The document discusses the emergence of local liquidity and financing in Russia. Since 2009, the Central Bank of Russia has stimulated local capital markets by providing liquidity support, which has enabled Russian companies to access reasonable borrowing rates through various debt instruments. This has attracted other investors and allowed banks to increase lending. As a result, major Russian companies can now access credit locally when Western markets are constrained. The Central Bank influences interest rates and the economy by managing its balance sheet and refinancing operations.

1. Reassessing Risk in Russia: Emerging Confidence in Emerging
Markets
5th CFO Summit Emerging Europe & CIS
October 17, 2012
Alexey Kornya, Vice President and Chief Financial Officer

2. Contents
MTS at a glance ▪ MTS at a glance
Emerging confidence in emerging
markets
Russia: local liquidity and financing
2

3. MTS at a glance
+34%
 The leading telecommunications provider in Total Group 11 293.2 12 318.7 13 181.0
9 867.3
Russia and the Commonwealth of Independent Revenue
States (CIS)
(USD mln)
 MTS one of the BRANDZ™ Top 100 Most 2009 2010 2011 2012E
Powerful Brands
‐ MTS included in the ranking in 2008, 2009, 2010, 108.1
Total 106.1
2011 and 2012 Subscribers*
105.6
‐ 85th brand overall with a brand value of $9.5 bln 102.4
(millions)
 Level III ADRs (NYSE:MBT) have been publicly 2009 2010 2011 Q2 2012
traded on the New York Stock Exchange since
June 2000
Subscribers, Russia 2009 2010 2011 Q2 2012
 MTS is majority-owned by Sistema JSFC Mobile (millions) 69.3 71.4 70.0 69.6
(LSE:SSA), the largest diversified public HH passed, 000s 7 502 9 890 11 433 11 507
financial corporation
BB Internet, 000s 1 298 1 805 2 152 2 285
in Russia and the CIS
Pay TV, 000s 1 762 2 580 2 987 2 937
*Including subscribers of Mobile TeleSystems LLC, a mobile operator in Belarus, in which
MTS owns a 49% stake and CDMA subscribers in Ukraine.
3

4. Contents
MTS at a glance
Emerging confidence in emerging ▪ Emerging markets are drivers of economic growth
markets ▪ Budgetary discipline and ample reserves
▪ Low indebtedness
Russia: local liquidity and financing ▪ Sovereign ratings fail to reflect economic reality
▪ Corporate credit ratings lagging
▪ Volatile stock market
4

5. Emerging markets are drivers of economic growth
GDP growth forecast
11%
 Emerging markets are growing and consuming
‐ IMF forecasts about 4% GDP growth for 2012-2013 9%
in Russia 7%
‐ Higher growth rates in developing Asia
5% 4.3% 4.3% 3.8%
‐ Consumption growth in BRIC markets markedly 3.7%
higher than developing markets 3%
‐ Russian market characterized by moderate growth
and high disposable income 1%
-1% 2010 2011 2012E 2013E
Russia USA Europe
OECD Developing Asia Latin America
 Emerging markets are working
‐ Unemployment in emerging markets generally Source: IMF, OECD data and forecast
lower than developed markets
‐ Russia boasted a moderate unemployment rate of Real consumption growth forecast
5.2% in August 2012 12%
10%
 Inflation is under control 8%
‐ Russia’s inflation rate of 4.6% for January-August
6% 5.2%
2012 4.8%
4% 4.4%
2%
0%
2011 2012E 2013E
-2% USA Russia Europe 5
Brazil China India
Source: Citi Bank

6. Russia: budgetary discipline and ample reserves
Russian Central Bank international reserves (USD bln)* Fiscal balance (% of GDP)**
4%
600
530*
500 2%
483 511
448 0%
400 464 456
2011 2012E 2013E
300 289 -2%
168
200 117 -4%
68
100 48
28 37
-6%
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -8% Europe USA Russia China Brazil
Source: Russian Central Bank; *as of October 2012 Source: Citi Bank
World reserves of foreign exchange and gold as of 2011  Russia has budgetary discipline
– Minimal government budget deficit as a % of GDP
Country Foreign exchange and gold reserves, USD bln
compared to developed world and BRIC countries
China 3,236
Japan 1,259
EU 813
Russia 499
 Russia has substantial international reserves*
– ≈$530 bln in international reserves as of October 2012
Brazil 352
– 19-fold increase since 2000
India 298
– Trending upward
Source: CIA World Factbook
6
*Includes hard-currency reserves, gold, IMF , supplementary foreign exchange reserves held with IMF **The balance of a government's tax revenues, plus any proceeds from asset sales, less
government spending

