Investing into Belarus

1. Investing into Belarus September 2009 Disclaimer: This report was prepared for informational purpose only and does not constitute an offer or solicitation of a strategic transaction. Points of view, forecasts and evaluations presented in this report reflect our opinion as of the publication date and may be changed without notice. Although the information contained herein has been obtained from sources we believe to be reliable and although we ensured their accuracy as of the publication date, we cannot guarantee, expressly or impliedly, practicality of this report regarding future events or current or future value evaluation. Any investment decision based on this report should be made only at the discretion of the investor and UNITER or its employees or any third party shall not be responsible in any form and in no circumstances for any action of any party taken on the basis of this report. Nor UNITER, nor any of its employees, nor any third party shall be responsible for losses that result from such actions.

2. 1.Putting Belarus on the map Key highlights 2008 Territory - 207 600 sq km ( ranked 86 in the world) Population – 9.67 mln (ranked 79 in the world) Population density - 49 per sq km Workforce – 4.5 mln Literacy - 99.6% Capital – Minsk (1.81 mln people) Regional centres: Gomel (480 thou), Mogilev (390 thou), Vitebsk (360 thou), Grodno (320 thou), Brest (300 thou) Total GDP – USD 59.9 billion Real GDP growth rate – 10%; nominal GDP growth rate – 34% GDP per capita (USD) - 6192 Inflation rate – 14.8% Exports – USD 34.1 billion (46% of total external trade turnover), Imports – USD 40 billion (54%) Imports / GDP ratio = 0.66; Exports/GDP ratio = 0.57; Unemployment Rate = 1% (officially); 4.1 % (independent estimates) Current Account Deficit (% of GDP) - 8.4 FDI inflow (% of GDP) - 3.78 Gross Foreign Debt (% of GDP) - 28.4 Year-average government bond yield - Not issued Moody’s Rating - B1 Average weighted exchange rate: (EUR/BYR)- 3045.9 Average weightedexchange rate: (USD/BYR)- 2149.4 • The Republic of Belarus: • lies in the Eastern Europe and offers a favourable geographical position as a transit country • possesses well-developed traditional industries that remain key drivers of the economic growth • occupies leading positions in machine building, oil processing, agriculture and food production, and metalworking on the Russian and global markets • operates an open, export-oriented economy: external trade turnover to GDP ratio exceeds 1 over the last 10 years • depends heavily on supplies of Russian natural resources and raw materials and on exports of value-added products to Russia • has 70% of national GDP generated by state-controlled enterprises with share in total exports exceeding 80%

3. 2. Economic Development: Results 1H 2009 Key highlights 1H 2009 Figures Statistical 0.3% real GDP growth versus sharp decrease in neighboring countries In 2001-2008 the Belarusian economy demonstrated a stable GDP growth. In 2008 the Belarusian nominal GDP reached $59.9 bln. (4.8 times increase compared to that in 2001). In 2008 real GDP growth amounted to 10%. Since the beginning of the economic crisis Belarusian GDP growth rates have been decelerating significantly. Based on 1H 2009 results, real GDP growth amounted to 0.3% and nominal GDP dropped by 16.22%. Manufactured goods stocks reached 95% of monthly production 1H 2009 production volume was equal to 21 bln. $ in money terms compared to 29 bln. $ in 2008. Devaluation of national currency played a significant role. According to official statistics, over 1H 2009 the Belarusian industrial production declined by 3.6%, while, for example, in Russia industrial production decrease reached 14.8% over 1H 2009, in Ukraine - 31.1%. In Belarus the situation was accompanied by a sharp growth of stocks. While as of 01.06.2008 manufactured goods stocks amounted to 52.6% of monthly production, they reached 95% by 01.06.2009. Real income dropped by 4.5% in dollar terms In 2008 an average annual nominal income amounted to 3 582 $ per capita. In real terms (inflation adjusted) 2008 income growth reached 12% yoy. According to IMF`s requirements concerning stand-by loan arrangements, Belarus had to set a moratorium on salaries and pensions increase. Over 1H 2009 real income of the Belarusian population increased by 5.5 % according to official statistics. Nevertheless, in dollar terms 1H 2009 financial income of the Belarusian population dropped by 4.5%.

