ACRA CONFIRMED THE COMPLIANCE OF THE ISSUANCE OF EXCHANGE BONDS 001P-06R (ISIN RU000A105LC6) BY ROSTELECOM PJSC WITH THE ICMA SOCIAL BONDS PRINCIPLES

acra confrimed the compliance of PJSC ROSTELECOM’S SERIES 001P-06R (ISIN RU000A105LC6) EXCHANGE-TRADED BOND ISSUE with the icma’s social bond principles; and confirmed the COMPLIANCE OF PROJECTS THAT WERE REFINANCED USING this BOND ISSUE WITH INTERNATIONALLY RECOGNIZED PRINCIPLES AND STANDARDS IN THE FIELD OF SOCIAL FINANCE

Compliance of the issue with Regulation of the Bank of Russia No. 706-P dated December 19, 2019

As part of the series 001P-06R (ISIN RU000A105LC6) exchange-traded social bond issue of PJSC Rostelecom (hereinafter, the Bonds) ACRA confirmed the compliance of the issue of Bonds with internationally recognized principles and standards in the field of social finance (the ICMA’s social bond principles), as well as the compliance of projects that were refinanced using the proceeds from the Bonds and aimed at developing public life with the internationally recognized principles and standards in the field of social finance (in accordance with Regulation of the Bank of Russia No. 706-P dated December 19, 2019 “On Standards for Issuing Securities”).

Within the framework of the comprehensive social projects presented by PJSC Rostelecom (hereinafter, the Issuer) aimed at the development of public life, costs were previously incurred (in the amount RUB 10 bln) in two areas:

• Creation of Infrastructure to Connect Socially Significant Facilities (SSFs) to the Internet;

• Bridging the Digital Divide (BDD) (hereinafter jointly referred to as the Projects).

Both Projects are being implemented as part of the federal project Information Infrastructure.

Both Projects are part of the social project categories specified by the ICMA in its 2021 version of the Social Bond Principles, taking into account additions made in 2022 (hereinafter, the SBP):

• Provision of affordable basic infrastructure;

• Providing access to essential services.

The refinancing of such projects through the issuance of bonds is possible both in international and in Russian practice.

Implementing the Projects allowed a positive social effect to be achieved, which is expressed in:

• Connection of Socially Significant Facilities (SSFs) to the internet (including educational and healthcare organizations);

• Increasing the efficiency of public bodies;

• Increasing the number of people who can rapidly access information, knowledge bases and centers of competence in healthcare;

• Increasing the number of wireless internet (Wi-Fi) access points in settlements with populations from 250 to 500 people;

• Increasing the number of users of wireless internet and modern cellular communication services in settlements with populations from 250 to 500 people;

• Improving the quality of life of residents of sparsely populated areas by increasing the availability of modern communication services, including by creating conditions for connecting schools, hospitals and other public institutions to high-speed internet.

ACRA confirms that the Projects that were refinanced using proceeds from the issue of social bonds comply with the basic internationally recognized SBP.

Therefore, the Agency confirms the compliance of the analyzed issue of Bonds with Regulation of the Bank of Russia No. 706-P dated December 19, 2019 “On Standards for Issuing Securities”.

COMPLIANCE OF THE ISSUE WITH THE ICMA’S SOCIAL BOND PRINCIPLES

ACRA confirms that the Issuer’s series 001P-06R (ISIN RU000A105LC6) bond issue complies with all the basic criteria of the SBP. The area in which proceeds will be used (projects that were refinanced through the issue of Bonds to achieve ICMA-compliant social project objectives and are aimed at developing public life, and also have a positive social impact), process of evaluating and selecting projects, management of proceeds and reporting presented in the document Regulations on Sustainable Financing of PJSC Rostelecom² (hereinafter, the Regulations) are fully in line with the SBP criteria, and consequently the bond issue can be considered as social.

