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31JAN201117340772(organised as an open joint-stock company under
the laws of the Russian Federation)
Offering of 1,046,054,133,732 Shares in the form ofShares and
Global Depositary Receipts
1,046,054,133,732 ordinary shares, each with a nominal value of
0.01 rubles (the ‘‘Shares’’), of JSC VTB Bank (‘‘VTB’’), an open
joint-stock company organisedunder the laws of the Russian
Federation, are being offered within the framework set forth by the
Decree of the Government of the Russian FederationNo. 1928-r dated
November 2, 2010 (the ‘‘First Decree’’), as supplemented by a
further Decree of the Government of the Russian Federation, which
is expectedto be issued on or before the Closing Date (as defined
below) (the ‘‘Second Decree’’ and, together with the First Decree,
the ‘‘Decrees’’). Pursuant to theDecrees, the Shares are expected
to be sold by the Russian Federation to Deutsche Bank AG, London
Branch and VTB Capital plc, as purchasers (together,
the‘‘Purchasers’’), under sale and purchase agreements to be
entered into on or before the Closing Date between the Russian
Federation (represented byOOO Merrill Lynch Securities (‘‘MLS’’)
acting as agent (poverenny) in the name and on behalf of the
Russian Federation pursuant to the Decrees and an agencyagreement
between the Russian Federation and MLS dated November 10, 2010, as
amended) and the Purchasers (the ‘‘Share Purchase Agreements’’) for
thepurpose of onward sale in an offering (the ‘‘Offering’’) to
institutional investors in the form of Shares (the ‘‘Offer
Shares’’) and global depositary receiptsrepresenting Shares (the
‘‘GDRs’’ and, together with the Offer Shares, the ‘‘Securities’’).
Each GDR represents an interest in 2,000 Shares.
The Offering comprises an institutional offering of (i) Offer
Shares and GDRs outside the United States and Russia to certain
persons in offshore transactions inreliance on Regulation S
(‘‘Regulation S’’) under the US Securities Act of 1933, as amended
(the ‘‘Securities Act’’), and in the United States to
qualifiedinstitutional buyers (‘‘QIBs’’), as defined in, and in
reliance on, Rule 144A (‘‘Rule 144A’’) under the Securities Act and
(ii) Offer Shares in the RussianFederation. Generali Group has
received an allocation of U.S.$300 million of Offer Shares and/or
GDRs at the Offer Price in the Offering and affiliated fundsof TPG
Capital L.P. have received an allocation of U.S.$100 million of
Offer Shares and/or GDRs at the Offer Price in the Offering. See
‘‘Plan of Distribution’’.
VTB has applied to the UK Financial Services Authority (the
‘‘FSA’’), in its capacity as competent authority under the
Financial Services and Markets Act 2000(the ‘‘FSMA’’), to admit any
and all additional GDRs that may be issued from time to time by the
Depositary representing up to the number of GDRs that
wouldrepresent the total issued share capital of VTB, subject to
the limitations and requirements of Russian law (the ‘‘Additional
GDRs’’ (which term shall include theGDRs)), to the official list of
the FSA (the ‘‘Official List’’), of which up to 523,027,066 GDRs
will be issued on or about February 17, 2011, or such later date
asmay be agreed between Deutsche Bank AG, London Branch, Merrill
Lynch International and VTB Capital plc (together, the ‘‘Joint
Bookrunners’’) and theRussian Federation (the ‘‘Closing Date’’).
VTB has also applied to the London Stock Exchange plc (the ‘‘LSE’’)
to admit the Additional GDRs to trading on theLSE’s regulated
market for listed securities (the ‘‘Regulated Market’’) through its
International Order Book (regulated market segment) (the ‘‘IOB’’),
a marketthat is regulated for the purpose of Directive 2004/39/EC,
under the symbol ‘‘VTBR’’. Admission to listing on the Official
List, together with admission to tradingon the Regulated Market
(the ‘‘Admission’’), constitutes listing on a stock exchange. VTB
expects that unconditional trading in the GDRs on the LSE
throughthe IOB will commence on or about February 18, 2011. All
dealings in the GDRs prior to the commencement of the unconditional
trading will be of no effect ifthe Admission does not take place
and will be at the sole risk of the parties involved.
The Shares have been admitted to trading on the ‘‘B’’ quotation
list of the Russian Trading System (the ‘‘RTS’’) and the Moscow
Interbank Currency Exchange(‘‘MICEX’’). VTB’s existing GDRs were
admitted to the Official List and to trading on the Regulated
Market on May 17, 2007 and trade under the symbol‘‘VTBR’’. Prior to
the Closing Date, there has not been any public market for the
Additional GDRs, although the Additional GDRs will be immediately
fungiblewith VTB’s existing GDRs.
This document (the ‘‘Prospectus’’), upon approval by the FSA,
constitutes a prospectus relating to VTB prepared in accordance
with Directive 2003/71/EC (the‘‘Prospectus Directive’’) as
implemented in the United Kingdom through the prospectus rules (the
‘‘Prospectus Rules’’) of the FSA made under Section 73A of theFSMA.
This document will be made available to the public in accordance
with the Prospectus Rules.
AN INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
See ‘‘Risk Factors’’ beginning on page 8 for a discussion of
certain risks thatshould be considered in connection with an
investment in the Shares and the GDRs. The GDRs are of a specialist
nature and should normally only be purchasedand traded by investors
who are particularly knowledgeable in investment matters.
Offer Price of 9.1468 kopeks or $0.003125 per Offer Share and
$6.25 per GDR
Neither the Offer Shares nor the GDRs have been or will be
registered under the Securities Act, and neither the Offer Shares
nor the Additional GDRs may beoffered or sold in the United States
absent registration or an exemption from registration under the
Securities Act. The Securities have not been, and will not
be,registered under the Securities Act and may not be offered or
sold within the United States except to QIBs in reliance the
exemption from the registrationrequirements of the Securities Act
provided by Rule 144A or outside the United States in offshore
transactions in reliance on Regulation S. Prospectivepurchasers of
the Shares or the GDRs in the United States are hereby notified
that sellers of the Shares or GDRs may be relying on the exemption
from theprovisions of Section 5 of the Securities Act provided by
Rule 144A. The Shares and the GDRs are subject to transfer
restrictions in certain jurisdictions.Prospective purchasers should
read the restrictions described under ‘‘Transfer
Restrictions’’.
The Joint Bookrunners reserve the right to reject any offer to
purchase the Securities, in whole or in part, and to sell to any
prospective investor less than theamount of the Securities sought
by such investor. Fewer Shares (including in the form of GDRs) may
be sold than the maximum number of Shares authorised forsale under
the Decrees. The closing of the Offering is subject in all respects
to the Second Decree being issued and the Share Purchase Agreements
being dulyexecuted and performed by the parties thereto on or
before the Closing Date. If the Second Decree is not issued or the
Share Purchase Agreements are not dulyexecuted and performed by the
parties thereto on or before the Closing Date, the Offering will be
cancelled and any conditional dealings in the Securities will be
ofno effect and will fail to settle. See ‘‘Risk Factors – Risks
Relating to the Offering – The Offering is conditional in all
respects on the issuance by the Government ofthe Second Decree and
on due execution and performance of the Share Purchase
Agreements’’.
The GDRs will be denominated in US dollars and issued in master
form. The GDRs sold outside the United States (the ‘‘Regulation S
GDRs’’) will beevidenced by a Master Regulation S Global Depositary
Receipt (the ‘‘Master Regulation S GDR’’) issued by the Depositary
and registered in the name of TheBank of New York Depository
(Nominees) Limited, as nominee for The Bank of New York Mellon,
London Branch, the common depositary for EuroclearBank SA/NV
(‘‘Euroclear’’) and Clearstream Banking, société anonyme
(‘‘Clearstream, Luxembourg’’). The GDRs sold to QIBs in reliance on
Rule 144A (the‘‘Rule 144A GDRs’’) will be evidenced by a Master
Rule 144A Global Depositary Receipt (the ‘‘Master Rule 144A GDR’’
and, together with the MasterRegulation S GDR, the ‘‘Master GDRs’’)
issued by the Depositary and registered in the name of Cede &
Co., as nominee for the Depositary Trust Company(‘‘DTC’’) in New
York. The Shares represented by the GDRs will be held by VTB, as
custodian (the ‘‘Custodian’’), for and on behalf of the Depositary.
Except asdescribed herein, beneficial interests in the Master GDRs
will be shown on, and transfers thereof will be effected only
through, records maintained by DTC,Euroclear and Clearstream,
Luxembourg and their direct or indirect participants. Transfers
within Euroclear and Clearstream, Luxembourg will be inaccordance
with the usual rules and operating procedures of the relevant
system. Delivery of the Additional GDRs will be made through DTC
with respect tothe Rule 144A GDRs and through Euroclear and
Clearstream, Luxembourg with respect to the Regulation S GDRs, in
each case on or about the Closing Date.
Joint Global Coordinators
BofA Merrill Lynch VTB CapitalJoint Bookrunners
BofA Merrill Lynch Deutsche Bank VTB Capital
The date of this Prospectus is February 14, 2011.
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IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
Each prospective investor, by accepting delivery of this
Prospectus, agrees that this Prospectus is beingfurnished by VTB
solely for the purpose of enabling a prospective investor to
consider the purchase of theSecurities. Any reproduction or
distribution of this Prospectus, in whole or in part, any
disclosure of itscontents or any use of any information contained
herein for any purpose other than considering aninvestment in the
Securities is prohibited, except to the extent that such
information is otherwise publiclyavailable.
