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Sibirtelecom Governance Score 'CGS-5' Global Scale, 'CGS-5.3' Russia National Scale Affirmed, Withdrawn At Company Request

July 31, 2009 Standard & Poor's

S&P Withdraws Sibirtelecom Gov Scores at Co's Request

MOSCOW (Standard & Poor's) July, 31, 2009--Standard & Poor's Governance Services said today that it affirmed and immediately withdrew its corporate governance scores (CGS) of 'CGS-5+' global scale and 'CGS-5.3' Russia national scale on Sibirtelecom (OJSC), the leading fixed-line telecommunications operator in the Siberian Federal District of Russia. The scores were withdrawn at the company's request.

"We observe marginal improvements in governance processes since our last review, including the earlier publication of IFRS financials,” says Standard & Poor's governance analyst Anna Grishina. “The score remains constrained by the unbalanced influence of the majority shareholder. This issue is particularly important in view of the expected reorganisation of the Svyazinvest group, which presents risks for minority shareholders in Svyazinvest’s inter-regional subsidiaries.”

The overall CGS on Sibirtelecom 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 (unchanged)
-- Shareholder rights and stakeholder relations
7/7.1 (unchanged)
-- Transparency, disclosure, and audit
6/6.4 (raised from 6/6.3)
-- Board structure and effectiveness
4+/4.7 (unchanged)

The strengths of corporate governance practices at Sibirtelecom include the following:
-- Shareholder meeting procedures are strong. The company published audited IFRS financial statements in 2009 before the annual shareholder meeting (it published preliminary financials in 2008). Minority shareholders enjoy a wide measure of rights under Russian law and Sibirtelecom’s charter.
-- The level of disclosure is generally high. Sibirtelecom presented an unqualified auditor’s opinion in its annual IFRS accounts for the first time in 2008, and started preparation of quarterly financial statements. Proactive investor relations policies are in place.
-- Minority shareholders are active; there are two external directors on the board who are not exposed to significant conflicts of interests.
-- The board has substantial authority. The board process is supported by four board committees, all of which include independent directors. The effectiveness of the audit committee has increased since our last review, though its independence remains limited.
-- The company employs a top-tier international audit firm chosen via an open tender.

There are, however, a number of weaknesses, including:
-- Controlling shareholder Svyazinvest dominates the board and there is no effective system of checks and balances in place. The ability of minority shareholders and their board representatives to balance this influence is very limited. At the same time, Svyazinvest has significant conflicts of interest and has relatively weak governance practices.
-- A potential reorganisation of the Svyazinvest group presents significant risks for minority shareholders in Svyazinvest’s IRTs.
-- Despite improvements, IFRS statements are released relatively late by international comparison.
-- Dividends are paid out within a six-month period following the annual shareholder meetings, later than at many Russian companies and far slower than at well-governed international companies.
-- 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.
  • Full name
    Rostelecom - Siberia
  • Registration country
  • Industry