Share-based payments

Share-based program started in 2011 (preferred shares)

In June 2011, the Board of Directors of the Company approved changes to the employee long-term incentive program by launching an additional share option scheme. Members of the Board of Directors and senior employees were granted options to buy preferred shares of the Company at an exercise price 87.6 RUB per share. Total funds allocating to the scheme amounted to 3,500. To operate the program, the Company established fund “Gazpombank – Telecommunication Plus” under management of ZAO “Gazprombank – Upravlenie aktivami”. To execute the program fund “Gazpombank – Telecommunication Plus” purchased shares from the Company’s subsidiary LLC Mobitel. The contracts with part of employees were signed on 29 June 2011. Another part of employees signed the contracts on 31 March 2012.

The scheme is classified as equity-settled share-based payment plan. The Group receives services from its executives and senior employees and grants its own equity instruments as consideration. The share-based transaction is settled by the Fund, which is a SPE controlled by the Group and, therefore, is consolidated in the consolidated financial statements.

Options are exercisable in two tranches: not more than 50% are exercisable after 14 June 2012 and the rest after 14 June 2013. Options may be exercised within a six-month period after exercise date. Unclaimed options of the first tranche may also be exercised within the six-month exercise period attributed to the second tranche.

The following share-based payment arrangements were in existence during 2011-2012:


Options series Number of options granted Grant date Exercise date Exercise price, RUB Share price at grant date, RUB
(1) Granted on 29 June 2011 13,036,504 29 June 2011 14 June 2012 87.60 86.30
(2) Granted on 29 June 2011 13,036,504 29 June 2011 14 June 2013 87.60 86.30
(3) Granted on 31 March 2012 5,606,579 31 March 2012 14 June 2012 87.60 88.67
(4) Granted on 31 March 2012 5,606,579 31 March 2012 14 June 2013 87.60 88.67

All options vested during the year ended 31 December 2012 and were outstanding with weighted average remaining contractual life of nil days for options (1) and (3) and 257 days for options (2) and (4) (31 December 2011: 257 and 622 days).

The weighted average fair value of the share options as of the grant date is 16.83 RUB for options (1) and (2) and 14.91 for options (3) and (4). Total amount of 18 was recognized as an expense in wages, salaries, other benefits and payroll taxes in this consolidated statement of comprehensive income for the year ended 31 December 2012 (31 December 2011: 588).

Fair values of options were determined using the Black-Scholes option pricing model. Expected volatility is based on the historical average industry share price volatility over the option lives for respective series.


Inputs into the model Series 1 and 2 Series 3 and 4
Grant date share price, RUB 86.30 88.67
Exercise price, RUB 87.60 87.60
Expected volatility 39.8% 30.8%
Option life 1.75 year 1.75 year
Dividend yield 4.4% 4.4%
Risk-free interest rate 5.58% 6.32%

The following table reconciles the share options on preferred shares outstanding at the beginning and end of the year:


  2012 2011
  Number of options Weighted average exercise price, RUB Number of options Weighted average exercise price, RUB
Balance at beginning of year 37,286,164 87.6 - -
Granted during the year - - 37,286,164 87.6
Opted out during the year 5,136,987 87.6 - -
Exercised during the year 609,182 87.6 - -
Balance at end of year 31,539,995 87.6 37,286,164 87.6

In 2012 employees exercised 609,182 options. The weighted average share price at date of exercise for share options exercised in 2012 was 96.94 RUB.

Share-based program started in 2010 (ordinary shares)

The Group introduced a share option scheme for executives and senior employees of the Group in August 2010. In accordance with the terms of the scheme, executives and senior employees which were in service with the Svyazinvest Group during the vesting period from 28 May 2010 until 1 December 2010 were granted options to purchase ordinary shares of OJSC Rostelecom at an exercise price of 96.8 RUB per share. The contracts with employees were signed on 17 August 2010. To operate the program, the Group established a fund under management of ZAO “Gazprombank – Upravlenie aktivami” (the “Fund”), which is also a party of the option agreements.

In addition to executives and senior employees of the Group, certain Board members, who are also executives and senior employees of Svyazinvest, were granted options as part of the scheme. The Group recorded a proportionate share of their share-based remuneration.

The scheme is classified as equity-settled share-based payment plan. The Group received services from its executives and senior employees and granted its own equity instruments as consideration. The share-based transaction is settled by the Fund, which is a SPE controlled by the Group and, therefore, is consolidated in the consolidated financial statements. The Fund purchased shares of the companies comprising the Group on open market using cash contributions from the Group of 10,850.

Options are exercisable in two tranches: not more than 60% are exercisable after 1 December 2011 and the rest after 1 December 2012. Options may be exercised within a six-month period after exercise date. Unclaimed options of the first tranche may also be exercised within the six-month exercise period attributed to the second tranche.

The following share-based payment arrangements were introduced during 2010:


Options series Number of options granted Grant date Exercise date Exercise price, RUB Share price at grant date, RUB
(1) Granted on 17 August 2010 59,253,817 17 August 2010 1 December 2011 96.80 109.17
(2) Granted on 17 August 2010 39,502,545 17 August 2010  1 December 2012 96.80 109.17

All options vested during the year ended 31 December 2010. The weighted average fair value of the share options granted as of the grant date is 39.61 RUB. As at 31 December 2012 weighted average remaining contractual life of options comprised nil and 60 for options (1) and (2) respectively (2011: 60 and 425, 2010: 426 and 791).

For the year ended 31 December 2012 the Group recognized nil (2011: nil, 2010: 3,930) as an expense in wages, salaries, other benefits and payroll taxes with the regard of those options.

Fair values of options on grant date were determined using the Black-Scholes option pricing model. Expected volatility is based on the historical average industry share price volatility over the option lives for respective series.


Inputs into the model Series 1 Series 2
Grant date share price, RUB 109.17 109.17
Exercise price, RUB 96.80 96.80
Expected volatility 43.46% 47.88%
Option life 1.54 year 2.54 year
Dividend yield 0.27% 0.27%
Risk-free interest rate 4.99% 6.18%

The following table reconciles the share options on ordinary shares outstanding at the beginning and end of the year:


  2012 2011 2010
  Number of options Weighted average exercise price, RUB Number of options Weighted average exercise price, RUB Number of options Weighted average exercise price, RUB
Balance at beginning of year 80,634,349 96.8 98,756,362 96.8 - -
Granted during the year -   -   98,756,362 96.8
Exercised during the year 25,389,645 96.8 18,122,013 96.8 - -
Balance at end of year 55,244,704 96.8 80,634,349 96.8 98,756,362 96.8

In 2012 employees exercised 25,389,645 options (2011: 18,122,013). The weighted average share price at date of exercise for share options exercised in 2012 was 142.09 RUB (2011: 149.7, 2010: no options exercised).

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