Bright upside potential from the reorganization

On April 1, 2011, we completed the merger of the seven IRCs and Dagsvyazinform into the Company. The purpose of the Reorganisation is to establish an integrated telecommunications operator, a market leader in each segment of the Russian telecommunications market, eliminate internal conflicts of interest, expand into new market segments and optimize costs and capital expenditures.

As part of the Reorganisation, ordinary and preferred shares of the IRCs and Dagsvyazinform were exchanged for our newly issued ordinary shares pursuant to exchange ratios approved by the shareholders of the Company and each of the IRCs and Dagsvyazinform on the basis of reports of an independent appraiser LLC Ernst & Young. Prior to the Reorganisation, the Company’s issued share capital comprised of 728.7 million ordinary shares and 242.8 million preferred shares. To effect the Reorganisation, the annual general meeting of the Company’s shareholders approved an increase of the Company’s authorized share capital to 5.9 billion ordinary shares and our Board of Directors approved an increase in the Company’s share capital through the issue of an additional 2.2 billion ordinary shares.

The Company, the IRCs and Dagsvyazinform repurchased shares representing, in aggregate, 2.7% of the ordinary shares and 28.8% of the preferred shares post-Reorganisation for approximately RUB 14 billion from the Company’s, the IRCs’ and Dagsvyazinform’s shareholders who voted against or did not vote on the Reorganisation, respectively. Each of the Company, the IRCs and Dagsvyazinform contributed their respective repurchased shares to the share capital of MOBITEL, which became a 99.9% subsidiary of the Company upon completion of the merger of the IRCs and Dagsvyazinform into the Company. Shares of the IRCs and Dagsvyazinform acquired by MOBITEL were exchanged for our newly issued ordinary shares in the same manner as shares of the IRCs and Dagsvyazinform owned by their respective shareholders. MOBITEL currently holds 6.6% of the Ordinary Shares and 12.6% of the Preferred Shares.

1 Percentage of voting shares
2 These shares are held by Rostelecom 99.9% subsidiary MOBITEL. Rostelecom also controls 28.8% of preferred shares of which 16.3% are under 2011–2013 stock option program
3 X will depend on the valuation of Svyazinvest assets
4 Only after State Property agency contributes the assets into Svyazinvest. Additionally the Company considers the possibility to merge some of its subsidiaries into Rostelecom at the time of merger with Svyazinvest

On April 1, 2011, the IRCs and Dagsvyazinform were excluded from the Unified State Register of Legal Entities following their merger with the Company, which assumed all rights and obligations of the merged companies.

In accordance with Russian legislation, the ordinary and preferred shares and bonds of the IRCs and Dagsvyazinform were exchanged for newly issued ordinary shares and bonds. Trading in the respective shares and exchange-traded bonds of the merged companies was discontinued with effect from March 28, 2011.

On April 28, 2011, the FSFM registered reports on the results of ordinary shares issuance. These newly issued shares commenced trading on MICEX on May 12, 2011. The newly issued securities traded independently on MICEX for a three month period starting April 28, 2011 as 17 separate issues of ordinary shares and one issue of preferred shares.

On August 3, 2011, the FSFM approved the cancellation of the individual numbers (codes) of the 16 additional issues of ordinary shares (RTKM-002D to RTKM-017D). Following the receipt of the notification of the cancellation of these codes, it was passed to the registrar and to nominee holders. The individual numbers of each registered additional issue and the respective tickers were merged with the main issue of the ordinary shares (RTKM). These changes were reflected on each owner’s account in line with each nominal holder’s and stock exchange’s individual operating procedures. The total number of the ordinary shares corresponded exactly to the number of ordinary shares prior to the Reorganisation.

On August 10, 2011, the unified issue of the ordinary shares commenced trading on MICEX. Since August 10, 2011, one issue of the ordinary shares (ticker: RTKM) and one issue of preferred shares (ticker: RTKMP) have been traded on MICEX.

The merger of the separate depositary receipt issues, representing both newly issued ordinary shares and those relating to the previous issue, was also finalized under the ticker ROSYY.

MSCI included the ordinary shares in the Large Cap Segment of the MSCI Global Standard Indices, effective from September 1, 2011, to coincide with the effective date of the August 2011 Quarterly Index Review. The preferred shares were not added to the MSCI indices.

The Decree № 340 on the reorganisation of OJSC Rostelecom was signed by the President of Russia on March 24, 2012. The Decree states that a unified company will be created by merging Svyazinvest and its total assets with Rostelecom. The Russian Federation’s stake in Rostelecom will amount to over 50% of ordinary shares when coupled with a stake belonging to the VEB. It will enhance Rostelecom’s investment case by simplifying its shareholder structure and eliminate the cross ownership of Rostelecom.