AFRB.L Regulatory News (AFRB)

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IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

23 November 2012

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

RESULTS FOR THE NINE MONTHS TO 30 SEPTEMBER 2012

STRONG OPERATIONAL RESULTS DRIVEN BY RISING RENTAL INCOME

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the first nine months of 2012 ended 30 September 2012.

 Financial highlights

·; Revenues for the nine months to 30 September 2012, including net proceeds from the sale of trading properties, increased by 26% year-on-year to US$124.1 million, driven by higher rental income. The contribution from AFIMALL City was US$62.1 million. 

·; Gross profit for the nine months to 30 September 2012 was up by 83% year-on-year to US$46.5 million, as a result of stronger revenues.

·; The Gross Value of the portfolio of properties did not change during Q3 2012.

·; Loss for Q3 2012 was driven only by the 5.8% rouble appreciation versus the U.S. dollar, with no change in total equity.

Operational highlights:

·; The success of our marketing campaign at AFIMALL City was reflected in the increasing footfall to the shopping centre to the current monthly average of around 38,000 visitors per day.

·; As of today, 1,279 parking spaces are fully functional. Construction of the remaining parking spaces is progressing as planned and the full parking is expected to become operational during the remainder of the year.

·; On 22 November 2012, the Company announced that its subsidiary Bellgate Construction Limited ("Bellgate") had reached an agreement with VTB Bank OJSC ("VTB Bank") on the disposal of parking space in the underground parking at AFIMALL City (please see details on the transaction in the Projects Update section of the Combined Chairman and ED statement below).

·; On 21 September 2012, the Company announced that the Moscow authorities had published the decision to grant 10 years of leasehold rights to the land plot at Tverskaya Plaza Ic. The leasehold agreement was successfully registered on 10 October 2012 and is now in full legal force.

·; The Town Planning and Land Committee of Moscow has confirmed the Company development rights at Bolshaya Pochtovaya and Paveletskaya projects.

Q3 2012 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its Q3 2012 financial results on Monday, 26 November 2012, following the publication of the Company's 9M 2012 financial results on 23 November 2012.

The details for the conference call are as follows:

Please dial in 5/10 minutes prior to the commencement time giving your name, company and stating that you are dialling into the AFI Development conference call quoting reference 4908565 .

Prior to the Conference Call, the Q3 2012 Investor Presentation of AFI Development will be published on the Company website at http://investors.afi-development.ru/presentations/ on 26 November 2012 by 16:00 Moscow (noon UK).

- ends -

For further information, please contact:

AFI Development +7 495 796 9988

Ilya Kutnov

Ekaterina Shubina

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Reena MavjeeSandra Novakov

About AFI Development

AFI Development is one of the leading real estate development companies operating in Russia. Established in 2001, AFI Development is a publicly traded subsidiary of Africa Israel Investments Ltd.

AFI Development is listed on the Main Market of the London Stock Exchange and aims to deliver shareholder value through a commitment to innovation and continuous project development, coupled with the highest standards of design, construction, and quality and customer service.

AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on offices, shopping centres, hotels and mixed-use properties, and residential projects. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.

AFI Development is a leading force in urban regeneration, breathing new life into city squares and neighbourhoods and transforming congested and underdeveloped areas into thriving new communities. The Company's long-term, large-scale regeneration and city infrastructure projects establish the necessary groundwork for the successful launch of commercial and residential properties, providing a strong base for future.

Legal Disclaimer

Some of the information in these materials may contain projections or other forward-looking statements regarding future events, the future financial performance of the Company, its intentions, beliefs or current expectations and those of its officers, directors and employees concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and business. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" or the negative of such terms or other similar expressions. These statements are only predictions and that actual events or results may differ materially. Unless otherwise required by applicable law, regulation or accounting standard, the Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations. 

Chairman and Executive Director's Combined Statement

During the third quarter 2012 the Company improved its operational efficiency, as evidenced by increased gross profit. Our performance during 2012 demonstrates steady growth of revenues (quarter-on-quarter), while our strong cost discipline has allowed us further decrease our expenses. Higher profitability is driven by increasing revenue from yielding properties, improved collections of rent and greater control over operational expenses.