This Prospectus is issued in compliance with the Prospectus
Rules, which are compliant with the provisionsof the Prospectus
Directive. VTB accepts responsibility for the information contained
in this Prospectus.VTB declares that, having taken all reasonable
care to ensure that such is the case, the informationcontained in
this Prospectus is, to the best of its knowledge, in accordance
with the facts and contains noomission likely to affect its
import.
VTB has included its own estimates, assessments, adjustments and
judgments in preparing some marketinformation, which has not been
verified by an independent third party. Market information
includedherein is, therefore, unless otherwise attributed
exclusively to a third party source, to a certain degreesubjective.
While VTB believes that its own estimates, assessments, adjustments
and judgments arereasonable and that the market information
prepared by VTB appropriately reflects the industry and themarkets
in which it operates, there is no assurance that VTB’s own
estimates, assessments, adjustmentsand judgments are the most
appropriate for making determinations relating to market
information or thatmarket information prepared by other sources
will not differ materially from the market informationincluded
herein.
Each of Moody’s, S&P and Fitch is established in the
European Union and has applied for registrationunder Regulation
(EU) No 1060/2009 (the ‘‘CRA Regulation’’), although notification
of the correspondingregistration decision has not yet been provided
by the relevant competent authority.
In general, European regulated investors are restricted from
using a rating for regulatory purposes if suchrating is not issued
by a credit rating agency established in the European Union and
registered under theCRA Regulation unless the rating is provided by
a credit rating agency operating in the European Unionbefore June
7, 2010 that has submitted an application for registration in
accordance with the CRARegulation and such registration is not
refused.
The contents of the websites of any of VTB and its subsidiaries
(collectively, the ‘‘Group’’) do not form anypart of this
Prospectus.
None of the Russian Federation, the Purchasers or the Joint
Bookrunners makes any representation orwarranty, express or
implied, as to the accuracy, completeness or verification of
information set forth inthis Prospectus. None of the Russian
Federation, the Purchasers or the Joint Bookrunners assumes
anyresponsibility for the accuracy, completeness or verification of
the information set forth in this Prospectus.Each person
contemplating making an investment in the Securities must make its
own investigation andanalysis of the Group and its own
determination of the suitability of any such investment, with
particularreference to its own investment objectives and
experience, and any other factors that may be relevant tosuch
person in connection with such investment.
The information contained in this Prospectus is only accurate as
of the date on the front cover of thisProspectus. The Group’s
business, financial and legal condition may have changed since that
date, andneither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances implyotherwise. In making
an investment decision, prospective investors must rely on their
own examination ofthe Group and the terms of this Prospectus,
including the risks involved.
No person is authorised to give any information or to make any
representation in connection with theOffering other than as
contained in this Prospectus, and, if given or made, such
information orrepresentation must not be relied upon as having been
authorised by VTB, the Russian Federation or anyof the Purchasers
or the Joint Bookrunners.
No prospective investor should consider any information in this
Prospectus to be investment, legal, tax orother advice. Each
prospective investor should consult its own counsel, accountant and
other advisers forsuch advice. None of VTB, the Russian Federation
or any of the Purchasers or the Joint Bookrunners, orany of their
respective representatives, makes any representation to any offeree
or purchaser of theSecurities regarding the legality of an
investment in such Securities by such offeree or purchaser.
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The Joint Bookrunners are not acting on behalf of any person in
connection with the Offering and are not,and will not be,
responsible to any person for providing advice in respect of the
Offering or for providingthe protections afforded to their
respective clients. The Joint Bookrunners and certain related
entities mayacquire a portion of the Securities for their own
accounts.
In connection with the Offering, each of the Joint Bookrunners
and any affiliate acting as an investor forits own account may take
up the Securities and in that capacity may retain, purchase or sell
for its ownaccount the Securities and any of VTB’s other securities
or related investments and may offer or sell theSecurities or other
investments otherwise than in connection with the Offering.
Accordingly, references inthis Prospectus to the Securities being
offered or placed should be read as including any offering
orplacement of securities to any of the Joint Bookrunners and any
affiliate acting in such capacity. None ofthe Joint Bookrunners
intends to disclose the extent of any such investment or
transaction otherwise thanin accordance with any legal or
regulatory obligation to do so.
Apart from the responsibilities and liabilities, if any, which
may be imposed on any of the Purchasers or theJoint Bookrunners by
the FSMA or the regulatory regime established thereunder, none of
the Purchasersor the Joint Bookrunners accepts any responsibility
whatsoever for the contents of this Prospectus or forany other
statement made or purported to be made by it or any of them or on
its or their behalf inconnection with VTB, the Group or the
Securities. Each of the Purchasers and the Joint
Bookrunnersaccordingly disclaims, to the fullest extent permitted
by applicable law, all and any liability whether arisingin tort or
contract or otherwise (save as referred to above) which it might
otherwise have in respect of thisProspectus or any such
statement.
The distribution of this Prospectus and the offer and sale of
the Securities may be restricted by law incertain jurisdictions.
None of VTB or any of the Purchasers or the Joint Bookrunners is
making an offer tosell any Securities to or is soliciting an offer
to buy Securities from any person in any jurisdiction exceptwhere
such an offer or solicitation is permitted. This Prospectus may not
be used for, or in connection with,any offer to, or solicitation
by, anyone in any jurisdiction or under any circumstances in which
such offer orsolicitation is unauthorised or unlawful. VTB and each
of the Purchasers and the Joint Bookrunnersrequire persons into
whose possession this Prospectus comes to inform themselves about
and observe suchrestrictions. None of VTB or any of the Purchasers
or the Joint Bookrunners has taken any action, otherthan as part of
the Offering, that would permit an offering of or relating to the
Securities in any jurisdictionthat requires action for that
purpose. Further information with regard to restrictions on offers
and sales ofthe Securities is set forth under ‘‘Plan of
Distribution’’ and ‘‘Transfer Restrictions’’.
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NOTICE TO CERTAIN INVESTORS
Notice to United States Investors
Neither the GDRs nor the Offer Shares have been or will be
registered under the Securities Act, and theGDRs and the Offer
Shares may be sold in the United States only to QIBs in reliance on
Rule 144A.Prospective purchasers are hereby notified that a seller
of the GDRs or the Offer Shares may be relying onthe exemption from
the provisions of Section 5 of the Securities Act provided by Rule
144A. The GDRs andthe Offer Shares are not transferable except in
accordance with the restrictions described under
‘‘TransferRestrictions’’.
In addition, until 40 days after the commencement of the
Offering, an offer or sale of Securities within theUnited States by
a dealer (whether or not participating in the Offering) may violate
the registrationrequirements of the Securities Act if such offer or
sale is made otherwise than in accordance with Rule 144A.
NEITHER THE GDRS NOR THE OFFER SHARES HAVE BEEN REGISTERED WITH,
OR APPROVEDOR DISAPPROVED BY, THE US SECURITIES AND EXCHANGE
COMMISSION (THE ‘‘SEC’’) ORANY STATE SECURITIES COMMISSION IN THE
UNITED STATES OR ANY OTHERUS REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOTPASSED ON OR ENDORSED THE MERITS OF
THE OFFERING OR THE ADEQUACY ORACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINALOFFENSE IN THE UNITED
STATES.
Notice to New Hampshire Residents
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION
FOR ALICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW
HAMPSHIRE REVISEDSTATUTES (‘‘RSA 421-B’’) WITH THE STATE OF NEW
HAMPSHIRE, NOR THE FACT THAT ASECURITY IS EFFECTIVELY REGISTERED OR
A PERSON IS LICENSED IN THE STATE OFNEW HAMPSHIRE, CONSTITUTES A
FINDING BY THE SECRETARY OF STATE OF NEWHAMPSHIRE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE ANDNOT MISLEADING. NEITHER
ANY SUCH FACT, NOR THE FACT THAT AN EXEMPTION OREXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION, MEANS THAT THESECRETARY
OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITSOR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON,SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE
TO BE MADE, TOANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY
REPRESENTATIONINCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
Notice to European Economic Area Investors
This Prospectus has been prepared on the basis that all offers
of Securities other than the Offeringcontemplated in this
Prospectus in the United Kingdom once this Prospectus has been
approved by thecompetent authority in the United Kingdom and
published in accordance with the Prospectus Directive asimplemented
in the United Kingdom will be made pursuant to an exemption under
the ProspectusDirective, as implemented in Member States of the
European Economic Area (the ‘‘EEA’’), from therequirement to
produce a prospectus for offers of the Securities. Accordingly, any
person making orintending to make any offer within the EEA of the
Securities should only do so in circumstances in whichno obligation
arises for VTB or any of the Purchasers or the Joint Bookrunners to
produce a prospectusfor such offer. None of VTB, the Russian
Federation or any of the Purchasers or the Joint Bookrunnershas
authorised, nor do they authorise, the making of any offer of the
Securities through any financialintermediary, other than offers
made by the Joint Bookrunners, which constitute the final placement
of theSecurities contemplated in this Prospectus.