² https://www.company.rt.ru/ir/corporate_governance/docs/Sustainable_Finance_Regulations.pdf

KEY ISSUE PROPERTIES

Sources: ACRA, Issuer’s data

PJSC Rostelecom is the largest provider of digital services and solutions in all market segments in Russia, a leading fixed-line services provider in the majority of regions, and the largest broadband operator. The Issuer is integrating the sustainability agenda into its activities, as evidenced by the following initiatives:

• The Issuer has integrated the UN Sustainable Development Goals (hereinafter, the UNSDG) into the management of the company and takes them into account when putting together its annual report and preparing sustainability projects;

• The Issuer created an ESG report as part of its 2022 annual report³, including a section that determines the contribution of individual areas of activity to achieving the UNSDG and priority UNSDG for the Issuer, also, the Issuer has compiled an ESG report⁴;

• The Issuer has adopted a number of ESG policies, including an environmental policy; policy in the field of labor safety, fire, industrial and environmental safety; regulation on industrial environmental control; ethical code; and an anti-corruption policy;

• ESG risks are integrated into the Issuer’s risk management program, in particular, the risks of labor safety, industrial safety and environmental protection, the risks of anti-corruption, as well as the risks of a lack of qualified personnel are taken into account;

• Initiatives are being carried out to reduce the Issuer’s environmental impact; in particular, the Issuer is transitioning to a green office and has started using automatic electricity and water consumption sensors, is introducing separate collection of waste, and uses environmentally friendly consumables, electronic document flow, and videoconferencing;

• The projects analyzed in this press release (opinion) (Bridging the Digital Divide and Creation of Infrastructure to Connect Socially Significant Facilities (SSFs) to the Internet) are also documented in the Issuer’s 2021 annual report with an indication of the achieved social effects and plans for the further implementation of projects.

³ https://www.company.rt.ru/en/ir/agm/files/2022/Annual_report_2022_eng.pdf
⁴ https://www.company.rt.ru/en/ir/results_and_presentations/esg_information/files/Rostelecom_ESG_report_2022_eng.pdf

key assessment factors

The Issuer provided ACRA with documents containing eligibility criteria for projects that were refinanced by issuing the social Bonds, project evaluation and selection process, approaches to managing proceeds, and reporting.

The Agency made conclusions on the compliance of the projects with the four basic criteria of the SBP based on documents provided by the Issuer, namely:

• Use of proceeds;

• Process of evaluating and selecting projects;

• Management of proceeds;

• Reporting.

Use of proceeds

The objectives of the issue of the Issuer’s social Bonds are clearly formulated and comply with the SBP. The proceeds from the issuance of these Bonds were used exclusively to refinance previously incurred expenses on two projects:

• Creation of Infrastructure to Connect Socially Significant Facilities (SSFs) to the Internet;

• Bridging the Digital Divide (BDD).

These Projects were carried out in 44 Russian regions.

Therefore, 100% of proceeds from the issuance of the Bonds were exclusively used to refinance the Projects, which fall under the ICMA social project categories “Providing access to essential services” and “Provision of affordable basic infrastructure” as per the SBP.

The Issuer provided the Agency with: (1) a complete list and descriptions of the Projects; (2) data on already achieved and target parameters of social effects from the implementation of the Projects; (3) terms of financing and generalized financial parameters of the Projects; (4) data on actually created access points within the framework of the BDD project, broken down by regions of the Russian Federation and settlements; (5) data on SSFs that have been connected to the internet, broken down by regions of the Russian Federation; (6) report on the proper (targeted) use of funds raised within the analyzed issue of Bonds.

A written conclusion has been received which states that the commissioned facilities are not capital construction objects and an environmental impact assessment is not required. The implementation of projects did not cause any significant damage to the environment and society.

When implementing the Projects, the Issuer was guided by the current ESG policies (including environmental policy; policy in the field of occupational safety, fire, industrial and environmental safety; regulations on industrial environmental control; code of ethics; and the anti-corruption policy), which sufficiently allowed the risks of possible negative consequences for the social sphere and the environment related to the implementation of Projects to be identified and managed.

The Issuer has indicated that these risks are absent because the Projects have been implemented.

