GF Scorecard: Russian Corporate Governance

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TOP OF THE CLASS

Mobile Telesystems (MTS) & VimpelCom

Russia's two largest cellular service providers are corporate governance role models for the Russian equity market. Founded by a Soviet-era radio engineer, VimpelCom in November 1996 became the first Russian company to launch a Level 3 ADR-Arch competitor MTS was the second and, in July 2000, the most recent Russian company to raise capital on the NYSE. Both companies have significant foreign strategic shareholders: Norwegian cellular provider Telenor owns 25% of VimpelCom, while Deutsche Telecom controls a 40% stake in MTS. They also have all the trappings of full disclosure that are assumed of companies in the West, such as quarterly US GAAP financial statements and earnings conference calls, accessible and investor-- friendly management, and the presumption of fair treatment of minority shareholders.

Russia's Communications Ministry attempted to seize bandwidth from both companies in September 2000, without recompense or explanation. It backed down after intense local media pressure and some choice words from the Norwegian government.The strong operational, financial, and corporate governance records of the two companies mean that they trade on par with the valuations of western comparables, rather than at steep discounts, as is the case for most Russian issuers.

SUN Interbrew

Brewer SUN Interbrew is one of the very small number of companies in Russia managed to western standards of strategic vision, financial performance, transparency, and corporate governance.

Indian investment entity SUN Group bought up a string of regional breweries in Russia in the 1990s and became the first Russian company to issue global depositary receipts. In April 1999 SUN Group sold a one-- third stake of the company to Belgian global beer powerhouse Interbrew, which was eager to expand into one of the world's fastest-- growing beer markets. Now one of Russia's two largest brewers, and Ukraine's dominant beer maker, SUN Interbrew has 12 breweries managed out of Moscow by Interbrew professionals with extensive global experience.

The complex dual share structure and consequent share illiquidity have served to depress valuations, but SUN Interbrew management is widely respected for its coherent strategy in the Russian market and its strong corporate governance practices.

MOST IMPROVED

YUKOS

Just over two years ago Russia's second-largest oil company was the poster boy of bad corporate governance in Russia-and that's saying something.

Among its many sins, YUKOS for years is alleged to have diverted cash flows of its production subsidiaries, while diluting shareholders of its downstream subsidiaries. But in 1999 the company began to clean up its act, releasing financial statements audited to international standards.

Those showed impressive levels of profitability that were unusual at the time, suggesting that YUKOS was ending the practice of hiding profits in various unconsolidated subsidiaries. …