4. 2. Economic Development: Results 1H 2009 Key highlights 1H 2009 Figures High consumer and producer inflation negatively influences macroeconomic and financial stability 2008 CPI growth in Belarus reached 13.3% (December-to-December) and overcame that index of 2007. Average annual inflation rate reached 14.8%. Over 1H 2009, an average growth of CPI in Belarus reached 14.6% yoy, PPI grew by 18.9% yoy on average, while tariffs for cargo transportation soared by 45.6% yoy. Surely, high inflation rate negatively influences savings and income of population, and also leads to negative consequences for monetary policy, making cost of credit resources significantly higher. Gradual devaluation of national currency does not influence foreign trade indicators For the past 7 years stability of the national currency has become the most important stabilizing factor, influencing general macroeconomic situation in Belarus. However, in the context of chronic BOP deficit, this policy led to a serious imbalance. As a result of developing economic crisis, sharp demand drop for traditionally exported Belarusian goods and decline in foreign currency revenues, the Belarusian government had to held sharp one-time devaluation of national currency by 20% on 01.01.2009. Over 1H 2009 the Belarusian national currency was depreciated practically by 30%. However, the measures taken have not led to positive changes in foreign trade util present. At IMF`s demand, NBRB had extended a corridor of possible national rubble fluctuations versus currency triplex up to +/- 10% till the end of 2010. Foreign loans – a single way to support macroeconomic and financial stability As of 01.04.2009, the Belarusian aggregated foreign debt reached 16.3 bln. $ and grew by 7% over the Q1 2009. By now Belarus received $500 mln. from Venezuela, $1.5 bln. from the Russian Federation, and $1.48 bln. from IMF (the total amount of a stand-by loan to be received was increased to $3.5 bln in June 2009).

5. 3. Internal and external factors influencing the Belarusian economy in 2009-2010

6. Forecast real GDP growth in 2009 - Positive growth rate in 2009 - Negative growth rate in 2009 (4.7%) x % - GDP growth in 2009 (negative values in brackets) (2%) (10%) (6%) (5.3%) (15%) (3.5%) (8.5%) (7.3%) (4%) (4%) (4%) (0.4%) (5.3%) (3%) (10%) (3%) (2%) (3%) (1%) (3.3%) (3.7%) (4.5%) (1.8%) (1.5%) (3.2%) (3.6%) (1%) (0%) (2.4%) (4.2%) (3.3%) (1.5%) 2% (4.4%) (3.4%) 4. Economic Development: Forecast 2009 (1) Sources:EIU, IMF

7. 4. Economic Development: Forecast 2009 (2) Forecast Figures • In 2004-2008, the Belarusian economy demonstrated high economic growth rates: • Real GDP growth rates approached 10% • The period was characterized by macroeconomic stability (stable national currency, significant slowdown in inflation, low foreign debt) In 2009: The IPM research Centre (Belarus) has prepared 2 scenarios of further economic indicators development until 2012 in light of the ongoing global economic crisis. The difference between Scenarios 1 and 2 is devaluation towards the US Dollar in 2010: 5% according to the Scenario 1 and 70% for the Scenario 2. Both scenarios foresee negative growth of real GDP in 2009 and 2010. However, in the subsequent years Scenario 2 looks more positive: both nominal and real GDP are growing faster than in Scenario 1. Nevertheless, in Scenario 2 the economy will face higher inflation rates, leading to much more higher National Bank refinancing rates as a cure. Source: IPM research Centre (forecast)

8. 5. Most attractive industry sectors

9. 6. Investment environment Key highlights 2008 2009 forecast • Increasing FDI attractiveness was made priority by the President (Belarus is aiming to become a top 30 investment location by 2010) • Belarus became a Top 10 reformer (moving up from rank 115 to rank 85) in the World Bank’s Report “Doing Business 2009” • Opening opportunities for privatization • 70% of GDP is still produced by state-controlled enterprises, including petrochemical, oil-refining, raw materials, automotive and machinery, agriculture and food industries; • Government takes clear steps towards liberalization of the stock market and privatization: abolishment of “golden share”; phase-out of the moratorium on circulation of shares acquired during preferential privatization; lists of hundreds of enterprises to be reorganized into open joint stock companies and list of companies ready for selling to investors; governmental program encompassing 52 clear steps towards further simplification of Doing Business in Belarus. • Certain liberalization steps will be made (substantial changes in tax legislation, administrative procedures) • Significant deterioration in the external trade conditions for traditionally exported Belarusian products due to the global financial crisis, tension of competition in traditional industries and markets will lead to the governmental policy of aggressive search for external sources of the Belarusian economyfinancing (IMF funding, loans from Russia) • A more consistent privatization policy will be realized

