OREANDA-NEWS  On 11 December was announced, that Standard & Poor's Governance Services affirmed its corporate governance score (CGS) on Far East Telecom (OJSC), the leading fixed-line telecommunications operator in the Far Eastern region of Russia, at ‘CGS-5’. At the same time, the Russia national scale score on the company was affirmed at ‘CGS-5.4’.

The score is supported by the generally strong level of shareholder rights, robust shareholder meeting procedures and generally high transparency. The score is primarily constrained by the fact that the influence of the government-controlled majority shareholder Svyazinvest is dominant, while the ability of minority shareholders and their representatives on the boards to balance this influence is very limited.

“We note as a positive that the earlier weaknesses in the IFRS accounting practices have been resolved in 2008,” said Standard & Poor's governance analyst Anna Grishina. “The annual IFRS statements for 2007 were published only after the annual shareholder meeting, which constrains the score.”

The overall CGS on OJSC Far East Telecom is the result of four component scores on the global and Russia national scales of 1 (low) to 10 (high). The global scale score is shown first below, and the Russia national scale score second:

– Ownership structure and external influences 5/5.0

– Shareholder rights and stakeholder relations 7/7.2

– Transparency, disclosure, and audit 6+/6.5

– Board structure and effectiveness 4+/4.7

The strengths of corporate governance practices at OJSC Far East Telecom include:

– There is a generally high level of transparency, and proactive investor relations policies are in place. The earlier weaknesses in IFRS accounting have been resolved in 2008.

– Minority shareholders are active; they are represented on the board by three directors.

– The board has substantial authority and is active. This is supported by four board committees, all of which include external directors.

– Shareholders enjoy a wide measure of rights under Russian law; shareholder meeting procedures are in line with best practice.

– The company employs an internationally acknowledged auditor chosen via an open tender. The auditor does not provide any nonaudit services.

There are, however, a number of weaknesses, including:

– The influence of the controlling shareholder Svyazinvest is dominant, while the ability of minority shareholders and their representatives on the boards to balance this influence is very limited. At the same time, Svyazinvest is exposed to significant conflicts of interest and has relatively weak governance practices. On several occasions in the past, Svyazinvest insisted on the approval of certain transactions by the board despite objections from the independent directors.

– There is room for improvement regarding the timing of disclosure. The annual IFRS statements for 2007 were released in the beginning of July 2008, already after the annual shareholder meeting was held.

– The frequency of face-to-face meetings by the board committees is low.

– There are weaknesses in the remuneration system of directors and top-management.

The opinions expressed are the independent opinions of S&P’s Governance Services, a department of Equity Research Services, and do not reflect the opinions of other areas of Standard & Poor’s. Standard & Poor's Corporate Governance Scores, GAMMA scores and other analytic services are performed as entirely separate activities in order to preserve the independence and objectivity of each analytic process.

Information on Corporate Governance Scores and GAMMA scores, including the related report " Corporate Governance Score: East Telecom OJSC", published on Dec 2, 2008 is available at www.governance.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Moscow (7) 495-783-4000/40.