Research Notes

Bereznikovsky Soda Plant (BSP) currently ranks among Russia's three largest sodium carbonate producers. Rapid growth of construction in the country is driving up demand for glass products and sodium carbonate is the main raw material used to manufacture glass. These trends will help develop Bereznikovsky Soda Plant whose shares, in our opinion, look undervalued by the market and hold fairly good upside potential. In addition, we believe the company has strong prospects, which are associated with the core owner's ambitious plans and will strengthen the investment appeal of the company's shares:

• Glassworks are traditional consumers of sodium carbonate. The Russian glass market holds robust upside potential. Large-scale construction in most Russian regions is bolstering demand for glass, which should therefore drive up demand for sodium carbonate from the current 2 mln tons to 2.7 mln tons by 2009.

• Russian Soda Company, which controls 83.86% of BSP's charter capital, intends to build several glassworks in Russia and additional sodium carbonate will be needed after these facilities are commissioned.

• By 2009, Russian Soda Company plans to build at BSP's site the second phase for heavy soda output with annual capacity of 540,000 tons. This means that the company's existing production capacities are set to double. In addition, the company's new and existing production facilities will target the domestic market.

• The company is based on the largest lime pit in terms of reserves and therefore raw material for production will be sufficient for a long period of time.

The company's RTS listing will help improve share liquidity and investment appeal in the eyes of a wider circle of investors.

According to our estimates in terms of multiples, the fair price of Bereznikovsky Soda Plant is $294 per common share and $176 per preferred share. Our recommendation is Buy on both commons and prefs.

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Michael Frolov

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