department reporting to the board. This is viewed positively by Standard & Poor's, as is the introduction of a corporate secretary. Standard & Poor's also notes the increasingly efficient executive remuneration policy, although it does encourage focus on short-term performance.

Standard & Poor's will shortly publish a full report on OJSC Sibirtelecom's CGS on the governance section of Standard & Poor's public Web site at www.governance.standardandpoors.com, and its Russian language Web site at www.standardandpoors.ru. Additional information on corporate governance scores, including the report "Corporate Governance in Russia", is also available on the sites. Alternatively, call Standard & Poor's Governance Services in London (44) 20-7826-3548 or Moscow (7) 095-783-4000/40, or the Standard & Poor's Ratings Desk in Moscow (7) 095-783-4000 or London (44) 20-7847-7400.

ANALYSTS E-MAIL ADDRESSES
julia_kochetygova@standardandpoors.com;
anton_pospelov@standardandpoors.com;
CorporateGovernanceInquiry@standardandpoors.com

Contact: Julia Kochetygova, Moscow (7) 095-783-4040;
Anton Pospelov, Moscow (7) 095-783-4042