Projects update

AFIMALL City

The marketing efforts at AFIMALL City have started to bring positive results in terms of increasing footfall and growing consumer awareness. The construction works at the parking facilities are progressing according to our plans. In addition to the 1,279 spaces, which were operational as of today, the remaining parking spaces are expected to be constructed by the end of the year.

On 22 November, AFI Development announced that its subsidiary, Bellgate Construction Limited ("Bellgate"), had reached an agreement with VTB Bank OJSC ("VTB Bank") on the disposal of parking space in the underground parking at AFIMALL City.

The transaction is structured in two stages. The first stage will entail a sale-purchase transaction between Bellgate and VTB Bank on 21,354 sq.m. of parking space. During the second stage 9,247 sq.m. owned (at completion) by VTB Bank will be exchanged for 7,847 sq. m. owned by Bellgate. The exchange transaction is to be completed no later than three years from the execution date of the sale-purchase transaction. The resulting estimated total net cash flow for AFI Development is US$54.5 million.

The consideration for the sale-purchase transaction is US$57.1 million (excluding Russian VAT). The consideration for the exchange transaction, to be paid by Bellgate to VTB Bank, is US$2.6 million (excluding Russian VAT). All payments are to be made in Russian rouble. VTB Bank will be able to start using the parking space once the construction is fully completed by Bellgate. The parties estimate the eventual number of parking spaces transacted at 643.

Changes at the Board of Directors

On 22 November 2012, the Board of Directors of AFI Development following the recommendation of the Nomination Committee,  appointed Mr Lev Leviev, currently Non-Executive Director and Chairman, to the position of Executive Chairman of the Company.  

In his new role Mr Leviev shall originate and manage strategic international joint ventures, lead key negotiations with the Moscow Authorities, with other government authorities in regions of AFI Development operations and with its counterparties in transactions of strategic importance.

The appointment of Mr Leviev will not change the functions and responsibilities of the Executive Director of the Company and CEO of the main Russian operating subsidiary, OOO AFI RUS, Mr Mark Groysman. Mr Groysman shall remain responsible for ongoing operations of AFI Development, while Mr Leviev will concentrate of managing government relations of AFI Development and leading strategic transactions.

30.9.12 - Very significant property disclosure

1. AFIMALL City

2. Tverskaya Plaza IV*

* The project is under development

3. Ozerkovskaya III*

* The project is under development

30.9.12 - Very significant loans disclosure

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

C O N T E N T S

Page

Independent auditors' report on review of condensed consolidated interim financial information 10

Condensed consolidated income statement 11

Condensed consolidated statement of comprehensive income 12

Condensed consolidated statement of changes in equity 13

Condensed consolidated statement of financial position 14

Condensed consolidated statement of cash flows 15

Notes to the condensed consolidated interim financial statements 16 - 29

Independent auditors' report on review of condensed consolidated interim financial information tothe members of AFI DEVELOPMENT PLC

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 September 2012 and the related condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the nine-month period then ended and a summary of significant accounting policies and other explanatory notes (interim financial information). The Company's Board of Directors is responsible for the preparation and fair presentation of this interim financial information in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting".

Marios G. Gregoriades

Certified Public Accountant and Registered Auditor

For and on behalf of

KPMG Limited

Certified Public Accountants and Registered Auditors

Nicosia, 22 November 2012

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2012 to 30 September 2012

The notes on pages 16 to 29 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 January 2012 to 30 September 2012

The notes on pages 16 to 29 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2012 to 30 September 2012

The notes on pages 16 to 29 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2012

The condensed consolidated interim financial statements were approved by the Board of Directors on 22 November 2012.

The notes on pages 16 to 29 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2012 to 30 September 2012

The notes on pages 16 to 29 form an integral part of the condensed consolidated interim financial statements.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

1. INCORPORATION AND PRINCIPAL ACTIVITY

AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC. The address of the Company's registered office has changed to 165 Spyrou Araouzou, Lordos Waterfront Building, 5th floor, Flat/office 505, 3035 Limassol, Cyprus. The Company is a 64.88% (31/12/2011: 63.7%) subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue, 523,847,027 "B" shares, which were admitted to a premium listing on the Official List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.

These condensed consolidated interim financial statements of the Company for the period from 1 January 2012 to 30 September 2012 comprise of the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities. The principal activity of the Group is real estate investment and development. 

The principal activity of the Company is the holding of investments in subsidiaries and joint ventures.