The Issuer’s target group was all the residents of the settlements where Projects are being implemented, since these areas represent remote and sparsely populated towns/villages/hamlets/other settlements where it is economically unviable to set up high-speed internet connections (BDD project). A similar approach was applied to the project that involves creating infrastructure to connect SSFs to the internet.

The Issuer provided justification that the installation of high-speed internet in the considered settlements is economically unviable and therefore carries out a social function. Using a population as a whole on a geographic basis as a target group, without highlighting any narrow social category, is allowed by the SBP if a problem that is significant for a given territory is being solved.

ACRA considers the use of funds from this Bond issue to be consistent with the SBP.

Process of evaluating and selecting projects

The issuer has adopted a transparent process for evaluating and selecting projects, which is described in the Regulations. In accordance with it, the Issuer regards social projects as projects aimed at solving or mitigating a certain social problem and/or attaining a different positive social effect.

The Issuer categorizes the Projects declared as part the analyzed issue of Bonds as social projects in accordance with the Regulations, since they are aimed at creating accessible basic infrastructure (infrastructure for communication and accessing the internet).

In accordance with the Issuer’s procedure, the selection of projects is carried out by the Department of Finance, which for this purpose requests information from the Department of Economics and Investments and the Department for the Implementation of Comprehensive Projects. In accordance with the Regulations, the list of such projects is approved by the Board of the Issuer, which at the same time confirms their compliance with the requirements.

In addition, at the time of issue of Bonds, the Issuer had implemented the Projects, which had previously been financed using other financial instruments (including bank loans).

The Issuer has also determined the qualitative and quantitative ESG goals in its strategy for 2021–2025 (hereinafter, the Strategy). The Issuer has plans to develop programs detailing the procedures for attaining these goals.

The Projects that were refinanced by proceeds from the issuance of the Bonds are associated with one of the ESG goals specified in the Issuer’s Strategy, namely, “The government’s key partner in digitizing the country”⁵.

The Projects selected by the Issuer for the assessed issue of Bonds (Appendix 1) are part of the SBP categories “Provision of affordable basic infrastructure” and “Providing access to essential services” and correspond to the following UNSDG:

• SDG 4: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all;

• SDG 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all;

• SDG 9: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation;

• SDG 10: Reduce inequality within and among countries;

• SDG 11: Make cities and human settlements inclusive, safe, resilient and sustainable.

At the same time, the Issuer did not engage third-party experts to select the Projects and assess their social effects, and this limits the assigned assessment.

In ACRA’s opinion, the abovementioned algorithm generally indicates that the process of evaluating and selecting projects is effective and corresponds to market practices and the SBP.

⁵ See page 82 of the Issuer’s annual report: https://www.company.rt.ru/en/ir/agm/files/2021/Annual_report_2021_eng.pdf

Management of proceeds

The procedure for managing proceeds from the issue of social bonds is set out in the Regulations. According to the Regulations, proceeds from placing the Issuer’s social Bonds were transferred to a dedicated account of the Issuer and then allocated for refinancing the approved Projects under the conditions agreed for placing the social Bonds.

100% of the proceeds from the issuance of the Issuer’s social Bonds are planned were used to refinance expenses on socially important Projects incurred in 2021, the Issuer does not have a separate document on the procedure for placing proceeds from the issuance of its social Bonds. In addition, due to the Issuer’s plan to spend 100% of the proceeds from the issuance of social Bonds on refinancing, there were no temporary placements of unused funds from the analyzed issue of Bonds

The application of proceeds from the issuance of the Bonds will be disclosed in the Report on the application of proceeds from the issuance of the Bonds (hereinafter, the Report).

Taking into account the presence of the approved Regulations and preliminary parameters of issuance documentation, the Agency considers the procedure for managing proceeds to be sufficient in terms of information disclosure for investors.

In ACRA’s opinion, the procedure for managing proceeds fully complies with the SBP.

Reporting

The Issuer disclosed information about the target use of proceeds received from the placement of the Bonds in the Report.

