/IRBIS, July 24, 02/ - Present information is published by IRBIS agency according to information of KASE Listing commission conclusion, which was made due to passing of procedure of admittance to circulating of inscribed indexed coupon bonds of East Kazakhstan (EKO) of the second (KZF2KY030021, VKU036.002; KZT15,370; KZT700.0m; July 26, 02 - July 24, 05) and the third (KZF2KY070035, VKU084.003; KZT15,370;
KZT2,000.0m; July 26, 02 - July 23, 09) issues.

RISKS, INDICATED BY CONSULTANTS

Among existing risks, which can negatively influence a financial position of issuer ad its ability to pay all liabilities, the consultant mentioned the following risks.

1. Difficulties regarding budget forecasting of the oblast for the period of bonds circulation due to incompleteness of reforming a budget system of republic, nontransparent system of requisitioning and subventions.

From July 01, 2001 rate of social tax decreased, which accounts for the largest volume of tax receipts (1999 - 42.3%, 2000 - 26.3%, 2001 - 34.7%, specified budget of 2002 - 38%), from 26% to 21%. Further (2003 budget) next decrease of social taxes to 18% is planned. At that introduction of required medical insurance, which will be 3% of remuneration of labor fund is planned, however, it is not known in which way the transfer will be distributed to medical insurance. Receipts from income taxes of legal entities in full volume are directed to republican budget, and most likely, this distribution will take place in future.

Change of receipts distribution system into republican and oblast budgets might significantly complicate settlement and servicing of the debt. East Kazakhstan Akim machinery expects no fulfillment of specified plan. This firstly relates to transfer of receipts on income taxes into republican budget and rate decrease, and then later on a social tax base. Republican budget plans to compensate receipt deficit through subventions to oblast budgets, though total volume of subventions in 2002 don't cover all losses of oblast budget. Planning of actual state transfers in favor of oblast for the period of some years is impossible.

At the same time expenses of the blast budget, related with servicing of debt, by the decision of VIII session of East Kazakhstan oblast maslikhat of II calling dated March 27, 2001 (on first issue of bonds) and by the decision of XII session of East Kazakhstan oblast maslikhat of II calling dated December 21, 2001 considering changes and additions, made by the decision of XV session of East Kazakhstan oblast maslikhat of II calling dated May 30, 2002 (on second and third issues), are not a subject to sequestment.

2. Additional source of risk is related to significant obsolescence of infrastructure objects in the region, which might incur greater financing expenditures of the budget in the case of emergencies.

3. East Kazakhstan oblast bonds have a status of state issuing securities, issued by local executive body. This circumstance implies the responsibility of the Government that sanctioned the issue for timely and complete fulfillment of liability, regarding settlement and servicing of the debt, and in many aspect determines relationship terms of the Government and local executive body in the process of oblast budget forming for the period of bonds circulation.

4. In the medium-term perspective Kazakhstan economy in generally and income part of the republican budget in particular continue to depend on conjuncture of world trade markets (in the first place - hydrocarbon minerals). Against past opinions, extracting and exporting companies couldn't compensate a price fall on hydrocarbons by proportionate increase of production, which directly influenced currency receipt. Preserved dependence of economy on world prices on recourses significantly complicates a forecast of inflation and tenge rates for the period of bonds circulation. The National Fund of Kazakhstan was assigned to decrease the dependence of economy on world trade markets.

A heart of economic potential of East Kazakhstan oblast is enterprises of non-ferrous metallurgy, whose financial condition definitely depend on world prices on non-ferrous metals, which highly fluctuates. In 2001 about 22.4% of total budget revenues of the oblast fell to the largest taxpayer's (KazZink) lot (in 1999 - 21%, in 2000 - 26%).

Deficit of receipts into revenues part of oblast budget relative to planned indicators might significantly complicate a discharge of settlement and servicing of debt.

5. Issuer's right to settle bonds early complicates forecast for investors, forming a risk of refinancing (though current situation at securities market makes this risk insignificant). Issue liquidity will be supported by market- makers in the entity of TuranAlem Securities LLP. Nevertheless there is lack of guarantee that the over-the-counter market of these securities will be active.

6. Bonds are indexed to tenge to dollar rate change, which frees investors from risk of tenge devaluation, but in the case of big tenge devaluation the issuer can face some difficulties in servicing and settlement of bonds.

7. Investments into car assembly plant BIPEK AUTO CJSC are related with high risk, which implies general risks of any investment project of this type. Thus, financing of this project will be made by 50% ($26m) in expense of bonds floatation and other 50% - at the expense of loans of Development Bank of Kazakhstan. Funds from offering bonds according to the present normative and legal base will be used under two-time scheme. On the grounds of loans contracts, funds received, from bonds offer, will be transferred to accounts of chosen banks-lenders, which, in their turn, will conduct crediting of final borrowers. In issuer's and its Consultant's opinion a participation in mentioned scheme will increase level of effectiveness and lower risks, related with possible funds non- repayment to the oblast budget.

RISKS, INDICATED BY THE MINISTRY OF FINANCE OF KAZAKHSTAN

Currency risk. According to evaluation of the Ministry of Finance of Kazakhstan volume of currency risk (losses of local budget due to rate change) might total KZT585.3m in total volume of borrowing.

Credit risk. Scheme of credits offer to debtors with immediate settlement creates large risk of untimely and incomplete return.

Additional expenditures. In expense part of the local budget additional expenses are not reflected, related with payment of consulting and other services professional of professional stock market participants.

RISKS, INDICATED BY THE MINISTRY OF ECONOMY AND TRADE OF KAZAKHSTAN

Technical and technological risk. Risk, related to mistakes in projecting, increase of prices on components, gaps in supply. When transferring to components of local production the problem of technology requirement non- fitting can arise.

Marketing risk. Risk, related to wrong chosen market of distribution and wrong defining of a strategy.

NOTES OF KASE LISTING COMMISSION

1. In 1999 21%, in 2000 - 26%, in 2001 - 22.4% of total revenues of oblast budget fell to one payer's lot - KazZinc OJSC. In case of financial situation fall of this payer, it can greatly influence revenues part of a budget.

2. There is significant divergence in statistical data for 2000 between data for admittance procedure provided for the first issue and for the second and the third issues. The issuer and consultant explain it by efficiency of data provided in June 2001, as data for 2000, provided in July 2002, represents actual figures. In addition, according to the issuer and the Consultant during 2000-2001 changes into methodology of different indicators calculation (average salary, average money receipts per person etc.) and small- and medium-enterprises classification system were made, which led to corrections of information stated earlier.

3. By the resolution of the Government of Kazakhstan dated June 15, 2002 #654 it was determined that the issuer will execute borrowings at the securities market in accordance with Policies of issue, floatation, circulation, settlement and servicing of securities of local executive bodies, confirmed by the Government resolution #1139 dated Sept 04, 2001. In accordance with it issuer carried out borrowings at securities market in 2001. According to mentioned policies par value of one bond is a sum, equivalent of $100, which contradicts to the Article 282 of Civil Code of Republic of Kazakhstan.

For correcting this contradiction the issuer directed inquiry to the Ministry of Finance. According to provided explaining letter (dated July 16, 2002 #32-5-2/8629) the Ministry of Finance of Kazakhstan consider it possible to carry out the floatation of bonds with par value of $100 equivalent under the following terms:

- Par value will be fixed in tenge at the official rate of the National Bank of Kazakhstan to the date of specialized trades conducting;

- Settlement of bonds will be conducted in the national currency with indexation of nominal price to devaluation (revaluation) of tenge to US dollar at the official rate of the National Bank of Kazakhstan.

[2002-07-24]