OREANDA-NEWS  On 16 December was announced, that Standard & Poor’s rating agency reported that it affirmed the corporate governance rating of Dalsvyaz, the leading fixed-line telecommunications operator in Russia’s Far East at CGR-5. At the same time, the national scale rating was reaffirmed at CGR-5.4.

The rating assignment is supported on the whole by a high level of shareholder rights, effective procedures for preparing and conducting meetings, and a high level of transparency. The rating is constrained mainly by the fact that the controlling shareholders , Svyazinvest, exerts a dominant influence on the company, whereas the ability of minority shareholders and their proxies on the boards of directors to balance this influence is limited.

“We are upbeat about the fact that the IFRST accounting defects noted previously were removed in 2008.  Nonetheless, the 2007 IFRS financial statement was issued after the annual general shareholders meeting, which acted as a constraining influence on the rating level”, said Anna Grishina, analyst at the rating unit of the corporate governance department of Standard & Poor’s.

The corporate governance rating of Dalsvyaz is the result of an evaluation based on four analytical components on the international and Russian scale, with scores ranging from 1 to 10:

Property structure and external influence – 5/5.0

Shareholder rights and relations with financially interested parties – 7/7.2

Financial transparency, information disclosure and audit – 6+/6.5

Composition and efficiency of the board of directors – 4+/4.7

Among the strong points in the corporate governance practice of Dalsvyaz, the following can be noted:

On the whole, the company has a high level of transparency and a policy of active interaction with investors.  The defects earlier noted in IFRS accounting reports were eliminated in 2008.

Minority shareholders take an active part in the company’s operations; they are represented on the board of directors by three directors.

The board of directors has broad powers and conducts active operations which are supported by four attached committees; external directors sit on all committees;

The company has efficient procedures for preparing and conducting shareholder meetings, while minority shareholders are vested with broad rights in accordance with Russian legislation.

The company has an auditor with an international reputation that was selected in a public tender.  The auditor does not provide non-audit services to the company.

At the same time, a number of defects should be noted:

The controlling shareholder, Svyazinvest, exerts a dominant influence on the company, whereas the ability of minority shareholders and their appointees on boards of directors to balance this influence is limited. In addition, Svyazinvest is exposed to significant conflicts of interests and has a relatively weak corporate governance practice.

In a number of cases in the past Svyazinvest has insisted that the board of directors execute some transactions despite objections from the independent directors.

The deadline for information disclosure has room for improvement.  The annual IFRS financial statement was issued at the beginning of July 2008, after the annual general shareholders meeting was held.

The frequency of regular meetings of the committees attached to the board of directors is low.

There are a number of defects in the system of remuneration for directors and members of the top executive management.

Standard & Poor’s evaluation of the corporate governance situation of Dalsvyaz was presented in an analytical report on the CGR of Dalsvyaz which was released on December 2, 2008. Additional information concerning corporate governance ratings, including the ratings of GAMMA, can be found on the website www.standardandpoors.ru, and can also be provided by the Corporate Governance Ratings Department of Standard & Poor’s at 7 (495) 783-40-40. All questions should be addressed to the Rating Information Department of Standard & Poor’s at 7 (495) 783-40-00.