The Issuer discloses information on the distribution of funds from the placement of social Bonds on its corporate website, the webpage provided to the Issuer by one of the accredited agencies at the address https://www.e-disclosure.ru/portal/company.aspx?id=141, and sent the Report to Moscow Exchange PJSC (the report was also published on the Exchange’s website⁶).

The published Report contains the following:

• Information about the Projects (names and descriptions);

• Description of the use of proceeds received from issuing the Bonds;

• The approved amount of project financing using the bonds bonds;

• Share of Project funds from other sources;

• Information on spending (allocation) of received proceeds in the reporting period;

• Information about the management of undistributed funds;

• Information of the achievement of qualitative and quantitative indicators of Project implementation, showing positive effects associated with social life (in accordance with Appendix 1);

• Information confirming the implementation of the Projects and the actual use of all funds received from the placement of these bonds;

• Information on the status of the Projects as of the end of the reporting period.

As part of the verification of the Report on all points of the said Report, the Issuer presented documents and materials confirming the information contained in the relevant sections. The Agency considers this information to be sufficient and trustworthy.

In the Agency’s opinion, the reporting procedure and the Report itself fully comply with the 2021 SBP.

⁶ https://www.moex.com/ru/listing/emidocs.aspx?id=1193&tab=4

ADDITIONAL ASSESSMENT FACTORS

Organizational structure and strategy

The Issuer determined goals of a social nature when preparing to issue the social Bonds, aligned them with the UNSDG, and determined the divisions that were responsible and continue to be responsible for implementing the analyzed socially oriented Projects.

The Issuer is generally focused on sustainability, which is evidenced by the facts contained in its 2021 annual report (see page 3 of this press release). In addition, the Issuer has established qualitative and quantitative ESG parameters, which it plans to achieve as part of its Strategy. The Issuer intends to develop programs that detail how these targets will be achieved.

The Projects analyzed as part of this press release (opinion) are related to one of the goals in the field of ESG indicated by the Issuer in the Strategy, namely: “The government’s key partner in digitizing the country”.

The Agency also highly rates the overall quality of the Issuer’s corporate governance and strategic planning, including the results of the Issuer’s last strategic cycle, and also notes the Issuer’s high level of information transparency.

Financial feasibility of projects

As of the placement of the issue of Bonds, the analyzed Projects have been completed. The Issuer provided information about revenues generated by the projects Bridging the Digital Divide and Creation of Infrastructure to Connect Socially Significant Facilities (SSFs) to the Internet in 44 Russian regions. In this regard, the Agency views the likelihood of financial feasibility of projects extremely high.

KEY ASSUMPTIONS

• Targeted use of funds received from the placement of Bonds;

• Implementation of Projects in accordance with information provided by the Issuer.

ASSESSMENT COMPONENTS

Compliance of the Bond issue with the SBP: yes.

Assessment score: SR2.

ADDITIONAL INFORMATION

The assessment of the projects that were refinanced as part of the social bond issue of PJSC Rostelecom for compliance with internationally recognized principles and standards in the field of social finance and/or sustainable development, as well as the bonds themselves — for compliance with the SBP — have been performed based on the Methodology for Assessing Social Debt Obligations and Sustainable Development Debt Obligations with regard to the assessment of social bonds, as well as the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The compliance assessment may be revised within one year following the publication date of this press release.

ACRA’s opinion on the compliance of the projects that were refinanced by PJSC Rostelecom with internationally recognized principles and standards in the field of social finance and/or sustainable development, and also on the compliance of the bonds of PJSC Rostelecom with the SBP is based on data provided by PJSC Rostelecom, information from publicly available sources, and ACRA’s own databases. The assessment of compliance of the projects that were refinanced by PJSC Rostelecom with internationally recognized principles and standards in the field of social finance and/or sustainable development and the assessment of the compliance of the bonds of PJSC Rostelecom with the SBP are solicited, and PJSC Rostelecom participated in the assessment process.

In assigning the assessment, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

No conflicts of interest were discovered in the course of the assessment process.

The assigned assessment is not a credit rating.

Appendix 1. Description of projects refinanced through the issuance of social bonds and the social effects achieved