Each person in a Member State of the EEA which has implemented
the Prospectus Directive (each, a‘‘Relevant Member State’’) who
receives any communication in respect of the Securities or who
acquires anySecurities will be deemed to have represented,
acknowledged and agreed that it is a ‘‘qualified investor’’within
the meaning of Article 2(1)(e) of the Prospectus Directive; and in
the case of any Securitiesacquired by it as a financial
intermediary as that term is used in Article 3(2) of the Prospectus
Directive,such financial intermediary will also be deemed to have
represented, acknowledged and agreed that theSecurities acquired by
it have not been acquired on behalf of, nor have they been acquired
with a view totheir offer or resale to, persons in any Relevant
Member State other than qualified investors, as that term
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is defined in the Prospectus Directive, or in circumstances in
which the prior consent of the JointBookrunners has been given to
the offer or resale; or where the Securities have been acquired by
it onbehalf of persons in any Relevant Member State other than
qualified investors, the offer of those Securitiesto it is not
treated under the Prospective Directive as having been made to such
persons. VTB, the RussianFederation, the Purchasers, the Joint
Bookrunners and their affiliates, and others will rely upon the
truthand accuracy of the foregoing representations,
acknowledgements and agreements. Notwithstanding theabove, a person
who is not a qualified investor and who has notified the Joint
Bookrunners of such fact inwriting may, with the consent of the
Joint Bookrunners, be permitted to subscribe for or purchase
theSecurities.
For the purposes of this representation, the expression an
‘‘offer of Securities to the public’’ in relation toany Securities
in any Relevant Member State means the communication in any form
and by any means ofsufficient information on the terms of the offer
and any Securities to be offered so as to enable an investorto
decide to purchase or subscribe for the Securities, as the same may
be varied in that Relevant MemberState by any measure implementing
the Prospectus Directive in that Relevant Member State, and
theexpression ‘‘Prospectus Directive’’ means Directive 2003/71/EC
and includes any relevant implementingmeasure in each Relevant
Member State.
Notice to United Kingdom Investors
This Prospectus is only being distributed to and is only
directed at (i) persons who are outside the UnitedKingdom, (ii)
investment professionals falling within Article 19(5) of the
Financial Services and MarketsAct 2000 (Financial Promotion) Order
2005 (the ‘‘Order’’) or (iii) high net worth entities falling
withinArticle 49(2)(a) to (d) of the Order and other persons to
whom it may lawfully be communicated (suchpersons collectively
being referred to as ‘‘relevant persons’’). The Securities are only
available to, and anyinvitation, offer or agreement to subscribe,
purchase or otherwise acquire such Securities will be engagedin
only with, relevant persons. Any person who is not a relevant
person should not act or rely on thisProspectus or any of its
contents.
Notice to Russian Investors
The GDRs may not be offered, transferred or sold in Russia, or
to or for the benefit of any persons(including legal entities)
resident, incorporated, established or having their usual residence
in Russia or toany person located within the territory of Russia
unless and to the extent otherwise permitted underRussian law.
This Prospectus should not be considered as a public offer or
advertisement of GDRs in the RussianFederation, and is not an
offer, or an invitation to make offers, to purchase GDRs in the
RussianFederation. Neither the GDRs nor any prospectus or other
document relating to them has been registeredwith the Russian
Federal Service for Financial Markets (the ‘‘FSFM’’).
Notice to Investors in the Dubai International Financial
Centre
This Prospectus relates to an exempt offer (an ‘‘Exempt Offer’’)
in accordance with the Offered SecuritiesRules of the Dubai
Financial Services Authority (the ‘‘DFSA’’). This Prospectus is
intended for distributiononly to Persons of a type specified in
those rules. It must not be delivered to, or relied on by, any
otherperson. The DFSA has no responsibility for reviewing or
verifying any documents in connection withExempt Offers. The DFSA
has not approved this Prospectus nor taken steps to verify the
information setout in it, and has no responsibility for it. The
Securities to which this Prospectus relates may be illiquidand/or
subject to restrictions on their resale. Prospective purchasers of
the Securities offered shouldconduct their own due diligence on the
Securities. If you do not understand the contents of this
Prospectus,you should consult an authorised financial adviser. For
the avoidance of doubt, neither the Shares nor theGDRs are
interests in a ‘‘fund’’ or a ‘‘collective investment scheme’’
within the meaning of either theCollective Investment Law (DIFC Law
No. 1 of 2006) or the Collective Investment Rules Module of
theDubai Financial Services Authority Rulebook.
Notice to Investors in the United Arab Emirates (Excluding the
Dubai International Financial Centre)
The Securities have not been, and are not being, publicly
offered, sold, promoted or advertised in theUnited Arab Emirates
(‘‘U.A.E.’’) other than in compliance with the laws of the U.A.E.
Prospectiveinvestors in the Dubai International Financial Centre
should have regard to the specific notice toprospective investors
in the Dubai International Financial Centre set out above. The
information
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contained in this Prospectus does not constitute a public offer
of securities in the U.A.E. in accordancewith the Commercial
Companies Law (Federal Law No. 8 of 1984 of the U.A.E., as amended)
or otherwiseand is not intended to be a public offer. This
Prospectus has not been approved by or filed with the CentralBank
of the United Arab Emirates, the Emirates Securities and
Commodities Authority or the DubaiFinancial Services Authority. If
you do not understand the contents of this Prospectus, you should
consultan authorised financial adviser. This Prospectus is provided
for the benefit of the recipient only, and shouldnot be delivered
to, or relied on by, any other person.
Notice to Investors in Certain Other Countries
For information to investors in certain other countries, see
‘‘Plan of Distribution – Selling Restrictions’’.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus are not historical facts
and constitute ‘‘forward-looking statements’’.Forward-looking
statements are identified by words such as ‘‘believes’’,
‘‘anticipates’’, ‘‘expects’’,‘‘estimates’’, ‘‘intends’’, ‘‘plans’’,
‘‘will’’, ‘‘may’’ and similar expressions, but these expressions
are not theexclusive means of identifying such statements.
Forward-looking statements appear, without limitation,under the
headings ‘‘Summary’’, ‘‘Risk Factors’’, ‘‘Management’s Discussion
and Analysis of FinancialCondition and Results of Operations’’ and
‘‘Business’’. VTB or the Group may from time to time makewritten or
oral forward-looking statements in reports to shareholders and in
other communications.Examples of such forward-looking statements
include, but are not limited to:
• statements of VTB’s or the Group’s plans, objectives or goals,
including those related to its strategy,products or services;
• statements of future economic performance;
• statements of general economic developments in Russia or the
other countries in which the Groupoperates; and
• statements of assumptions underlying the types of statements
referred to above.
Forward-looking statements that may be made by VTB or the Group
from time to time (but that are notincluded in this Prospectus) may
also include projections or expectations of revenues, income (or
loss),earnings (or loss) per share, dividends, capital structure or
other financial items or ratios.
By their very nature, forward-looking statements involve
inherent risks and uncertainties, both general andspecific, and
risks exist that the predictions, forecasts, projections and other
forward-looking statementswill not be achieved. Prospective
investors should be aware that a number of important factors could
causeactual results to differ materially from the plans,
objectives, expectations, estimates and intentionsexpressed in such
forward-looking statements. These factors include:
• the global financial crisis and its impact on the global and
Russian economies and financial markets;
• the challenging conditions in the Russian economy, including
the Russian banking sector;
• declines and increased volatility in global and Russian
securities markets;
• fluctuations in prices of securities issued by Russian
entities and for oil, gas, precious metals and
othercommodities;
• the impact, or lack thereof, of the measures that the Russian
Federation has enacted or may enact inthe future to support the
Russian banking sector;
• inflation, interest rate and exchange rate fluctuations in
Russia;
• the effects of, and changes in, the policies of the Government
and regulations promulgated by theCBR;
• the effects of competition in the geographic and business
areas in which the Group conducts itsoperations;
• the effects of changes in laws, regulations, taxation or
accounting standards or practices in thejurisdictions where the
Group conducts its operations;
• the ability of VTB or the Group to increase market share for
its products and services and controlexpenses;
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• acquisitions or divestitures;
• the effect of the Group’s restructuring and re-branding of its
Russian and European bankingoperations;
• the Group’s expansion in various geographic and business
areas;
• technological changes; and
• the success of VTB or the Group at managing the risks
associated with the aforementioned factors.
This list of important factors is not exhaustive. When relying
on forward-looking statements, prospectiveinvestors should
carefully consider the foregoing factors and other uncertainties
and events, especially inlight of the political, economic, social
and legal environment in which VTB and the Group operate.
Suchforward-looking statements speak only as of the date on which
they are made. Accordingly, VTB and theGroup do not undertake any
obligation to update or revise any of them, whether as a result of
newinformation, future events or otherwise. VTB and the Group do
not make any representation, warranty orprediction that the results
anticipated by such forward-looking statements will be achieved,
and suchforward-looking statements represent, in each case, only
one of many possible scenarios and should not beviewed as the most
likely or standard scenario.
AVAILABLE INFORMATION
For so long as any of the Securities are ‘‘restricted
securities’’ within the meaning of Rule 144(a)(3) underthe
Securities Act, VTB will, during any period in which it is neither
subject to Section 13 or Section 15(d)of the US Securities Exchange
Act of 1934, as amended (the ‘‘Exchange Act’’), nor exempt from
reportingpursuant to Rule 12g3-2(b) thereunder, provide to any
holder or beneficial owner of such restrictedsecurities or to any
prospective purchaser of such restricted securities designated by
such holder orbeneficial owner upon the request of such holder,
beneficial owner or prospective purchaser, theinformation required
to be delivered to such persons pursuant to Rule 144A(d)(4) under
theSecurities Act.
