Updated April 18, 2008

   KIT Finance is the first Russian investment bank to place the ruble nominated mortgage bonds abroad.

According to KIT Finance information, the European funds have paid off around the half of the 6 billion issue. Experts are puzzled why the western investors would need the mortgage securities of low return.

   KIT Finance is the first Russian bank that has conducted the transaction for mortgage securitization after the crisis.

It was also the first ruble transaction that had been realized abroad. Such operations have been earlier conducted at the western market in

the foreign currency solely. Russian Mortgage Backed Assets (Rumba) S.A company, registered in Luxemburg, was the issuer of ruble Eurobonds. The securities were listed at the Irish Stock Exchange, but they would circulate in the international depositary clearing system Euroclear.

   The Senior tranche of securities, provided by the mortgage, totaled RUR 5,445 billion, the coupon was estimated at 8,75% per annum. Tranche B volume equals RUR 605 million, the coupon rate is 9% per annum. Standard & Poor`s agency has rated the Class A bonds as BBB+, and Class B bonds as BB.

   As said KIT Finance financial director Dmitry Romaev, the Russian institution investors, including banks, have purchased more than 50% of the issue. "The rest has been purchased by the European funds oriented to the ruble assets.

In particular, these funds are located in England", he specified. Morgan Stanley was the managing bank, but they refused to comment.

KIT Finance head Alexander Vinokurov declared earlier that "the bid book is open and talks with both Russian and western investors are held.

According to the head of Soyuz bank structural products department Konstantin Cherkasov "it seems as the bank did not expect to obtain demand for the securities in full at the internal market, therefore it parlayed into the foreign investors".

   Mr. Romaev explained that facilities attracted from the securities placing would be directed to lending of mortgage, small and middle business.

In 2007 the bank has floated around 20 000 loans for more than $1,3 billion, the bank mortgage portfolio has totaled RUR 32,5 billion by the year results. The bank occupies the third place after the Savings Bank and VTB by the portfolio volume.

According to RBC.Rating data, the bank has shown the maximum portfolio increase in 2007 – 342,6% – due to credits pay-offs from another banks mainly.

    AntantaPioglobal senior analyst Maxim Osadchy estimates the results of placing as positive.

"With account of the market allergy to the mortgage securities the placing of both tranches in full can be considered as rather successful".

   However, the large foreign bank representative considers that "the transaction has probably had the non-market character". A source specifies that there is the offer with the analogical rating at the secondary market in the West with the higher return – 9,5-10,5% per annum. "Bonus which is predetermined by the coupon rate of KIT Finance Eurobonds in relation to returns from non-risky assets (currency forwards) is rather small", supposes DWS Investment vice-president Dmitry Dudkin.

"In case when the majority of large funds continue to have problems with mortgage securities, foreigners' interest to such assets is rather doubtful".