Expert No.046, December 10, 2001

RosBusinessConsulting (RBC) will become the first Russian hi-tech company whose shares will be floated on the stock market. The RBC board of directors made a decision to float the company's shares on two Russian exchanges at a time - the RTS and MICEX. This event is due to take place in the first quarter of 2002. The tender started by RBC for the lead bank to float shares will be completed this week. RBC's auditor is KPMG and the legal consultant of the issue will be Ernst&Young. RBC held a number of road shows for European investors in Switzerland at the end of November. This event evoked widespread responses in the Russian press. Despite a general positive attitude of experts, a lot of them think that RBC is a company that is not big enough to become a target for serious investments. However, a number of western specialists have a different opinion. According to estimations of Michael Hammond, managing director of the ABM-AMRO bank, the market of information technologies and mass media sources is rising now and, in his opinion, RBC shares are a perfect means to increase one's revenues. ING Bank's Vice President Victor Kalin thinks that investors will evaluate parameters of the company's growth and its management.

As a result of the road shows organized by the Swiss company ABD Consulting, RBC placed convertible bonds worth $5 million. According to RBC General Director Yury Rovensky, the company was heavily oversubscribed. However, the RBC leadership made a decision not to increase the volume of floated bonds before the IPO. "We do not need a large sum for effective expenditures over the next 3 or 4 months before the IPO. We want to be honest with potential investors," Mr. Rovensky was quoted as saying. During the road show RBC announced it will float about 17% of its shares on Russian exchanges. In addition, the RBC board of directors reserves another 10% of shares for future acquisitions and corporate purposes. The RBC press service reported that the management of the company also reserved the right to sell an additional 8% of its shares not earlier than in 6 months after the IPO in order to increase share liquidity.

According to data confirmed by the RBC auditor, KPMG, the volume of annual revenues of RBC reached $8 million in 2000. About two thirds of these revenues came from RBC media products and the rest from sales of information technologies: the designing, development and introduction of software. At present the company is actively working on the development of Intranet systems and programming services.

RBC is expected to receive more than $16 million in revenues in 2001. It is important to note that the share of revenues coming from mass media and IT businesses will become practically equal. The rate of RBC cost effectiveness, which was estimated by the auditors at 30% in 2000, is tending toward further growth in 2001, according to estimations of Yury Rovensky. The RBC capitalization will be estimated on the basis of these dynamics (as of now, representatives of the company and financial advisors refrain from presenting any estimations). "There is a standard practice of estimating a company's cost. At present it is more often based on the industry's multiplier to the volume of the company's profits. In the industries where RBC is operating - IT and mass media - this coefficient makes up from 15 to 30," Mr. Rovensky noted commenting on possibilities for evaluating RBC's cost. He mentioned that foreign investors pay special attention to the following two characteristics of a company: its openness and effective management. Traditionally, Russian businesses could not be proud of neither of these characteristics. Factors that can confirm the readiness of a company to correspond to these, as one would think, simple requirements will significantly an increase the interest of western investors to this company. Hans-Joerg Rudloff of Barclays Bank, who presented RBC in Switzerland, thinks that the situation is changing for the better. He said, "RBC is a different face of Russia. This IPO will be done within Western standards, Western perspectives, Western transparency and Western disclosure. And RBC will want to be an absolute example to the rest of the Russian market in the average information and corporate government policies. That's what we expect from Russia".