OREANDA-NEWS. August 23, 2010. Telecommunications Minister Igor Schegolev has been elected as the Chairman of the Board of Directors of Svyazinvest.  His appointment was unanimously supported at the first meeting of the new Board of Directors of Svyazinvest (hereinafter, the Company), which took place on August 20, 2010.

The Board of Directors also passed a resolution to establish a number of ad hoc committees: the Business Planning Committee (Konstantin Malofeev was elected chairman), the Audit Committee (Ivan Rodionov was elected chairman), the Executive Remuneration Committee (Nikita Ryauzov was elected chairman), and the Corporate Governance Committee (Marlen Manasov was elected chairman). The Board of Directors instructed the new chairmen of the above committees to prepare proposals regarding the number of people and the individual staff members of the committees attached to the Board of Directors.

In accordance with an assignment by the Economic Development Ministry on examining a set of issues pertaining to innovative development, research support and upgrade of technology and infrastructure at the Svyazinvest Group of companies, the Board of Directors has reviewed management’s proposals about working out the Program of Innovative Development at the Svyazinvest Group of companies.  The implementation of this program will make it possible to make efficient use of the intellectual and technological potential of the Svyazinvest Group in order to conquer leadership positions on the Russian telecommunications market.

The program was worked out for mid-term (5-7 year) activities taking into account the priorities of R&D trends and contains measures aimed at developing and implementing new telecommunications and information technologies, and also to create products and services in line with global standards.

The innovative development program is expected to become an integral part of the technological and business strategy of the Svyazinvest Group of companies and will be aimed at significantly improving the main efficiency indicators of the Group’s operator activities. The implementation of the Program should make it possible to dramatically reduce (by more than 10%) the cost of telecommunications services without the quality suffering, while saving considerably (at least 5% per year) on energy resources, broadening the range of telecom services available, and improving the ecological aspects of the operating process.

At the first stage of the program, the top priority areas of innovative development are to be determined.

The Board of Directors also recommended management to analyze the Group’s current expenses for research work, upgrade of technology and work out proposals on the mechanism for establishing and running the innovative development fund and the amounts which are to be allocated to mid-term R&D operations (5-7 years).

The so-called technological platforms will also be helpful in allowing the Svyazinvest Group of companies to achieve its innovative development goals.  These are standing forums for the discussion of major long-term trends in major areas of technology which involve coordination of an applied research program in various spheres for the purpose of stimulating demand for innovative projects.  The technological platforms which link R&D institutes, representatives of major state and private corporations and academic figures provide an opportunity to share scientific research, business projects and state interests for the purpose of promoting innovative development and improving the Russian economy.

The Economic Development Ministry presented to the Board of Directors of the Company a list of existing technological platforms and proposed that the Svyazinvest Group join these platforms.  The Board of Directors recommended management to examine the above technological platforms, prepare proposals on the feasibility of participating in them and consider the possibility of working out its own technological platforms.  Projects advanced by Svyazinvest could include, among others, a technological telecommunications platform for a converged multi-service infrastructural operator on the federal level.

At the initiative of the State Property Management Agency an issue proposed by RF Presidential Advisor Leonid Reiman about the reorganization of Svyazinvest was raised for discussion.  In his presentation, Mr. Reiman points out that as part of the reorganization of Svyazinvest independent appraiser Ernst & Young conducted an appraisal of the value of the shares of Rostelecom and RTOs for the purpose of performing a buyback from shareholders and determining the respective swap ratios. In the opinion of Reiman, Ernst & Young’s report gives reason to believe that there is a risk that the state’s stake in the merged Rostelecom could be reduced to a level below a controlling interest as a result of the conversion of preferred RTO shares into the common shares of Rostelecom and the size of the discount upon the conversion of preferred RTO shares.

However, at the Board of Directors meeting convened to discuss this issue many of the board members pointed out that there is no risk of the state reducing its stake. Furthermore, according to calculations made by financial consultants, the state’s stake (jointly the holdings of Svyazinvest, state corporation Vnesheconombank and Deposit Insurance Agency) will rise to 53.2%.  And including the total amount of shares presented for buyback (2.7% of the charter capital of the merged Rostelecom), the state will control a 55.9% interest.  In addition, members of the Board of Directors pointed out that the organizational and legal form of a “state corporation” will fully enable the state to control the state to blocks of shares in Rostelecom that were acquired by Vnesheconombank and DIA, i.e. 9.8% and 29.9%, respectively.

Aside from this, taking into account the shareholder agreement approved between Vnesheconombank and Svyazinvest, whereby Vnesheconombank accepted the obligation to vote on key business issues at meetings of the Board of Directors and general shareholders meetings of Rostelecom on the basis of recommendations issued by Svyazinvest, the risk that the state could lose control of the merged Rostelecom is virtually nil.  The Board of Directors was notified of this by the Company’s executive bodies.

The Board of Directors took under advisement Leonid Reiman and assigned the management of Svyazinvest to prepare the respective information for the relevant parties.

An analysis was presented to the Board of Directors of the Company concerning the main operating indicators of the business activities of Central Telegraph.  Addressing the meeting, the Company’s financial director Oleg Kurnyavtsev pointed out that the main efforts of Central Telegraph’s management have been focused in 2009 and 2010 on rolling out Internet access facilities, offering corporate client solutions and upgrading the Company’s telecommunications network. In addition, Central Telegraph is making concerted efforts to mitigate the risks associated with the global economic downturn.

The management of Central Telegraph regards as its main tasks in 2010 strict cost containment, deleveraging and raising the value of the Company’s assets by boosting the profitability of investments made at an earlier time.

The Board of Directors also considered other issues related to the Company’s internal activities.

The Company’s Board of Directors meeting was attended by the following persons:

Mikhail R. Butrin, managing director, co-director of investment banking activities on global markets, VTB-Capital;

Konstantin V. Malofeev, managing partner of the representative office of MarCap Advisors Limited;

Marlen J. Manasov, member of the Board of Directors of UBS Bank;

Leonid D. Reiman, advisor to the President of the Russian Federation;

Ivan I. Rodionov, professor at the State University Higher School of Economics;

Nikita D. Ryauzov, managing director, head of the investment banking and financing at MDM Bank;

Igor O. Schegolev, telecommunications minister of the Russian Federation;

Evgeny V. Yurchenko, general director of Svyazinvest.