2. basis of preparation

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all of the information required for the full annual financial statements.

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2011.

Functional and presentation currency

These consolidated financial statements are presented in United States Dollars which is the Company's functional currency. All financial information presented in United States Dollars has been rounded to the nearest thousand, except when otherwise indicated.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

2. basis of preparation (continued)

Functional and presentation currency (continued)

Foreign operations

Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. Where the functional currency of an entity of the Group is other than US Dollars, which is the presentation currency of the Group, then the financial statements of that entity are translated in accordance with IAS 21 'The effects of changes in foreign exchange rates'.

The table below shows the exchange rates of Russian Roubles, which is the functional currency of the Russian subsidiaries of the Group, to the US Dollar which is the presentation currency of the Group:

Exchange rate % change % change

Russian Roubles quarter YTD

As of: for US$1

30 September 2012 30.9169 (5.8) % (4.0) %

30 June 2012 32.8169 11.9 % 1.9 %

31 March 2012 29.3282 (8.9) % (8.9) %

31 December 2011 32.1961 1.0 % 5.6 %

30 September 2011 31.8751 13.5 % 4.6 %

30 June 2011 28.0758 (7.9) %

% change

Average rate during: period / prior

period

Nine-month period ended 30 September 2012 31.0724 7.9 %

Six-month period ended 30 June 2012 30.5666 7.4 %

Three-month period ended 31 March 2012 30.0278 3.5 %

Nine-month period ended 30 September 2011 28.7884 (4.7) %

3. significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2011.

4. OPERATING SEGMENTS

The Group has 4 reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different types of real estate products and services and are managed separately because they require different marketing strategies as they address different types of clients. For each strategic business unit the Group's management reviews internal management reports on at least a monthly basis. The following summary describes the operation in each of the Group's reportable segments:

·; Development Projects - Commercial projects: Include construction of property for future lease.

·; Development Projects - Residential projects: Include construction and selling of residential properties.

·; Asset Management: Includes the operation of investment property for lease.

·; Other - Land bank: Includes the investment and holding of property for future development.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

4. OPERATING SEGMENTS (continued)

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group's management team. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis. 

Note:

Development projects - all investment projects under construction, including construction of residential properties

Asset management - yielding property management (all commercial properties)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

5. administrative expenses

6. other expenses

7. FINANCE COST AND FINANCE INCOME

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

8. tAX EXPENSE

9. INVESTMENT PROPERTY

The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group's investment property. The same applies for investment property under development in note 10 below. The last valuation took place on 30 June 2012.

The transfer from investment property under development represents projects Tverskaya Plaza Ib and II which were reclassified on 30 June 2012 (see note 10 below for more information).

The increase due to the effect of the foreign exchange rates is a result of the strengthening of the Rouble compared to the US Dollar by 4% during first nine months of 2012. The fair value adjustment loss in the third quarter is a result of the rubble appreciation.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

10. INVESTMENT PROPERTY UNDER DEVELOPMENT

The valuation loss on investment properties under development reflects a decrease in the value of the Company's four projects, which are classified as investment property under development - Pochtovaya, Kossinskaya, Tverskaya Plaza Ib and Tverskaya Plaza II. The projects were valued by the independent appraiser on 30 June 2012. The valuation loss results from changes in master planning and development policies of the Moscow government. The Company received information/confirmation of these changes and made revisions in its relevant projects during the period June - August 2012. The valuations of Tverskaya Plaza Ic, Tverskaya Plaza IIa and Tverskaya Plaza IV, the three projects forming part of the non-binding agreement with the Moscow government, remain unchanged and the Company is progressing in securing development rights and leasehold rights to respective land plots.

On 30 June 2012, further to their revaluation projects Tverskaya Plaza Ib and II, were transferred to Investment Property based on the fact that the Company was notified by Moscow City authorities that any development of these two plazas cannot exceed the parameters of the existing buildings. As a result the company has cancelled its plans of redevelopment of the two plazas but will retain and manage the current buildings at their existing condition.

The increase due to the effect of the foreign exchange rates is a result of the Rouble strengthening compared to the US Dollar by 4% during first nine months of 2012. . The fair value adjustment loss in the third quarter is a result of the rubble appreciation.