7. Russia: low indebtedness
Government debt (% of GDP)
120% 112%
103% 107%
100% 94% 94%
 Among leading global economic 87%
80%
regions, Russia boasts low 69% 69% 69%
54% 54% 55%
government debt 60%
‐ Russia has a very low government debt as a % 40%
of GDP in comparison with the USA and
15% 16% 16%
Europe 20%
8% 9% 8%
‐ Debt level to remain stable
0%
2011 2012E 2013E
USA Europe India Brazil China Russia
Source: Citi Bank
Household debt (% of GDP)
0% 20% 40% 60% 80% 100%
 Household resilience UK 98%
‐ Russian households are virtually unleveraged, US 88%
in particular when compared to household Spain 82%
debt in Western markets Japan 68%
‐ Russia has the lowest household debt among Germany 59%
the BRIC countries France 49%
Italy 46%
China 29%
Brazil 15%
India 9% 7
Russia 8%
Source: McKinsey, 2012

8. Russia: Sovereign ratings fail to reflect economic reality
 Unlike developed market peers, S&P
Gov’t debt GDP
Current
Gov’t debt GDP
rating/ S&P
merging market governments have Country
outlook
2007 Growth
rating/
2012F Growth
maintained debt levels while adjusting (% of GDP) 2007 (% of GDP) 2012F
2007 outlook
to lower-growth environments Germany AAA/stable 65% 3.3% AAA/stable 83% 0.9%
 Russian sovereign ratings, although USA AAA/stable 69% 1.9% AA+/neg 107% 2.2%
investment grade, remain relatively
Spain AAA/stable 46% 3.5% BBB+/neg 91% -1.5%
low compared to the developed
countries despite a demonstrable Italy A+/stable 95% 1.7% BBB+/neg 129% -2.3%
track record of:
‐ Strong hard currency reserves
‐ Budgetary discipline
China A/positive 20% 14.2% AA-/stable 16% 7.8%
‐ Low household indebtedness
‐ Low governmental indebtedness Russia BBB+/pos 7% 8.5% BBB/stable 9% 3.7%
 Since before the crisis, S&P has Brazil BB+/pos 55% 6.1% BBB/stable 54% 1.5%
actually reduced the sovereign debt
India BBB-/stable 79% 9.8% BBB-/neg 69% 4.9%
rating for Russia despite stable GDP
Source of forecasts: IMF, Citi bank
growth and fiscal discipline
8

9. Russia: corporate credit ratings lagging
S&P credit ratings of leading telecommunications companies Post-Crisis 2009 – 2011
Net Debt/
 Rating agencies continue S&P credit FCF
LTM
Current S&P FCF Net Debt/
to attach too much risk to Company rating/outlook (USD mln)* credit rating/ (USD mln)* LTM OIBDA
OIBDA
2009 2009 outlook 2011 2011
Russian issuers despite 2009
profitable growth, stable Telecom
BBB/stable 1,296 3.1 BBB/negative 3,361 2.3
Italia
cash flows and low debt
Bharti BBB-/stable -304 0.4x BB+/stable 1,508 3.1x
levels
Portugal
BBB/stable 1,084 2.4x BB+/negative 987 2.9x
Telecom
MTS BB/stable 1,264 1.2x BB/stable 1,265 1.3x
 Russian companies Multiples of leading publicly traded telecommunications companies
remain undervalued EV/EBITDA P/E EV/EBITDA P/E
Revenue OIBDA
compared to other EM Company Growth 2009 margin
2009 2009 2012 2012
– 2012E 2012E
and European ‘problem’
Vodacom 5.1x 10.9x 6.8x 13.1x 19% 35%
market peers despite
stronger or comparable Turkcell 4.8x 11.7x 5.4x 12.1x 13% 31%
growth prospects, higher Portugal
profitability, stable FCF 4.8x 7.4x 5.0x 12.0x stable 33%
Telecom
generation and a stronger MTS 4.6x 14.7x 4.4x 9.8x 15% 41-42%
balance sheet
Source: Goldman Sachs. FCF is calculated as OPCF minus Capex
9