10. 7. FDI and M&A activity in Belarus Key highlights 2008 The total estimated value of M&A deals in 2008 exceeded USD 1.5 billion showing a significant increase if compared to 2006-2007. The number of M&A cross border deals amounted to 21, with a total declared value of USD 831 mln. These figures do not account for acquisition of Beltransgaz shares by Gazprom (the Belarusian budget to be paid USD 625 mln annually from 2007 till 2010). They also do not count for real estate industry transactions. The majority of deals was completed in the financial sector (13 deals in 2008, 9 – in 2007). The value of M&A deals in the banking sector reached USD 175 mln. In 1H 2009 there were no large M&A deals. At the same time: • The Belarusian government is negotiating with the Russian Sberbank sale of the BPS-Bank (#4 bank in Belarus) • Russian milk company Unimilk was allowed to establish a JV with the Belarusian Shklov milk plant. Russian investors such as Wimm-Bill-Dann and Unimillk have repeatedly shown their interest in acquiring milk enterprises in Belarus, however, the government was not ready to start privatization in the industry. FDI inflow into the Belarusian economy speeded up in 2007-2008. In 2007 it increased 5 times compared to 2006. In 2008 it grew by 28.9% yoy and reached USD 2.23 billion. This is a logical bottom line of consistent governmental steps made towards reformation of the investment environment and further economic liberalization of the Belarusian economic life. In 2007 FDI inflows per capita amounted to 181 USD and for the first time during 1990s-2000s surpassed results of some neighboring countries (Ukraine). In 2008 FDI per capita reached USD 235.7.

11. 8. Selected M&A deals Largest transactions 2007-2008 PE Case Study: Syabar Brewery • 2002: Detroit Brewing established SPV named DBBC for investing into Belarus. IFC joined the project this year • 2003: Successful negotiations with the Belarusian Government resulted in acquisition of an underperforming regional brewery chosen as the target for investments • 2005: USD 19 mln were invested in re-construction and new equipment purchase. Beer production started • 2006: The 2nd round of investments (USD 12 mln) allowed to move to the 2nd Belarusian market position • 2007: Beer production increased 62% reaching 600 thou hectoliters • 2008: Acquisition of Syabar Brewery by Heineken N.V. announced for as much as EUR 70 mln • GazProm is in the process of acquiring a controlling stake in BelTransGazfor USD 2.5 billion during the period 2007-2010 • Russian banks and insurance companies strengthened their positions in Belarus through acquisitions of controlling stakes in 4 medium-sized Belarusian banks (VTB, Alfa Bank, VneshEconomBank, RosBank - SocGen) and in 2 insurance companies (RESO Group) • Mobilkom Austria Group acquired 70% of mobile service provider MDC (Velcom) for EUR 730 mln • Turk Cell acquired state-owned mobile phone operator BEST for USD 600 mln • Heineken NV bought Syabar brewery the second-largest beer brand in Belarus for EUR 70 mln and 51% stake in Rechitsa brewery (#4) for EUR 6.4 mln • Olvi plc (Finland) acquired a controlling stake in Lidskoe Pivo Brewery for USD 32 m • Baltic Beverages Holding (Carlsberg) acquired Alivariya brewery (#3) • Ergo Group acquired a private insurance company in 2008 • Getin Holding (Poland) acquired small-sized Belarusian bank Sombelbank • FransaBank (Lebanon) acquired small-sized Belarusian Bank GT-Bank • Home Credit Group(Czech Republic) acquired a controlling stake in Lorobank • PPF / Generali created a risk insurance company in Belarus • Horizon Capital (US based PE fund) is the ever first PE fund that entered Belarus through acquisition of the Minsk Transit Bank in 2008 • Silvano Fashion Group (Estonia) was the first company owning predominantly Belarusian assets (Milavitsa lingerie manufacturer) listed at foreign capital market (Warsaw stock exchange) • Kesko (Finland) acquired the leading construction materials retailer in Belarus Announced large privatization plans • In 2008 the Belarusian Government issued lists of enterprises to be reorganized into open joint stock companies (505 enterprises) and to be privatized (144 enterprises) in 2008-2010 • Moreover, plans for privatization of the leading companies in the financial sector (banks and insurance companies) were declared. In addition, the Government is lifting constraints on sale of shares obtained by individuals during privatization in 1990s • Thus, by the beginning of 2009 privatization plans included: • 4 leading Belarusian banks: sale of controlling stakes to strategic buyers or IPOs on the foreign capital markets • 2 leading Insurance companies: sale of controlling stakes to strategic buyers or IPOs on the foreign capital markets • 2 largest state-owned Belarusian breweries: sale of controlling stakes to strategic buyers • Leading pharmaceuticals manufacturers: sale of controlling stakes to strategic buyers, JVs • Energy sector: JVs and green field projects offered

12. 9. Privatization deals Largest privatization transactions Mobilkom Austria acquired 70% stake in the Belarusian mobile carrier Velcom for EUR 730 mln Alfa-Bank acquired a 39% stake in MezhtorgBank for ca. USD12 mln VneshTorgBank acquired 50% of SlavneftBank for USD 25mln Russian gas giant signed an agreement with the Belarusian government on 50% stake purchase in Beltransgaz for USD 2.5 bln Olvi plc acquired 51% of the Belarusian “Lidskoe Pivo” brewery for USD 32 mln Oct Jul May June May June Nov 2008 2007 Apr Heineken brewery invested 6.4 Euro mln. in 51% stake in Rechitsabrewery Vnesheconombank acquired 53% of BelvnesheconomBank for USD 24 mln Turk Cell acquired formerly state-owned mobile phone operator BEST for USD 600 mln

