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2009 September 11   07:35

TransContainer GAMMA score raised to GAMMA-6

Standard & Poor's Governance Services raised its GAMMA Score on Russian container transportation company TransContainer to GAMMA-6 from GAMMA-5+, RZD-Partner refers to www.cbonds.info

The upgrade of the GAMMA Score reflects the growing experience and overall development of governance structures at TransContainer. We have reason to believe that these structures have demonstrated their effectiveness on several occasions in recent months. 

“In our opinion, TransContainer’s transparency and the audit process have improved. The board has established an effective process and increased the role of independent directors in the board-level committees," said Standard & Poor's governance analyst Elena Pastoukhova. ”On the other hand, it is a weakness that majority-owner Russian Railways may face conflicts of interests in the context of related-party transactions and decision-making procedures regarding TransContainer are lengthy. Some strategic issues must be approved by the parent’s board, for example."

The overall GAMMA score of TransContainer is the result of four component scores of 1 (low) to 10 (high). 
-- Shareholder influence 5+
-- Shareholder rights 6+
-- Transparency, audit, and ERM 5+ (up from 5)
-- Board effectiveness, strategic process, and incentives 6 (up from 5)

The strengths of corporate governance practices at TransContainer include: 
-- Russian Railways has shown openness to developing strong governance structures at TransContainer. 
-- Russian Railways maintains constructive relations with minority investors, and has entered an agreement with the EBRD that establishes various shareholder protections.
-- The board is actively involved in decision-making and management oversight. Although representatives of Russian Railways, with the CEO, make up the majority of the board, they have demonstrated a genuine desire to reach consensus on issues discussed by directors. 
-- The work of the board committees has been fully established, and both are chaired by independent directors with relevant experience.
-- Web site disclosure is generally good. Financial disclosure is moderate, albeit improving.
-- Although controlled by a state-owned company, TransContainer is not bound by any significant social obligations, leaving it free to act on a purely commercial basis.

Standard & Poor's analysis has, on the other hand, identified several weaknesses in the company's governance system, including:

-- The sheer size of Russian Railways means issues pertaining to TransContainer may not be top priority for the parent, and can make decision-making protracted. 
-- The absence of a strategy at parent level is hindering the adoption of a fully-fledged company strategy. 
-- Remaining disclosure weaknesses include limited information on strategic targets and timeliness of information being put in the public domain, as well as non-disclosure of auditor fees and individual director and executive compensation. 
-- Short track record of interaction between the audit committee with the IAD. Additionally, we observed a lack of separation of the control and audit functions. 
-- TransContainer’s risk management system is still only being developed.

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 GAMMA scores and other analytic services are performed as entirely separate activities in order to preserve the independence and objectivity of each analytic process. GAMMA scores are offered to companies in the emerging markets, with the primary focus on Brasil, Russia, India, and China (the BRIC countries).

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