10. Russia: volatile stock market
Russian RTS Index dynamics vs. other stock markets
120
100
 Russian stock market is vulnerable to
80
global turmoil, as the major capital
investments come from abroad 60
40
20
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jan-08
Apr-08
Jan-09
Apr-09
Jan-10
Apr-10
Jan-11
Apr-11
Jan-12
Apr-12
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
RTS FTSE100 DJI S&P500 Bovespa Nikkei225 Hang Seng
Capital outflow from Russia during 2008 crisis
 At the end of 2008 major capital 14%
outflows from the Russian market 12%
10%
were recorded
‐ Russia places no restrictions on capital; 8%
minimal currency and FOREX controls 6%
enable capital to move freely in and out 4%
of the Russian market 2%
0%
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jan-07
Apr-07
Jan-08
Apr-08
Jan-09
Apr-09
Jan-10
Apr-10
Jan-11
Apr-11
Jan-12
Apr-12
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Russia as % of MSCI Allocation of GEM funds to Russia 10
Source: HSBC

11. Contents
MTS at a glance
Emerging confidence in emerging
markets
Russia: local liquidity and financing ▪ Emergence of local liquidity and financing
▪ Growth in financing
▪ Increase in local funds borrowing
▪ Growth in financing: supporting CAPEX
▪ MTS migrates debt portfolio from USD to RUB
▪ MTS optimizes repayment schedule
11

12. Russia: emergence of local liquidity and financing
Interest rate of CBRF operations
 Since 2009, the Central Bank of Russia has
% Mosprime CB Repo Ref Rate CPI %
taken leading role in stimulating local capital 24 24
markets 22 22
20 20
‐ Liquidity support has enabled Russian
18 18
corporates to take advantage of reasonable 16 16
borrowing rates through multiple debt 14 14
instruments 12 12
‐ Capital infusion has attracted other investors 10 10
and enabled leading banks to increase their 8 8
credit portfolios 6 6
4 4
‐ Emergence of local markets enabled many
2 2
leading Russian corporates to access credit 0 0
when Western markets were frozen 06.08 12.08 06.09 12.09 06.10 12.10 06.11 12.11 06.12
Source: CBRF, GKS
 Key factors impacting Central Bank decisions CBRF balance for liquidity
‐ CPI growth rates vs. forecast RUB bln RUB bln
‐ Risks of an economic slowdown 900 900
700 700
‐ Control of interest rates and forex volatility
500 500
300 300
 Central Bank increases volume of refinancing 100 100
-100 -100
‐ Current volume of refinancing reaches RUB 2.5 -300
06.08 12.08 06.09 12.09 06.10 12.10 06.11 12.11 06.12
-300
trillion -500 -500
‐ More than 1.5-fold potential increase is -700 -700
-900 -900
announced -1 100 -1100
‐ The largest volume of liquidity provided is -1 300 -1300
offered on the weekly repo auctions, which -1 500 -1500
volumes have increased substantially in the last Source: CBRF
year Balance of transactions is calculated as a net worth between Bank of Russia liabilities to the
banking sector and Bank of Russia claims on the banking sector
12

13. Growth in financing
Volume of assets of typical Russian bank
mln RUB
 Russian banks are increasing in size and 1 600 000 01.01.2008
scope to service various sectors of economy 1 400 000 01.01.2009
1 200 000 01.01.2010
 Sustained volume of lending to companies
1 000 000 01.01.2011
of various sizes and individuals
‐ 40% growth rate in 2011 800 000 01.01.2012
600 000 01.09.2012
 Significant gap between large and small 400 000
banks reflect: 200 000
‐ Capital-intensity of Russian economy (e.g. 0
oil/gas, metals/mining and infrastructure Biggest Medium Small
sectors prominent) Source: CBRF
‐ Consolidation in marketplace
‐ Expansion of consumer credit Average4Q 2012 short-term loans extended by Russian credit
rates on
institutions
% %
 Assets growth of large banks is 2-3 times 18 in USD in EUR in RUB 18
higher than that of medium and small banks 16 16
14 14
12 12
 Competition and broader liquidity pool 10 10
steadily driving rates downward 8 8
6 6
4 4
2 2
0 0
2008 2009 2010 2011 2012
Source: CBRF 13

