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Announcement:

Moody's Disclosures on Credit Ratings of Sistema JSFC

12 Apr 2012

London, 12 April 2012 -- The following release represents Moody's Investors Service's summary credit opinion on Sistema JSFC and includes certain regulatory disclosures regarding its ratings. This release does not constitute any change in Moody's ratings or rating rationale for Sistema JSFC and its affiliates.

Moody's current ratings on Sistema JSFC and its affiliates are:

Sistema JSFC:

Long Term Corporate Family (foreign currency) ratings of Ba3

Probability of Default rating of Ba3

Mobile TeleSystems OJSC:

Long Term Corporate Family (foreign currency) ratings of Ba2

Probability of Default rating of Ba2

MTS International Funding Limited:

Senior Unsecured (foreign currency) ratings of Ba2

LGD Senior Unsecured (foreign currency) rating of 58 - LGD4

Sistema Capital S.A.

Senior Unsecured MTN (foreign currency) ratings of (P)Ba3

LGD Senior Unsecured MTN (foreign currency) ratings of 50 - LGD4

Sitronics JSC

Long Term Corporate Family Ratings (foreign currency) of B3 on review for downgrade

Probability of Default Rating of B3 on review for downgrade

RATINGS RATIONALE

Sistema's ratings reflect strong consolidated financial metrics, underpinned by the vigorous organic development of its key underlying telecoms and oil & energy assets. Sistema's telecoms business has proven relatively resilient in the face of market pressures in recent months and even resumed moderate growth. On a consolidated basis, Sistema maintains good balance sheet liquidity, relatively moderate leverage (further supported by a substantial cash cushion at MTS and Bashneft) and a predominantly long-term debt structure.

While Sistema demonstrates robust financial performance on a consolidated basis, we note substantial improvements in the holding company's standalone profile due to sustainable broadening of the dividend base (for 2010, in addition to the attributable 51% of MTS's RUB30 billion dividend, Sistema received its share (73%) of the RUB48 billion dividend payout from Bashneft).

The reorganisation of telecom assets under MTS resulted in the transfer of approximately US$2.2 billion during the past 18 months to Sistema thereby underpinning its financial flexibility. Sistema's parent company standalone liquidity and capital structure has furthermore been significantly strengthened by shifting the debt associated with the acquisition of Bashneft from the holding company level to Bashneft along with steps undertaken to stabilise the business and financial profiles of its weaker subsidiaries.

Sistema is in the process of strategically evolving toward being more of an investment company managing the various investments it has across its various strategic areas of focus. Moody's recognises Sistema's efforts to evolve as a financial corporation; in particular, we note (i) the company's announced intention to further diversify into downstream petrochemicals production on the platform of the existing exploration, production and refinery business, and (ii) steps undertaken to reduce direct involvement in the subsidiaries and associates' operating activities. At this juncture we, however, retain our approach to rating Sistema as an industrial and service sector conglomerate, and conduct our analysis in accordance with Moody's guidelines for assessing conglomerate structures (please refer to Moody's Special Comment "Analytical Considerations in Assessing Conglomerates", September 2007), based on the individual credit profiles of its various holdings including their stand-alone operating and financial performance metrics such as leverage, profitability and coverage while also taking into account the liquidity and cash flow profiles of Sistema on a parent company basis. The application of the guidelines results in an indicative rating in the mid 'Ba' range. The ratings remain constrained by the group's complexity, the existence of minority shareholdings at various levels, and pending event risk associated with Sistema's appetite for opportunistic investment.

Rating Outlook

The outlook on the ratings is stable.

What Could Change the Rating - Up

We believe that upward pressure could be exerted on the rating if the consolidated leverage -- as measured by gross adjusted debt to OIBDA -- improves to below 2.0x. We note positively that the company has already reduced the debt at the holding company level as percentage of consolidated gross debt to 9%. Any upward rating pressure will be contingent upon the group continuing to demonstrate improvement in the performance of its weaker subsidiaries, resulting in an improving balance and diversification of cash flow contributions across its portfolio of holdings.

What Could Change the Rating - Down

Moody's notes that the event risk associated with Sistema's activities will remain embedded in the company's ratings given its ambitious development plans. Moody's will also assess the rating impact of any opportunistic M&A and investment activities that materially alters the business mix and exercises pressure on the leverage and coverage metrics. Downward pressure could be exerted on the rating if the company failed to sustainably maintain debt service coverage at the Sistema holding level -- measured as dividends and other distributions received from subsidiaries to gross interest in the range of 2.0x-3.0x.

The principal methodology used in these ratings was Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other factors used in these ratings are described in Moody's Special Comment "Analytical Considerations in Assessing Conglomerates" published in September 2007, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Artem Frolov
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

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Moody's Disclosures on Credit Ratings of Sistema JSFC
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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