LIMITATIONS ON SERVICE OF PROCESS ANDENFORCEABILITY OF CIVIL
LIABILITIES
VTB is an open joint-stock company incorporated under the laws
of the Russian Federation. None of themembers of VTB’s supervisory
council (the ‘‘Supervisory Council’’) or VTB’s management board
(the‘‘Management Board’’) are residents of the United Kingdom or
the United States. Moreover, the majority ofthe assets of VTB and
substantially all of the assets of its directors and officers are
located in the RussianFederation. As a result, it may not be
possible for investors to:
• effect service of process within the United Kingdom or the
United States upon any such person; or
• enforce, in the English or US courts, judgments obtained
outside English or US courts against anysuch person in any
action.
In addition, it may be difficult for investors to enforce, in
original actions brought in courts in jurisdictionslocated outside
the United Kingdom and the United States, liabilities predicated
upon English laws orUS federal securities laws.
Courts in the Russian Federation will generally recognise
judgments rendered by a court in any jurisdictionoutside the
Russian Federation if:
• an international treaty providing for the recognition and
enforcement of judgments in civil cases existsbetween the Russian
Federation and the country where the judgment is rendered; or
• a federal law is adopted in Russia providing for the
recognition and enforcement of foreign courtjudgments.
No such treaty for the reciprocal recognition and enforcement of
foreign court judgments in civil andcommercial matters exists
between the Russian Federation and the United States or the United
Kingdomand no relevant federal law on enforcement of foreign court
judgments has been adopted in the RussianFederation.
The Deposit Agreement provides that actions brought by any party
thereto be referred to arbitration inLondon, England, in accordance
with the rules of the London Court of International Arbitration.
Each of
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the United Kingdom, the United States and Russia is a party to
the United Nations (New York)Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (the ‘‘New
YorkConvention’’). Consequently, Russian courts should generally
recognise and enforce in Russia an arbitralaward from an arbitral
tribunal in the United Kingdom, on the basis of the rules of the
New YorkConvention, subject to qualifications provided for in the
New York Convention and compliance withRussian procedural
regulations and law. However, it may be difficult to enforce
arbitral awards in Russiadue to:
• the inexperience of Russian courts in enforcing international
commercial arbitral awards;
• official and unofficial political resistance to enforcement of
awards against Russian companies infavour of foreign investors;
and
• the Russian courts’ inability or unwillingness to enforce such
orders.
VTB has appointed TMF Corporate Services Limited (which has
succeeded to the business of CliffordChance Secretaries Limited) as
its agent for service of process in the United Kingdom in any suit,
action orproceeding with respect to the GDRs. However, a Russian
court may not give effect to such appointment.
vii
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TABLE OF CONTENTS
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS . . . . . . . . . .
. . . . . . . . . . . . . . i
NOTICE TO CERTAIN INVESTORS . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . iii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS . . . . . .
. . . . . . v
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . vi
LIMITATIONS ON SERVICE OF PROCESS AND ENFORCEABILITY OF
CIVILLIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . vi
PRESENTATION OF FINANCIAL AND OTHER INFORMATION . . . . . . . .
. . . . . . . . . . . . ix
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
CAPITALISATION . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
DIVIDENDS AND DIVIDEND POLICY . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . 42
SELECTED CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . .
. . . . . . . . . . . . . . 43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
ANDRESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. 88
RISK MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . 149
RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . 150
THE BANKING SECTOR IN RUSSIA . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . 152
BANKING REGULATION IN RUSSIA . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . 155
DESCRIPTION OF SHARE CAPITAL AND CERTAIN REQUIREMENTS OF
RUSSIANLEGISLATION . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 164
TERMS AND CONDITIONS OF THE GLOBAL DEPOSITARY RECEIPTS . . . . .
. . . . . . . . . 183
CERTAIN PROVISIONS OF THE GDRS WHILE IN MASTER FORM . . . . . .
. . . . . . . . . . . 200
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202
TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
SETTLEMENT AND DELIVERY . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . 223
INFORMATION RELATING TO THE DEPOSITARY . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 226
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
226
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . F-1
viii
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Presentation of Financial Information
The Group’s financial information set forth herein has, unless
otherwise indicated, been extracted withoutmaterial adjustment from
its unaudited interim condensed consolidated financial statements
as of and forthe nine months ended September 30, 2010 and 2009 (the
‘‘Interim Condensed Consolidated FinancialStatements’’) and from
its audited consolidated financial statements as of and for the
years endedDecember 31, 2009, 2008 and 2007 (the ‘‘Annual IFRS
Financial Statements’’ and, together with theInterim Condensed
Consolidated Financial Statements, the ‘‘IFRS Financial
Statements’’), as set forth onpages F-2 through F-255 of this
Prospectus, prepared in accordance with International Financial
ReportingStandards (‘‘IFRS’’) issued by the International
Accounting Standards Board. The US dollar was thefunctional
currency for VTB’s IFRS financial statements for the year ended
December 31, 2007. In 2007,VTB performed a re-assessment of its
functional currency for the purposes of IAS 21 ‘‘The Effects
ofChanges in Foreign Exchange Rates’’. As a result, the Group
changed its functional currency from theUS dollar to the ruble
starting from January 1, 2008. Effective from January 1, 2009, the
Group alsochanged its currency of presentation from the US dollar
to the ruble. See Note 3 to the AnnualIFRS Financial Statements.
The Group’s financial information that has been extracted from
theIFRS Financial Statements (including for the years ended
December 31, 2007 and 2008) is presented inthis Prospectus in
rubles.
Auditors
The Annual IFRS Financial Statements have been audited in
accordance with International Standards onAuditing by CJSC Ernst
& Young Vneshaudit (‘‘Ernst & Young’’), who have expressed
an unqualifiedopinion on each of those financial statements, as
stated in their reports appearing herein. The Group’sInterim
Condensed Consolidated Financial Statements have been reviewed but
not audited by Ernst &Young, who have expressed an unqualified
conclusion on those financial statements, as stated in theirreport
appearing herein. The address of Ernst & Young is
Sadovnicheskaya Naberezhnaya 77, Building 1,Moscow 115035, Russian
Federation. Ernst & Young are independent auditors. Ernst &
Young is amember of the Non-profit Partnership ‘‘Audit Chamber of
Russia’’.
Reclassification
In 2008, the Group reclassified certain financial assets
initially booked as ‘‘held for trading’’ and‘‘available-for-sale’’
to ‘‘loans and advances to customers’’, ‘‘due from other banks’’
and ‘‘investmentsecurities held to maturity’’, respectively. The
reclassifications were made pursuant to IFRS 7
‘‘Financialinstruments: Disclosures – Reclassification of Financial
Assets’’ and IAS 39 ‘‘Financial Instruments:Recognition and
Management’’. VTB effected the reclassifications upon the
occurrence of ‘‘rarecircumstances’’ due to the crisis in
international financial markets from September 2008, onwards.
Thedeclines in market prices in the relevant financial assets that
occurred in the third quarter of 2008 qualifiedfor characterisation
as a ‘‘rare event’’ for the purposes of IFRS 7, as they
significantly exceeded historicalvolatilities observed in financial
markets. See Notes 3 and 6 to the IFRS Financial Statements for the
yearended December 31, 2008 for further information, including
carrying values and fair values of thereclassified financial assets
and ‘‘Management’s Discussion and Analysis of Financial Condition
andResults of Operations – Factors Affecting Results of Operations
and Capital Structure – Fluctuations inthe Value of Securities and
Reclassifications’’.