11. PROPERTY, PLANT AND EQUIPMENT

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

12. INVENTORY OF REAL ESTATE

On 31 December 2011, the Company reclassified its project "Botanic Gardens" from current assets "Trading properties under construction" to non-current assets as "Inventory of real estate", because the project was held for future development of residential complexes which were not expected to be constructed within the Company's 3-year operating cycle.

The impairment of the inventory of real estate reflects the Company's decision to write-off its Botanic Garden project. A subsidiary of the Company is a "co-investor" in the project together with a company fully owned by the City of Moscow, which is the main investor and beneficiary of land lease rights for Botanic Garden project. A claim filed with a Moscow court on 2 August 2012 by a third party creditor is seeking to declare the main investor bankrupt, while its assets were previously arrested for the benefit of the same creditor. The Company considers, based on opinion of its legal advisers, that any recovery of the Company's costs relating to its investments in the project is unlikely. Given the current circumstances, the Company has decided to write-off its rights in the project from its books. Notwithstanding, the Company will continue its efforts to recover its costs and/or receive the development rights to the project.

13. TRADING PROPERTIES

Trading properties comprise of the unsold apartments and parking spaces of Four Winds II complex and Ozerkovskaya emb. 26 residential building complex. During the period the Group has sold a number of the remaining apartments and parking places.

14. TRADING PROPERTIES UNDER CONSTRUCTION

Trading properties under construction comprise of "Otradnoye" project which involves primarily the construction of residential properties and approximately 678 parking places underneath AFIMALL City which the company has the intention to sell. The comparative period includes also, "Botanic Gardens" which was reclassified on 31 December 2011, as a non-current asset in "Inventory of real estate", see note 12.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

15. TRADE AND OTHER RECEIVABLES

16. SHARE CAPITAL AND RESERVES

Employee Share option plan

The Company has established an employee share option plan operated by the Board of Directors, which is responsible for granting options and administrating the employee share option plan. Eligible are employees and directors, excluding independent directors, of the Company and employees and directors of the ultimate holding company, Africa Israel Investments Ltd and its subsidiaries. The employees share option plan is discretionary and options will be granted only when the Board so determines at an exercise price derived from the closing middle market price preceding the date of grant. No payment will be required for the grant of the options. In any 10 year period not more that 10 per cent of the issued ordinary share capital may be issued or be issuable under the employee share option plan.

As for 31 December 2011, there were valid options over 1,593,676 GDRs granted with an exercise price of US$7 which have already vested one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting was not subject to any performance conditions. All 1,593,676 options granted have a contractual life of ten years from the date of grant.

On 21 May 2012, the Board of Directors approved the grant of additional options to Company's employees. Options over 16,763,104 B shares, 1.6% of the issued share capital, were granted with an exercise price equal to US$0.7208, vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions. Their contractual life is ten years from the date of grant. Since then 1,047,691 options were cancelled, corresponding to employees who left the company.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

16. SHARE CAPITAL AND RESERVES (continued)

Employee Share option plan (continued)

If a participant ceases to be employed his options will normally lapse subject to certain exceptions. In the event of a takeover, reorganisation or winding up vested options may be exercised or exchanged for new equivalent options where appropriate. Shares/GDRs issued under the plan will rank equally with all other shares at the time of issue. The Board of Directors may satisfy (with the consent of the participant) an option by paying the participant in cash or other assets the gain as an alternative of issuing and transferring the shares/GDRs. The Board of Directors may amend the rules of the plan at any time.

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange differences are recognised directly to Translation Reserve.

Retained earnings

The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the nine-month period ended 30 September 2012.

17. LOANS AND BORROWINGS

The changes in loans and borrowings that took place during the nine months ended 30 September 2012 were the following:

Drawdown of the loan by VTB Bank OJSC, dated 22 February 2012, for financing the acquisition of parking area under AFIMALL City, of US$45,777 thousand (RUR 1,333 million).

On 29 June 2012 a drawdown of the first tranche of a new loan facility agreement (see details below) with a subsidiary bank of the VTB Group ("the Bank") signed on 26 June 2012 by its subsidiary Bellgate Construction Ltd ("Bellgate").