14. Increase in local funds borrowing
Volume of corporate and private loans, RUB trl
 Credit volumes are growing at high rates 40 +12% +39% +16%*
0.1
 In years prior to 2008 global financial 30 5.3
crisis, Russian corporates began looking 0.1
0.1 3.0 0.1
at the developing ruble bond market for 20 2.5
3.5 4.5
2.7 1.7
funding 3.3
25.4
10 18.0
15.8 17.1
 Liquidity issues abroad have heightened
interest in Ruble-based bonds since 2009 0
2009 2010 2011 Sep 2012
Legal Entities in RUB Legal Entities in Foreign Currency
 Though markets are fickle like in the Individuals in RUB Individuals in Foreign Currency
West, ruble bonds are increasingly being *Compared to September 2011; Source: CBRF
used to finance Russian corporates Volume of corporate bonds, RUB bln
160 160
 Overall the Russian bond market has 140 140
made corporates less depending on 120
+36%
120
Western markets and provide access to
100 100
liquidity to meet the needs of local
bln USD
bln USD
80 80
companies +141%
60 60
40 40
20 RuBonds Eurobonds 20
0 0
03.2009 09.2009 03.2010 09.2010 03.2011 09.2011 03.2012 09.2012
Source: Cbonds agency
14

15. Growth in financing: supporting CAPEX
Capital of typical Russian bank
 Increasing asset base, government support mln RUB
and more local lending have enabled small, 01.01.2008
180 000
medium and large Russian banks to increase 01.01.2009
150 000
their capital base 01.01.2010
120 000 01.01.2011
90 000 01.01.2012
 Capital growth rates of Russian banks 60 000
01.09.2012
exceeded volumes of lending growth rates
30 000
during 2009-2011
0
Biggest Medium Smallest
Source: CBRF
4Q 2012
Corporate investments (fixed assets) in Russia (RUB trl)
 Investments in fixed assets in Russia have 12 10.8 +5.5%
been increasing steadily since 2009 driven 10 8.7
9.2
7.9
by more funding on better terms available 8 6.6
on the internal market 6
4
2
0
2007 2008 2009 2010 2011 2012E
Source: GKS, Ministry of Economic Development 15

16. Example: MTS migrates debt portfolio from USD to RUB
Currency distribution as of FY2008
 From 2008 until now, MTS has migrated its
primary debt currency from USD to RUB RUB
EUR 20%
11%
 The company has utilized bilateral facilities, 69%
ECA-backed facilities, Eurobonds and hedging
to more closely align its debt portfolio to its
primary currency of revenue USD
Duration: 2.9 years
 At the same time, the Company has Currency distribution as of Q3 2012*
succeeded in increase the duration of its
financing and lowering its average cost of
EUR RUB
debt 3%
76%
21%
USD
Duration: 3.8 years
16
*Including Forex hedging in the amount of $300 mln as of Q3 2012

17. Example: MTS optimizes repayment schedule
Repayment of major debt instruments since 2009
 MTS’s debt payment RUB
schedule now features EUR
multiple instruments USD
56 bln
predominantly in $238 mln
rubles to match debt $630 $300 mln
with currency of $360 $413 $162 mln $400 18 bln $400
mln
mln mln mln mln
primary revenue and ING Gazprombank ING EBRD, EIB, ING Eurobond Sberbank Gazprombank Eurobond
cash generation, syndicated syndicated NIB syndicated
loan loan loan
optimize borrowing
costs, increase tenor 2009 2010 2012
and maximize flexibility
in the management of
the Company’s debt Debt repayment schedule as of Q3 2012 (USD mln)
portfolio
730
730 58 323
323
7
1079 1079 1079
325 1 278 1 221
325 440 1 281 750
136 440 750
2
454
318 246 202 199 85
93 247 142 92
Q4 2012 2013 2014 2015 2016 2017 Thereafter
Loans in other currencies (USD/EUR) Eurobond Loans in rubles Ruble bonds
17