Certain Definitions
In this Prospectus, all references to:
‘‘CBR’’ are to the Central Bank of Russia;
‘‘CEE’’ are to the following Central & Eastern European
countries: Albania, Bosnia & Herzegovina,Bulgaria, Croatia, the
Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia,
Montenegro,Poland, Romania, Slovakia, Slovenia and Serbia;
‘‘CIS’’ are to the Commonwealth of Independent States and its
member states (excluding Russia) as of thedate of this Prospectus,
being Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan,
Moldova, Tajikistan,Turkmenistan, Ukraine and Uzbekistan;
‘‘EEA’’ are to the European Economic Area;
‘‘EU’’ are to the European Union;
ix
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‘‘Eurozone Member States’’ are to the participating Member
States in the third stage of the European andEconomic Monetary
Union pursuant to the Treaty establishing the European Community,
as amendedfrom time to time;
‘‘EWUB’’ are to East-West United Bank S.A.;
‘‘Government’’ are to the federal government of the Russian
Federation;
‘‘Group’’ are to VTB and its subsidiaries collectively;
‘‘IPO’’ are to the initial public offering of VTB completed in
May 2007;
‘‘RAS’’ are to Russian Accounting Standards;
‘‘RCB-Cyprus’’ are to Russian Commercial Bank (Cyprus) Ltd.;
‘‘Russia’’ are to the Russian Federation;
‘‘Vneshtorgbank (Ukraine)’’ are to JSC Vneshtorgbank
(Ukraine);
‘‘VTB’’ are to JSC VTB Bank (formerly OJSC Vneshtorgbank) as a
standalone entity;
‘‘VTB Armenia’’ are to CJSC ‘‘VTB Bank (Armenia)’’ (formerly
Armsberbank);
‘‘VTB Austria’’ are to VTB Bank (Austria) AG (formerly
Donau-Bank AG, or ‘‘Donau-Bank’’);
‘‘VTB Azerbaijan’’ are to OJSC VTB Bank (Azerbaijan);
‘‘VTB Belarus’’ are to CJSC VTB Bank (Belarus) (formerly CJSC
‘‘Slavneftebank’’, or ‘‘Slavneftebank’’);
‘‘VTB Capital’’ are to VTB Capital plc (formerly VTB Bank Europe
Plc, or ‘‘VTB Europe’’ (formerlyMoscow Narodny Bank Ltd, or
‘‘MNB’’));
‘‘VTB Capital (Namibia)’’ are to VTB Capital Namibia (Pty)
Ltd;
‘‘VTB France’’ are to VTB Bank (France) SA (formerly Banque
Commerciale pour l’Europe duNord-Eurobank, or
‘‘BCEN-Eurobank’’);
‘‘VTB Georgia’’ are to JSC ‘‘VTB Bank (Georgia)’’ (formerly JSC
‘‘United Georgian Bank’’, or ‘‘UGB’’);
‘‘VTB Germany’’ are to VTB Bank (Deutschland) AG (formerly
Ost-West Handelsbank AG, or ‘‘OWH’’);
‘‘VTB Kazakhstan’’ are to JSC VTB Bank (Kazakhstan);
‘‘VTB North-West’’ are to OJSC VTB Bank North-West (formerly
OJSC Industry & Construction Bank, or‘‘ICB’’);
‘‘VTB Ukraine’’ are to JSC VTB Bank in Ukraine (formerly JSCB
‘‘Mriya’’); and
‘‘VTB24’’ are to JSC Bank VTB24 (formerly JSC Vneshtorgbank
Retail Financial Services).
Certain Currencies
In this Prospectus, all references to:
‘‘US dollar’’, ‘‘USD’’ or ‘‘$’’ are to the lawful currency of
the United States;
‘‘RUR’’, ‘‘ruble’’ and ‘‘kopecks’’ are to the lawful currency of
Russia;
‘‘EUR’’, ‘‘Euro’’ or ‘‘E’’ are to the single currency of the
Eurozone Member States;
‘‘CNY’’ or ‘‘yuan’’ are to the lawful currency of the People’s
Republic of China;
‘‘GEL’’ are to the lawful currency of Georgia; and
‘‘UAH’’ or ‘‘hryvnia’’ are to the lawful currency of
Ukraine.
Rounding
Certain figures included in this Prospectus have been subject to
rounding adjustments. Accordingly, figuresshown for the same
category presented in different tables may vary slightly and
figures shown as totals incertain tables may not be an arithmetic
aggregation of the figures that precede them.
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Exchange Rate Information
The table below sets forth, for the periods and dates indicated,
the high, low, period end and periodaverage exchange rate between
the ruble and the US dollar, based on the official exchange rate
quoted bythe CBR for the relevant period. Fluctuations in the
exchange rate between the ruble and the US dollar inthe past are
not necessarily indicative of fluctuations that may occur in the
future. These rates may alsodiffer from the actual rates used in
the preparation of the IFRS Financial Statements and other
financialinformation presented in this Prospectus.
RUR per $1.00
Period PeriodHigh Low end average(1)
Year2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 29.00 27.46 28.78 28.292006 .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 28.78 26.18 26.33 27.182007 . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 26.58 24.26 24.55 25.572008 . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.39 23.13 29.38 24.982009 . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . 36.43 28.67
30.24 31.722010 . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . 31.78 28.93 30.48
30.37MonthJanuary 2011 . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 30.63 29.67 29.67
30.09February 2011 (through February 14, 2011) . . . . . . . . . .
. . . . . . . . . 29.80 29.26 29.32 29.41
(1) The average rates are calculated as the average of the daily
exchange rates on each business day (which rate is announced by
theCBR for each such business day) and on each non-business day
(which rate is equal to the exchange rate on the previousbusiness
day).
No representation is made that the ruble or US dollar amounts
referred to herein could have been orcould be converted into rubles
or US dollars, as the case may be, at these rates, at any
particular rate or atall. The exchange rate between the ruble and
the US dollar has fluctuated significantly during the
periodscovered by the IFRS Financial Statements. The CBR rate on
February 14, 2011 was RUR 29.32 = $1.00.
Industry and Market Data
In this Prospectus, VTB refers to information regarding the
Group’s business, the business of itscompetitors and the market in
which the Group operates and competes. VTB obtained this
information inpart from various third party sources and in part
from VTB’s own internal estimates. VTB has obtainedmarket and
industry data relating to VTB’s business from providers of industry
and market data, namelythe CBR, the Federal State Statistics
Service (‘‘Rosstat’’), Cbonds, Interfax Information
Services(‘‘Interfax’’) and the World Bank.
Industry publications, surveys and forecasts generally state
that the information contained therein has beenobtained from
sources believed to be reliable. VTB has relied on the accuracy of
the information fromindustry publications, surveys and forecasts
without carrying out an independent verification thereof andcannot
guarantee their accuracy or completeness. VTB confirms that such
third party information has beenaccurately reproduced, and as far
as VTB is aware and is able to ascertain from information published
bysuch third parties, no facts have been omitted from the
information in this Prospectus that would render itinaccurate or
misleading. See ‘‘Risk Factors – Risks Relating to VTB’s and the
Group’s Business andIndustry – The Group has not independently
verified information regarding its competitors and officialdata
from Government agencies and the CBR’’.
In addition, in many cases, VTB has made statements in this
Prospectus regarding the Russian bankingindustry and the Group’s
position in this industry based on the Group’s own experience and
investigationof market conditions. VTB cannot assure you that any
of its assumptions are accurate or correctly reflectits position in
the industry, and its statements have not been verified by any
independent sources. See‘‘Risk Factors – Risks Relating to the
Russian Federation – The lack of availability and reliability
ofstatistical information in Russia makes business planning
inherently uncertain and may impair the ability ofthe Group to plan
effective strategies’’ and ‘‘Risk Factors – Risks Relating to VTB’s
and the Group’sBusiness and Industry – The Group has not
independently verified information regarding its competitorsand
official data from Government agencies and the CBR’’.
This Prospectus includes statistical information on the Group’s
branch network. For purposes of compilingand presenting the data in
this Prospectus, the definition of a ‘‘branch’’ includes all
branches, sub-branchesand outlets. As at September 30, 2010, the
Group had 667 Russian branches.
The language of this Prospectus is English. Certain legislative
references and technical terms have beencited in their original
language in order that the correct technical meaning may be
ascribed to them underapplicable law.
xi
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SUMMARY
This summary must be read as an introduction to this Prospectus,
and any decision to invest in the Securitiesshould be based on a
consideration of the Prospectus as a whole. Following the
implementation of the relevantprovisions of the Prospectus
Directive in each Member State of the EEA, no civil liability will
attach to theresponsible persons in any such Member State solely on
the basis of this summary, including any translationthereof, unless
it is misleading, inaccurate or inconsistent when read together
with the other parts of thisProspectus. Where a claim relating to
the information contained in this Prospectus is brought before a
court in aMember State of the EEA, the plaintiff may, under the
national laws of the Member State where the claim isbrought, be
required to bear the costs of translating the Prospectus before the
legal proceedings are initiated.
Overview
The Group is a leading Russian universal banking group offering
a wide range of banking and otherfinancial services and products
across Russia and certain CIS countries. The Group also has
operations inselected countries in Europe and, to a limited degree,
Asia and Africa. The Group focuses on providingbanking and other
financial products and services to Russian, CIS and foreign clients
through its Russian,CIS and foreign subsidiaries. According to
VTB’s estimates based on data published by the CBR, theGroup ranked
second in Russia in total corporate deposits, total corporate
loans, total retail deposits, totalretail lending and total assets,
each with a market share of 13.3%, 11.6%, 6.3%, 10.6% and
11.4%,respectively, as of September 30, 2010. Global Finance
magazine recognised VTB as the best commercialbank in Russia in the
category of ‘‘Best Emerging Market Banks in Central and Eastern
Europe’’ in 2009.As of September 30, 2010, the Group had RUR 3,753
billion in total assets and RUR 545.4 billion in totalequity
(including minorities) compared to RUR 3,611 billion in total
assets and RUR 504.9 billion in totalequity (including minorities)
as of December 31, 2009.
VTB was established in 1990 as the Bank for Foreign Trade of the
Russian Federation. Since that time,VTB has, through organic
expansion and selected acquisitions, transformed itself into a
universal bankinggroup with a strong presence in Russia and an
expanding presence in the CIS. The Group operates outsideRussia
through 12 bank subsidiaries, located in the CIS (Armenia,
Azerbaijan, Belarus, Kazakhstan andUkraine), Europe (Austria,
Cyprus, France, Germany and the United Kingdom), Georgia and
Africa(Angola). VTB also has a financial services and consulting
company in Namibia, which is in the process ofbeing liquidated, an
associated bank in Vietnam, as well as representative offices in
Italy, China andKyrgyzstan, branches in India and China and
branches of VTB Capital in Singapore and Dubai. Towardsthe end of
2006, the Group began rebranding the majority of its subsidiaries
so that ‘‘VTB’’ now forms partof their names. As of September 30,
2010, the Group operated its banking business in Russia through667
branches. Despite its continuing expansion, the Group’s Russian
banking business continues torepresent a significant majority of
its activities.