On 3 July 2012, the Company repaid the amount of RUR 1,333 million principal plus RUR 7.9 million interest (total equivalent to aprox. US$40.8 million) which was received under the loan facility dated 22 February 2012 signed with VTB Bank regarding the acquisition of AFIMALL City parking. All necessary funds for the AFIMALL Parking acquisition and construction works financing have been provided for in the new loan facility with a subsidiary of VTB Bank.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

17. LOANS AND BORROWINGS (continued)

On 3 August 2012 a drawdown of the second tranche, of US$69,386 thousand (RUR 2,252 million), of the new loan facility dated 26 June 2012.

On 8 August 2012 the loan facility dated 17 August 2007 provided by Sberbank of Russia for Avtostoynka Tverskay Zastava project financing, was fully repaid in the amount US$71 million, comprised of US$70.6 million of principal debt and US$0.4 million of interest payment

This new loan facility agreement offers a credit line totalling RUR 21 billion, which can be drawn down in 5 tranches, each with a designated purpose: the majority of the funds are designated to refinance existing loans previously issued by VTB Bank (OJSC). The remaining funds are designated for the refinancing of construction costs related to the AFIMALL City parking and for the financing of the outstanding payments constituting part of the consideration for the acquisition of the parking.

The Company has discretion over the currency of each tranche, which can be drawn down either in US dollars or in Russian roubles. The loan facility has differentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian roubles and 3 months LIBOR plus 6.7% for loans drawn down in US dollars. The interest on the loans is payable on a quarterly basis, throughout the term of the credit line. Bellgate has undertaken to make equal quarterly payments of US$ 6.5 million, starting from 2014, on account of the principal of the loans, while it has been agreed that the remainder of the loan will mature in April 2018. The terms of the loan facility agreement are substantially similar to those of the loan facility agreement entered into in February 2012 with VTB Bank (OJSC) in relation to the financing of the acquisition of the AFIMALL City parking (for more information regarding the said loan facility, please see Annex A to Q1 2012 results announcement, published by the Company on 22 May 2012). However, certain conditions of the new loan facility will differ from the aforementioned loan, including the following:

a) The guarantee of AFI Development Plc over the obligations of Bellgate under the loan facility agreement will be in the amount of US$ 1 million, the nominal value of Bellgate's shares;

b) Additional mortgage over the premises of "Aquamarine" Hotel will be registered in favour of the Bank. This shall be removed in the case that Bellgate redeems US$20 million of principal;

c) Additional guarantee will be provided to the Bank by Semprex LLC, a Russian company which is an indirect subsidiary of AFI Development Plc, and owner of the "Aquamarine" Hotel. This shall be removed in the case that Bellgate redeems US$20 million of principal;

d) The turnover covenant has been changed from monthly bank accounts turnovers of not less than RUR 200 million to quarterly revenues (including VAT) exceeding agreed thresholds, determined as amounts gradually increasing from RUR 651 million for Q3 2012 to the amount of RUR 1,139 million for Q1 2018. The penalty for not meeting the covenant is changed from 1% additional interest for the next month to 0.5% additional interest for the next quarter.

The loan facility agreement contains other generally acceptable terms, such as the borrower undertaking to maintain the aggregate value of the pledged assets, securing the loan facility, providing the lender with periodic reporting and similar common conditions.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

18. TRADE AND OTHER PAYABLES

Payables to related parties

Include an amount of US$5,753 thousand (31/12/11: US$5,066) payable to Danya Cebus Rus LLC, related party of the Group, for new contracts signed in relation to the completion of AFIMALL City.

Receipts in advance from sale of investment

Represented an amount refundable to the buyer of Kosinskaya project agreed in November 2011 in order to settle all mutual claims with Bedhunt Holdings Ltd, the buyer, by paying the total settlement amount of US$44 million. This amount was fully settled in April 2012. Upon full settlement of the Company's obligation according to the settlement agreement dated November 2011, the Group received title of the shares of Rognestar Finance Limited.

19. DISPOSAL OF INVESTMENTS IN SUBSIDIARIES

The selling price of the disposal of OOO Ozerkovka was US$6 million. The resulting profit on sale amounting to US$2,827 thousand and the realised exchange loss amounting to $192 thousand were recognised in the income statement at an amount of US$ 2,635 thousand profit.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 September 2012

19. DISPOSAL OF INVESTMENTS IN SUBSIDIARIES (continued)

The above disposals had the following effect on the Group's assets and liabilities: