S&P affirms Kazakhtelecom (Kazakhstan) GAMMA rating at GAMMA-5+, withdraws it due to GAMMA rating actions cessation

/Standard & Poor's, Moscow, September 8, 11, heading by KASE/ - Standard & Poor's Governance Services said today that it had affirmed and immediately withdrawn its 'GAMMA-5+' Governance, Accountability, Management Metrics, and Analysis score assigned to Kazakhtelecom (JSC), the largest telecommunications operator in Kazakhstan. The withdrawal of the GAMMA score on Kazakhtelecom is made at Standard & Poor's initiative. It reflects our decision to cease providing stand-alone governance scores, while continuing to incorporate governance analysis in our global and local scale credit ratings. Kazakhtelecom's overall GAMMA score is the result of four component scores ranging from a low of 1 to a high of 10: - Shareholder influence: '5+' (no change) - Shareholder rights: '6' (raised from '5+') - Transparency, audit, and enterprise risk management: '6' (no change) - Board effectiveness, strategic process, and incentives: '5' (no change) "Kazakhtelecom continued to develop its corporate governance procedures in 2011. The board played an active role in the decision-making process and we believe the newly created strategy committee has become an effective platform for strategic discussions," said Standard & Poor's governance analyst Ekaterina Marushkevich. - On the other hand, several important weaknesses remain. In particular, the executive compensation system does not present meaningful performance incentives, in our view. Amendments to the long-term corporate strategy have not yet been approved, while its previous edition dates back to 2007. Moreover, disclosure of ultimate owners of the minority stakes is incomplete". The strengths of corporate governance practices at Kazakhtelecom, according to Standard & Poor's Governance Services, are as follows. - Most directors on Kazakhtelecom's board are either independent or represent the interests of minority shareholders. The board plays an active role in the decision-making process: it has already met five times face-to-face in 2011 and thoroughly discussed the issues pertaining to corporate strategy and management oversight. - The board-level audit and remuneration committees are active and consist only of independent members. In addition, the new strategy committee has performed regular and informative discussions in 2011. - Shareholder meeting procedures are strong overall. Annual financials according to International Financial Reporting Standards (IFRS) were available before the annual meeting was held at the end of May in 2011, in correspondence with the company's charter. Accordingly, dividends were paid out earlier than in previous years. - The overall level of disclosure is generally strong. Financial statements according to IFRS are released quarterly. The corporate Web-site contains useful information for investors and analysts. - Internal audit procedures are effective. The internal audit department reports to the board. The scope of its assignments is extensive and the risk-based approach to planning the department's work is applied. Risk management procedures became more systematized in 2011. Standard & Poor's analysis, however, identified several weaknesses in the company's governance system. - All board decisions require the approval by a supermajority of at least seven votes out of nine. Although we view current relations between shareholders as fairly constructive, we believe that the supermajority arrangement could hamper the board process should this change. - The influence of the majority shareholder has been controversial at times, such as in the case of executive compensation policies. The government of Kazakhstan maintains a cap on compensation that applies to executives of the largest state-owned companies, including Kazakhtelecom. - There are several weaknesses in disclosure, primarily with respect to beneficial ownership and executive compensation practices. The investor relations function is only now being developed. Analyst contacts: Ekaterina Marushkevich, Moscow, 7 (495) 783-40-44 ekaterina_marushkevich@standardandpoors.com Oleg Shvyrkov, Moscow, 7 (495) 783-40-45 oleg_shvyrkov@standardandpoors.com Governance@standardandpoors.com [2011-09-09]