Prior to the Offering, the Russian Federation owned
approximately 85.5% of VTB’s ordinary shares and is,and will
continue after the Offering to be, the controlling shareholder of
the Group. VTB’s ordinary sharesare traded on the RTS and MICEX in
Russia, and its global depositary receipts are traded on the
LSE.
The Group has three principal areas of business:
• Corporate banking, which provides a broad range of commercial
banking services and products,including corporate lending, foreign
trade transactions, syndicated loans, deposit and
settlementservices to large- and medium-sized corporations and
financial institutions. Corporate bankinggenerated 64.3% and 57.6%
of the Group’s total revenues in 2009 and the nine months
endedSeptember 30, 2010, respectively;
• Retail banking, which provides financial services, including
deposit accounts, lending and certainancillary services, to
individuals and small-sized corporations. Retail banking generated
19.7% and24.4% of the Group’s total revenues in 2009 and the nine
months ended September 30, 2010,respectively; and
• Investment banking, which provides a full range of investment
banking products and services, includingresearch, merger and
acquisition financing and advisory services, debt and equity
capital markets,infrastructure and project finance, foreign
exchange, derivatives, structured products, custody servicesand
portfolio management services and also manages the Group’s
proprietary trading activities.Investment banking generated 10.3%
and 12.7% of the Group’s total revenues in 2009 and thenine months
ended September 30, 2010, respectively.
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Competitive Strengths
The Group believes that its business is characterised by the
following competitive strengths:
• Significant scale and strong market position;
• Demonstrated ability to implement strategy and achieve
superior growth;
• Extensive distribution network, with broad coverage throughout
Russia;
• Broad corporate client base and well established relationships
with leading Russian companies acrossall economic sectors;
• Strong franchise in investment banking;
• One of the leading providers of retail banking services in
Russia;
• Management team with extensive experience in the financial
services sector; and
• Recognised and trusted brand.
Strategy
The Group’s strategy is to seek to:
• Convert its unique strategic position into a consistent return
on capital;
• Consolidate its position as a leader in the Russian corporate
banking sector, including throughestablishing a
corporate-investment banking business, developing its transaction
banking business,increasing penetration in lower corporate segments
and expanding its share of wallet fromcorporate customers;
• Continue dynamic development of the retail business;
• Further develop a comprehensive range of investment banking
products and services;
• Develop subsidiary financial companies’ businesses;
• Increase the efficiency of the Group’s international
network;
• Continue to integrate and enhance operating efficiencies
within the Group;
• Centralise and upgrade the Group’s IT systems and
infrastructure to support its growing businessoperations; and
• Improve tax efficiency across the Group’s international
network.
Risk Factors
An investment in the Securities involves a high degree of risk.
Among the risks relating to the Group andthe Securities are risks
associated with the following matters:
• The Offering is conditional in all respects on the issuance by
the Government of the Second Decreeand on due execution and
performance of the Share Purchase Agreements.
• The Offer Shares are being disposed of by the Russian
Federation under a new and untestedexemption from the Privatisation
Law and such disposal may be subject to legal or other
challenges.
• The instability of the global and the Russian financial
markets.
• Potential deterioration of economic conditions in Russia and
the other markets in which the Groupoperates and in the growth of
Russia’s banking sector.
• The possible impact or failure of the stabilisation measures
of the Government and the CBR.
• Systemic liquidity problems, losses or defaults by other
financial institutions and counterparties.
• Liquidity, credit, market and operational risks.
• The Group may be unable to achieve its strategic objectives in
a timely manner or at all.
• Increased credit exposure as a result of the increased size of
the Group’s loan portfolio.
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• Increased loan losses and decreased demand for the Group’s
services as a result of the globaleconomic crisis.
• VTB may not become aware of its borrowers’ events of default
in a timely manner.
• VTB’s inability to monitor and control procedures relating to
the loan and securities portfolios of theGroup on a daily
basis.
• The Group may be unable to reduce the industry and borrower
concentrations in its loan portfolio.
• Potential declines in the value or liquidity of the collateral
securing the Group’s loans.
• The difficulty of enforcing security and/or guarantees under
Russian law.
• Potential increases in the number of defaulting loans to the
Group’s corporate and retail customers.
• The Group will require a significant amount of cash to meet
its debt obligations.
• Potential devaluation of the ruble against the US dollar and
other currencies.
• The accuracy of judgments, estimates and assumptions made by
management during the preparationof the Group’s consolidated
financial statements.
• The Group may fail to integrate acquired businesses.
• The restructuring of the Group’s European banking
operations.
• The interests of the Russian Federation may conflict with
those of other shareholders.
• The Group’s IT systems may be insufficient to support its
operations.
• A successful implementation of the Group’s expansion and
integration strategy requires an upgrade ofits IT systems.
• The Group’s significant off-balance sheet credit-related
commitments.
• Competition in Russia and other markets where the Group
operates.
• Competition, additional risks and high costs associated with
the Group’s recently expandedinvestment banking business.
• Potential loss of senior management or inability to recruit or
retain experienced and/orqualified personnel.
• The requirement for disinterested director or disinterested
shareholder approval for some interestedparty transactions of
Russian banks in the Group.
• Legislative and legal risks.
• The accuracy of information regarding the Group’s competitors
and official data from Governmentagencies and the CBR.
• Risks relating to Russia and the CIS.
• Risks relating to the Securities and the trading market.
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Summary of the Offering
The Company . . . . . . . . . . . . . . . . . . JSC VTB
Bank.
The GDRs . . . . . . . . . . . . . . . . . . . . Each GDR
represents an interest in 2,000 Shares on depositwith JSC VTB Bank,
as Custodian. The Additional GDRs willbe immediately fungible with
VTB’s existing GDRs.
The Offering . . . . . . . . . . . . . . . . . . The Offering
comprises an institutional offering of (i) OfferShares and GDRs
outside the United States and Russia tocertain persons in offshore
transactions in reliance onRegulation S and in the United States to
QIBs in reliance onRule 144A and (ii) Offer Shares in the Russian
Federation.Generali Group has received an allocation of U.S.$300
millionof Offer Shares and/or GDRs at the Offer Price in the
Offeringand affiliated funds of TPG Capital L.P. have received
anallocation of U.S.$100 million of Offer Shares and/or GDRs atthe
Offer Price in the Offering. See ‘‘Plan of Distribution’’.
Closing Date . . . . . . . . . . . . . . . . . . February 17,
2011.
Offer Price . . . . . . . . . . . . . . . . . . . . 9.1468
kopeks or $0.003125 per Offer Share and $6.25 per GDR.
Listing and Market for the Securities VTB’s ordinary shares have
been admitted to the ‘‘B’’ quotationlist of the RTS and MICEX.
Application has been made for theAdditional GDRs to be admitted to
trading on the LSE’sRegulated Market, on which VTB’s existing GDRs
are admittedto trading under the symbol ‘‘VTBR’’.
Voting Rights . . . . . . . . . . . . . . . . . . Shareholders
are generally entitled to one vote per Share at ashareholders’
meeting. Each GDR carries the right to instructthe Depositary to
vote 2,000 Shares.
Lock-up . . . . . . . . . . . . . . . . . . . . . .
Representatives of the Government have publicly announcedthat the
Government does not intend to undertake any furtherpublic sales of
shares in VTB in 2011, although the Governmenthas not entered into
any legally binding agreement preventingthe sale of any shares in
VTB during that period.
Dividend Policy . . . . . . . . . . . . . . . . VTB’s Regulation
on Dividend Policy envisages a dividendconstituting at least 10% of
VTB’s statutory net profit. See‘‘Dividends and Dividend
Policy’’.
Use of Proceeds . . . . . . . . . . . . . . . . VTB will not
receive any of the proceeds of the Offering. Thetotal expenses of
VTB, payable by VTB, in connection with theOffering are estimated
to be no greater than $1.3 million.
Transfer Restrictions . . . . . . . . . . . . The Securities
will be subject to certain transfer restrictions. See‘‘Transfer
Restrictions’’.
Related Party Transactions . . . . . . . . The Group enters into
transactions in the normal course ofbusiness with the Russian
Federation, entities controlled,directly or indirectly, by the
Russian Federation and its affiliates.Transactions are priced
predominantly at market rates.
Management . . . . . . . . . . . . . . . . . . VTB currently has
11 members on its Supervisory Council, fiveof whom are independent
representatives, and 12 members onits Management Board. Members of
the Supervisory Council areelected at the General Shareholders’
Meeting and serve until thenext annual General Shareholders’
Meeting, and may bere-elected an unlimited number of times. Members
of theManagement Board are elected by the Supervisory Council
andserve for a period prescribed by the Supervisory Council,
whichmay not exceed five years, and may be re-elected an
unlimitednumber of times. Members of the Supervisory Council and
the
4
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Management Board own in the aggregate less than 0.01% ofVTB’s
issued and outstanding shares.