13. 10. Privatization structure (1) • Belgosstrakh (#1 in risk insurance) • Stravita (#1 in life insurance) Financial sector Insurance sector Sale of controlling stakes to strategic buyers Sale of non-controlling stakes to strategic buyers In 2008 the Belarusian Government issued lists of enterprises to be reorganized into open joint stock companies (505) and to be privatized (144) in 2008-2010 Moreover, plans for privatization of the leading companies in the financial sector (banks and insurance companies) were declared. In addition, the Government is lifting constraints on sale of shares got by individuals during privatization in 1990s • Belarusbank (#1) • Belargoprombank (#2) IPO on the foreign capital markets (London, Warsaw, Frankfurt) in form of GDR issue Banking sector • Belpromstroibank (#4) • Belinvestbank (#5) • Paritetbank (a small bank) Sale of controlling stakes to strategic buyers Other sectors • Krinitsa Brewery (#1) • Brest Brewery (#5) • Dairy and meat processing Food and Beverages Sale of controlling stakes to strategic buyers • Borimed (#1) • Other state-owned companies Pharmaceuticals Sale of controlling stakes to strategic buyers The list of companies to be privatized is open, especially, in case strong international or regional buyers show interest. • Energy generation and distribution, alternative energy Joint Ventures, green field projects Other • Machine building and components • Petrochemical complex • Construction materials • Telecoms Joint Ventures, strategic alliances

14. 10. Privatization structure (2) Existing privatisation decision making overview of Belarus As the analysis of practice of privatization in 2007-2009 showed, often privatization ideas could be initiated by potential buyers / investors. In this case the Government of Belarus is rather flexible in defining possible terms of privatization and in amending lists of companies to be privatized. At the same time, the decisions on sale of state-owned stakes in large state-controlled companies are usually made individually and approved personally by the President of Belarus.

15. 10. Privatization structure (3) IMF demands to step up privatization process On January 12, 2009 the IMF ExecutiveBoard approved a 15-month Stand-By Arrangement (SBA) in the amount ofSDR 1.6 billion ($2.5 billion, 418.8 percent of quota), and a first purchase ofSDR 517.8 million was made following the Board meeting. In June 2009 the IMF Executive Board completed the first review of Belarus’s performance under the program. The conclusion was thatall end-March 2009 quantitative and continuous performance criteriaand structural benchmarks were met, except for the net international reserves (NIR) target,which was missed by $221 million. The Board recognized that the Belarusian authorities have committed to adjust exchange rate andmonetary policies, to maintain a balanced budget despite lower revenue, and to deepentheir structural reform efforts. As a result of discussions, the IMF Executive Board decided to increase the financial support to SDR 2.27 billion (about US$3.52 billion), equivalent to 587 percent of Belarus’s quota or 7 percent of its GDP. The Board also granted a waiver of nonobservance of end-March performance criterion on net internationalreserves. Moreover, the IMF Executive Board approved a modification of the end-June performance criteria. Among other criteria the IMF demads the following: “A stepped-up privatization effort. The government, working with the World Bank, will submit a draft Privatization Law to Parliament by September 2009. They will also submit to the President, by September, a draft decree on establishing a Privatization Agency charged with preparing enterprises for privatization, with power to hire advisors from banks, accounting firms, and other private companies to support the process. The Agency, once established, will consult with the World Bank and identify, by November 2009, five large SOEs as candidates for privatization. It will further select a reputable financial advisor to facilitate the process, with the aim of offering the controlling stakes in these SOEs for sale through an open, international, transparent, and competitive tender by February 2010.” “Structural reforms supporting business and investment. The authorities are committed to reducing further the list of social goods and services subject to administrative price controls. They will also take steps to stop the application of mandatory wage policy and output and employment targets to companies in which the government has a minority shareholding.” Source: IMF Country Report No. 09/260. Republic of Belarus: First Review Under the Stand-By Arrangement, and Request for a Waiver of Performance Criterion, Augmentation of Access, and Modification of Performance Criteria—Staff Report; Staff Supplement; Staff Statement; Press Release on the Executive Board Discussion http://www.imf.org/external/pubs/cat/longres.cfm?sk=23203.0

16. Contact details CJSC «UNITER Investment Company» 117a Nezavisimosti Ave., 12 floor Minsk 220114 Belarus Tel: (+375 17) 385 24 61/63/65 Fax: (+375 17) 385 24 64 E-mail: uniter@uniter.by Daniel Krutzinna Associate Partner E-mail: krutzinna@uniter.by Roman Osipov Investment and Financial Advisory E-mail: osipov@uniter.by