The panel discussion focused on risk management practices of large Russian commodity exporting companies. Most companies employ simple hedging strategies using derivative instruments like currency swaps to manage currency risk on large deals. They rely more on natural hedges from commodity price fluctuations affecting costs and revenues. Russian companies are cautious using complex derivatives due to counterparty risk concerns and a preference for simple products. Banks see opportunities to help these companies more actively manage risks through structured financial products as the market matures.

1. www.TheRussiaForum.com
RUSSIA
FEBRUARY 2 3, 2012
Russia Forum Buzz
Risk Management: Myth or
Reality?
█ The panel consisted of senior financial officers of large Russian
commodity exporting companies, financial consultants and representatives of
commercial banks.
█ Panelists representing the “real economy” described their companies’ approach
toward managing various types of risk. Most speakers conceded that they
employ a selective range of rather simple derivative instruments (such as plain
vanilla currency swaps), mainly in order to synthetically adjust standalone large
ticket deals on the liability side. Examples mentioned included such deals as
Gazprom’s 2008 placement of a Eurobond with a coupon linked to the oil price
(the company believes that it has saved circa 70 bps per annum in interest costs
over the four years since the issue versus a straight issue) and the synthetic
conversion of local ruble bonds into foreign currency liability (a practice widely
employed by many Russian local bond issuers in 2009 11).
█ On the revenue side, most companies rely on “natural hedges” and commercial
methods to reduce cash flow volatility, such as long term contracting. An
exception, noted by UC RUSAL, was that being one of the world’s largest
exporters of aluminum, it very actively employs exchange traded commodity
derivatives to manage its sales mix.
█ The major reasons for the rather selective and cautious use of derivative
financial instruments by Russian industrials seem to be their complexity (all
panelists were strongly in favor of simple structured products), very strong
loss aversion of the companies’ risk officers and treasurers (“you are not
rewarded if your hedge works, but if it loses, it is your fault”), belief that
Russian commodity producers have certain natural hedges (weaker oil means
a weaker ruble and lower cost base) and the simple absence of tradable
derivative contracts for many commodities (e.g. for uranium).
█ Most panelists from the industrial side mentioned that they mainly use foreign
banks as counterparties for structured transactions, as large Russian
institutions entered the field only recently. Interestingly, none of the industrial
panelists mentioned counterparty risk as a component they pay attention to in
a structured deal.
█ All panelists concluded that Russian commodity exporting companies’ use of
structured financial instruments for risk management represents a very
interesting market for large banks, and thus the market is likely to grow
materially in the coming years.

2. FEBRUARY 2 3, 2012 RUSSIA FORUM BUZZ – RISK MANAGEMENT: MYTH OR REALITY?
2 TROIKA DIALOG
Panel
Alexander Bazarov Vice President — Director of the Corporate Clients Department, Sberbank
Tigran Khachaturov Acting Director General, JSC Atomredmetzoloto
Peter Bakaev Head of the Capital Markets Division, Gazprom
Satyajit Das Risk Consultant, Author of “Extreme Money”
Evgeniy Kornilov CFO, RUSAL
Igor Lojevsky Chief Country Officer, Russia and CIS, Deutsche Bank
Axel Van Nederveen Treasurer, European Bank of Reconstruction and Development
Olga Zinovieva Appointed First Deputy CEO, Interros

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