Security Codes . . . . . . . . . . . . . . . . . Regulation S
GDRs: CUSIP: 46630Q202ISIN: US46630Q2021Common Code:
029806675SEDOL: B1W7FX3
Rule 144A GDRs: CUSIP: 46630Q103ISIN: US46630Q1031Common Code:
029806730SEDOL: B1W7FP5
ISIN for Shares: RU000A0JP5V6
LSE GDR tradingsymbol: VTBR
5
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Selected Historical Financial and Operating Data
The financial information set forth below as of and for the
years ended December 31, 2009, 2008 and 2007has been extracted
without material adjustment from the Annual IFRS Financial
Statements. The financialinformation set forth below as of and for
the nine months ended September 30, 2010 and 2009 has beenextracted
without material adjustment from the Interim Condensed Consolidated
Financial Statements.The financial data set forth below should be
read in conjunction with, and is qualified in its entirety
byreference to, the IFRS Financial Statements and related notes
included elsewhere in this Prospectus and‘‘Management’s Discussion
and Analysis of Financial Condition and Results of
Operations’’.
For the periodended For the year ended
September 30, December 31,
2010 2009 2009 2008 2007
(unaudited) (audited)(RUR billions)
Selected Income Statement DataNet interest income (before
provision for impairment) . . . . . . 129.5 107.4 152.2 113.6
65.4Provision charge for impairment . . . . . . . . . . . . . . . .
. . . . . . (40.3) (126.4) (154.7) (63.2) (13.5)
Net interest income/(expense) after provision for impairment .
89.2 (19.0) (2.5) 50.4 51.9
Net fee and commission income . . . . . . . . . . . . . . . . .
. . . . . . 17.8 14.7 21.0 16.3 14.3Gains less losses/(losses net
of gains) arising from financial
assets at fair value through profit or loss . . . . . . . . . .
. . . . . 7.6 (15.8) (21.3) 4.0 3.5Gains less losses/(losses net of
gains) from available-for-sale
financial assets . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 0.3 1.9 1.1 (1.6) 3.0Gains less losses arising
from extinguishment of liability . . . . . – 14.7 14.7 9.5 –Losses
on initial recognition of financial instruments and on
loans restructuring . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . (0.1) (19.0) (19.7) – –(Losses net of
gains)/gains net of losses arising from dealing in
foreign currencies . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . (5.7) (9.9) (12.4) (64.7) 14.0Foreign exchange
translation gains less losses . . . . . . . . . . . . . 7.4 24.5
26.6 67.0 2.8Income arising from non-banking activities . . . . . .
. . . . . . . . . 3.9 1.9 2.8 3.2 2.4Expenses arising from
non-banking activities . . . . . . . . . . . . . . (2.6) (0.8)
(1.1) (1.4) (1.6)Other(1) . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 0.6 0.9 1.6 3.1 3.6
Operating income/(loss) . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 118.4 (5.9) 10.8 85.8 93.9
Staff costs and administrative expenses . . . . . . . . . . . .
. . . . . . (68.0) (52.5) (76.4) (67.5) (49.9)Other(2) . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.0) 1.0 (2.7) (0.2) 2.5
Profit/(loss) before taxation . . . . . . . . . . . . . . . . .
. . . . . . . . . 49.4 (57.4) (68.3) 18.1 46.5
Net profit/(loss) . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . 38.8 (45.5) (59.6) 4.6 38.7
Including net profit attributable to non-controlling interests .
. . (2.8) 3.3 3.8 (0.2) 0.8
(1) Comprises share in income/(loss) of associates, (provision
charge for)/recovery of impairment of other assets and credit
relatedcommitments and other operating income.
(2) Represents profit from disposal of subsidiaries and
associates and loss from impairment of goodwill.
6
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As of September 30, As of December 31,
2010 2009 2009 2008 2007
(unaudited) (audited)(RUR billions)
Selected Balance Sheet DataLoans and advances to customers, net
. . . . . . . . . . . . . 2,528.2 2,512.7 2,309.9 2,555.6
1,437.2Securities portfolio(1) . . . . . . . . . . . . . . . . . .
. . . . . . . . 404.6 366.7 400.7 259.9 331.7Cash and short-term
funds, mandatory cash balances
with central banks . . . . . . . . . . . . . . . . . . . . . . .
. . . 208.9 187.3 284.1 423.7 147.0Due from other banks, net . . .
. . . . . . . . . . . . . . . . . . 255.5 333.1 345.6 308.0
238.9Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 356.1 184.0 270.5 150.2 118.4
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 3,753.3 3,583.8 3,610.8 3,697.4 2,273.2
Customer deposits . . . . . . . . . . . . . . . . . . . . . . .
. . . . 1,839.3 1,518.4 1,568.8 1,101.9 910.6Debt securities issued
. . . . . . . . . . . . . . . . . . . . . . . . . 541.4 531.6 485.7
560.1 404.7Due to other banks . . . . . . . . . . . . . . . . . . .
. . . . . . . . 380.9 262.1 287.0 388.7 363.1Other borrowed funds .
. . . . . . . . . . . . . . . . . . . . . . . . 141.3 462.4 470.9
848.7 127.1Subordinated debt . . . . . . . . . . . . . . . . . . .
. . . . . . . . 186.5 194.8 195.3 226.3 28.7Other . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 118.5 79.2
98.2 179.6 34.0
Total liabilities . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . 3,207.9 3,053.6 3,105.9 3,305.3 1,868.2
Equity attributable to shareholders of the parent . . . . .
539.7 519.9 502.3 389.4 397.8Non-controlling interest . . . . . . .
. . . . . . . . . . . . . . . . 5.7 10.3 2.6 2.7 7.2
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 545.4 530.2 504.9 392.1 405.0
Total liabilities and equity . . . . . . . . . . . . . . . . . .
. . . . 3,753.3 3,583.3 3,610.8 3,697.4 2,273.2
(1) Comprises financial assets at fair value through profit or
loss, financial assets available-for-sale, financial assets
held-to-maturityand financial assets pledged under repurchase
agreements and loaned financial assets.
As of September 30, For the year ended December 31,
2010 2009 2009 2008 2007
(unaudited) (audited)(RUR billions)
Selected Financial Ratios Profitability indicatorsNet interest
margin(1)(2) . . . . . . . . . . . . . . . . . . . . . . 5.2% 4.3%
4.6% 4.8% 4.4%Net fee and commissions income to operating income
15.0% – 194.4% 19.0% 15.2%Cost to operating income before provision
. . . . . . . . 42.3% 43.1% 45.7% 45.3% 46.5%Return on average
equity(2)(3) . . . . . . . . . . . . . . . . . . 9.9% (14.6%)
(13.7%) 1.1% 12.4%Return on average assets(2)(3) . . . . . . . . .
. . . . . . . . . 1.4% (1.6%) (1.6%) 0.2% 2.2%
Asset qualityOverdue loans as % of gross customer loans . . . .
. . . 9.1% 6.5% 7.7% 1.8% 1.2%Overdue and rescheduled loans as % of
gross
customer loans . . . . . . . . . . . . . . . . . . . . . . . . .
. . 20.1% 14.8% 19.5% 2.4% 1.4%Allowances as % of overdue loans . .
. . . . . . . . . . . . 105.0% 122.2% 119.3% 197.8% 211.7%
Group capital adequacy indicators(4)
Tier 1 ratio . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 13.9% 14.0% 14.8% 10.5% 15.0%Total capital ratio . . . .
. . . . . . . . . . . . . . . . . . . . . . 18.8% 19.5% 20.7% 17.3%
16.3%
(1) Represents the ratio of net interest income before provision
for loan impairment expressed as a percentage of average
interest-earning assets.
(2) Average balances represent quarterly averages for each of
2007, 2008, 2009 and 2010 (as applicable).
(3) Represents ratio of net profit expressed as a percentage of
average equity (including minorities) or assets, respectively.
(4) Calculated as of the year end in accordance with the Bank
for International Settlements (‘‘BIS’’) methodology prior
tointroduction of Basel II, as described in Note 41 of the IFRS
Financial Statements.
7
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RISK FACTORS
An investment in the Securities involves a high degree of risk.
Investors should carefully consider the followinginformation about
these risks, together with the information contained in this
Prospectus, before they decide tobuy the Securities. The actual
occurrence of any of the following risks could adversely affect
VTB’s and/or theGroup’s operating results and financial condition.
In that case, the value of the Securities could also declineand
investors could lose all or part of their investment.
The risks and uncertainties discussed below are those that VTB
and the Group believe are material, but theserisks and
uncertainties may not be the only ones that VTB and the Group face.
Additional risks anduncertainties, including those of which VTB’s
and the Group’s management are not currently aware or
deemimmaterial, may also have an adverse effect on VTB’s and/or the
Group’s operating results and financialcondition or result in other
events that could lead to a decline in the value of the
Securities.
Risks Relating to the Offering
The Offering is conditional in all respects on the issuance by
the Government of the Second Decree and on dueexecution and
performance of the Share Purchase Agreements.
The closing of the Offering will be conditional on the issuance
by the Government of the Second Decreeauthorising the sale of the
Offer Shares and the Shares to be represented by the GDRs by the
RussianFederation to the Purchasers under the Share Purchase
Agreements for onward sale to investors and onthe due execution and
performance of the Share Purchase Agreements by the parties thereto
on or beforethe Closing Date. If the Second Decree is not issued or
the Share Purchase Agreements are not dulyexecuted and performed by
the parties thereto on or before the Closing Date (as to which the
Group cangive no guarantee or assurance), the Offering will be
cancelled and any conditional dealings in theSecurities will be of
no effect and will fail to settle.
The Offer Shares and the Shares to be represented by the GDRs
are being disposed of by the Russian Federationunder a new and
untested exemption from the Privatisation Law and such disposal may
be subject to legal or otherchallenges.
The Offer Shares and the Shares to be represented by the GDRs
are being disposed of by the RussianFederation under a new and
untested exemption from Federal Law No 178-FZ ‘‘On privatisation of
stateand municipal property’’ dated December 21, 2001 (as amended)
(the ‘‘Privatisation Law’’) provided for inArticle 3.2 (15) of the
Privatisation Law. As a result, the validity, interpretation and
application of thisexemption and of the Decrees and other
Government acts issued and contracts entered into pursuant tothis
exemption (including in connection with the Offering) may be
subject to legal, political or otherchallenges. Any such
challenges, whether or not ultimately successful, could result in
the cancellation ofthe Offering, lead to a decline in the value of
the Securities and/or result in investors losing all or part
oftheir investment.
Risks Relating to VTB’s and the Group’s Business and
Industry
The instability of the global and the Russian financial markets
and the ongoing European sovereign debt crisis mayhave an adverse
effect on VTB’s and the Group’s business, liquidity and financial
condition.
Dislocation of financial global credit markets
The financial markets, both globally and in Russia, experienced
significant volatility, dislocation andliquidity constraints as a
result of the global financial crisis that commenced with dramatic
declines in theUS housing market in the autumn of 2007. Reflecting
concern about the stability of the financial marketsgenerally and
the strength of counterparties, many lenders and institutional
investors reduced, and in somecases ceased to provide, funding to
borrowers, including other financial institutions, which
significantlyreduced the liquidity in the global financial
system.
In response to the global financial crisis and the threats to
the ability of investment banks and otherfinancial institutions to
continue as going concerns, many of the largest countries in the
world, includingRussia, the United States and several European
countries, implemented significant rescue packages, whichincluded,
among other things: the recapitalisation of banks through the state
purchase of common andpreferred equity securities; the state
guarantee of certain forms of bank debt; the purchase of
distressedassets from banks and other financial institutions by the
state; and the provision of guarantees of distressedassets held by
banks and other financial institutions by the state.
8
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Despite these measures, the volatility and market disruption in
the global banking sector continuedthroughout 2010, although some
improvement of the situation in the financial markets has recently
beenreported. No assurance can be given, however, that a further
downturn will not occur, or that further statesupport measures will
not be required, or that any state support measures will be
sufficient to restorestability in the global banking sector and
financial markets in the short term or beyond. Any suchuncertainty,
disruption or volatility may have an adverse effect on VTB’s and/or
the Group’s business,financial condition, results of operations and
prospects.
A restructuring of sovereign debt issued by one or more Eurozone
Member States or any impact oneconomic activity or global or
Russian financial markets resulting from the ongoing sovereign debt
crisisaffecting certain Eurozone Member States could have an
adverse effect on VTB’s and/or the Group’sbusiness, financial
condition, results of operations and prospects.
Impact on VTB’s and the Group’s business operations
The continuing uncertainty in the international financial
markets and any tightening in credit conditionsand contraction of
the economies in which the Group operates could adversely affect
VTB’s and theGroup’s business and operating results as a result of:
decreases in VTB’s and the Group’s net interestincome; decreases in
the demand for VTB’s and the Group’s credit products as a result of
higher interestrates; significantly increased loan provision
charges, loan losses and write-offs; goodwill impairment;increases
in borrowing costs and reduced, or no, access to capital markets
due to unfavourable marketconditions; and decreases in fee and
commission income due to a reduction in capital markets activity,
aswell as significant declines in the market values of securities
held in VTB’s and the Group’s tradingportfolios.
Impact on liquidity
The disruptions in the global financial markets had a severe
impact on the liquidity of banks across theworld, as well as the
availability of credit and the terms and cost of funding in the
Russian Federation.Russian banks, including VTB, VTB24 and VTB
North-West, experienced a reduction in availablefinancing both in
the interbank and short-term funding market and in the longer-term
capital markets andthrough bank finance instruments. A number of
financial institutions suffered severe liquidity problemsand, in
certain cases, the majority shareholders had to sell their shares
to other Russian institutions. TheRussian securitisation market has
also remained largely inaccessible since the onset of the financial
crisis in2008. In Russia, the combination of uncertainty in the
global markets and corresponding domestic factorsin 2008 and early
2009 gave rise to higher than normal interbank lending rates. For
example, according tothe CBR, in January 2008, the average
interbank ruble lending rate was 2.8%, while, in January 2009,
itincreased to 16.3%. At the end of 2009 and in the nine months
ended September 30, 2010, the averageinterbank lending rates were
5.1% and 2.6%, respectively.
The Group has historically depended on wholesale funding.
Accordingly, although the interbank lendingmarket has stabilised
since early 2009, any future volatility in interbank lending rates
could have an adverseeffect on VTB’s and/or the Group’s business,
financial condition, results of operations and prospects.
In 2009, the liquidity position in the Russian banking sector
generally improved, with both retail andcorporate deposits
demonstrating signs of recovery with growth rates of 26.7% and
10.5%, respectively.Accordingly, as of December 31, 2009, VTB
registered a considerable deposit inflow driven by animproved level
of liquidity throughout Russia. However, should the economic
situation worsen again inRussia or in the global markets in which
the Group operates, there can be no assurance that the lack
ofliquidity experienced in the Russian banking system during the
height of the financial crisis will not return.
Impact on the ratings of the Group and the Russian
Federation
In 2008, as a result of the negative impact of the financial
crisis on the Russian banking sector, S&P andFitch downgraded
VTB’s ratings. As of the date of this Prospectus, VTB had a
long-term issuer creditrating of ‘‘BBB’’ (downgraded from BBB+) and
a short-term issuer credit rating of ‘‘A-3’’ (downgradedfrom A-2)
from S&P, foreign currency deposit ratings of ‘‘Baa1/Prime-2’’
from Moody’s, and a short-termIDR of ‘‘F3’’ (downgraded from F2)
and a long-term IDR of ‘‘BBB’’ (downgraded from BBB+) fromFitch.
Additionally, some of the ratings of VTB’s subsidiaries have also
been downgraded. In July 2009,Moody’s downgraded the financial
strength ratings of VTB Capital, VTB France and VTB Austria
from‘‘D’’ to ‘‘D�’’. However, in January 2010, following the change
in the outlook on Russia’s IDR, Fitchrevised the outlook of VTB to
‘‘Stable’’ from ‘‘Negative’’. On August 20, 2010, Moody’s changed
its
9
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outlook on the financial strength ratings of VTB, VTB24 and VTB
North-West to ‘‘Stable’’ from‘‘Negative’’.
By way of comparison, Moody’s changed its outlook on the Russian
banking sector from ‘‘positive’’ to‘‘stable’’ in the third quarter
of 2008. In February 2009, Fitch downgraded its long-term IDR for
theRussian Federation from ‘‘BBB+’’ to ‘‘BBB’’ and downgraded
Russia’s country ceiling rating from ‘‘A�’’to ‘‘BBB+’’.
Additionally, S&P downgraded its long-term/short-term sovereign
credit ratings for theRussian Federation from ‘‘BBB+/A-2’’ to
‘‘BBB/A-3’’. Since the Russian Federation is, and will
continueafter the Offering to be, the controlling shareholder of
the Group, the credit ratings of VTB are supportedby those of the
Russian Federation. Accordingly, any downgrades of the credit
ratings of the RussianFederation could result in a downgrade of
VTB’s credit ratings. There can be no assurance that VTB orthe
Russian Federation will be able to maintain their current credit
ratings, and any deterioration in thegeneral economic environment
or the Group’s financial condition could cause further downgrades.
Therecently experienced downgrades, as well as any future
downgrades, could adversely affect the Group’sliquidity and
competitive position and undermine confidence in the Group, which
could lead to increasedborrowing costs and limited access to
capital markets.
Deteriorating economic conditions in Russia and the other
markets in which the Group operates, together with anydecline in
the growth of Russia’s banking sector, may continue to have an
adverse effect on VTB and the Group.
The majority of VTB’s and the Group’s profit is generated in
Russia, and VTB and the Group areparticularly exposed to the
deteriorating economic conditions in Russia. Between 2008 and 2010,
theRussian economy was adversely affected by market downturns and
economic slowdowns elsewhere in theworld, which also dampened
foreign investment in Russia. Investment capital inflows into
Russiadecreased significantly as a result of the global financial
crisis, reducing bank liquidity. In 2008, the Russianeconomy
experienced a net capital outflow in the private sector of $132.7
billion, compared to a net capitalinflow of $82.4 billion in 2007
and $41.4 billion in 2006. However, in 2009, net capital outflows
reduced to$56.9 billion and in the nine months ended September 30,
2010 to $16 billion. According to Rosstat, thevolume of foreign
investment into Russia in 2007 amounted to $120.9 billion, having
increased by 119.5%compared to 2006. In 2008, however, according to
the same source, the volume of foreign investment intoRussia
totalled $103.8 billion, representing a decline of 14.2% compared
to 2007. In 2009, the volume offoreign investment into Russia
further decreased by 21% to $81.9 billion. This figure fell to
$47.5 billion inthe nine months ended September 30, 2010,
reflecting a further decrease of