APPROVED by

The Resolution of the State Property Committee

dated June 14, 2006 No 01/19-23,

registered by the Ministry of Justice

dated July 24, 2006 No 1608

THE NATIONAL STANDARD OF THE REPUBLIC OF UZBEKISTAN FOR PROPERTY VALUATION

                                                            NSOI No 5

VALUATION WITH THE PURPOSE OF PROVIDING SECURITY FOR LOANS, MORTGAGES AND DEBT INSTRUMENTS

The present National Standard of the Republic of Uzbekistan for Property Valuation «Valuation with the purpose of providing Security for Loans, Mortgages and Debt Instruments» (NSOI No 5) has been elaborated on basis of the Law of the Republic of Uzbekistan "On the Valuation Activity" and constitutes an element of the normative regulation of the Valuation Activity within the Republic of Uzbekistan.

1. PREAMBLE

The purpose of the NSOI No 5 is to determine distinctions between the valuations done for providing Loans, Mortgages and Debt Instruments and valuations for Financial Accounting  done in accordance with the NSOI No 4. NSOI No 5 establishes the framework  within which an Appraiser may conduct valuation upon the tasks by credit institutions and other organizations, extending financing under security by the concrete fixed assets, as distinct from crediting the individuals and enterprises based on a trust. Consultations rendered by an Appraiser may spread upon other areas, but NSOI No 5  is exclusively related to the cases of  Valuation of the Property for providing Loans, Mortgages and Debt Instruments.

Most agreement on financing are to be secured by concrete assets. The idea of a security accepted for Loans, Mortgages and other Debt Instruments, may be determined in a wider manner. In some cases the mortgage of an Enterprise's own capital, without considering any concrete assets, may step forth as a credit security. As a rule in course of Valuation concrete assets regarded as a credit security for providing the financing the Appraiser deals with the Market-based Cost. Sometimes, depended to circumstances, legislative provisions and requirements of a party accepting the property as a credit security item, an Appraiser may consider the Cost of a Functioning Enterprise, Liquidity Cost or other types of a Cost, however those who extend financing, as a rule, are interested to know the Market-based Cost.

Though Property Sites may differ by their location, usefulness, age, degree of suitability and other factors, main principals of the Valuation remain changeless. It is important that the Appraisers should step-by-step apply principals of the Valuation within the framework of the NSOI No 5 incidence, conducting the objective Valuation, understandable and meeting the users' requirements.

2. SPHERE OF APPLICATION

The NSOI No 5 is applicable in all situations, at which Appraisers are required to render consultations or present a Valuation Report to a Credit Institution or other Suppliers of the Borrowed Capital, when the purposes of Valuation are connected with Loans, Mortgages or Debt Obligations. NSOI No 5 shall be regarded as an expansion of the NSOI No 2.

3. TERMS AND DEFINITIONS

The Market-based Cost determined by the NSOI No 2, remains being a foundation, on which an Appraiser builds his (her) work. It is to be determined in the following manner: the Market-based Cost is being a Calculated Monetary Amount for which the exchange of an asset by the date of Valuation could take place between an interested Buyer and interested Seller as a result of a Commercial Deal struck after the conduct of a due Marketing, while each party is supposed to be acting  being well-informed, prudently and at free-will.

In course of Property Valuation distinct from Valuation done for Financial Accounting, the term "Assets" reflected at Paragraph One of the Article 3 NSOI No 5, usually is replaced by Appraisers for the term "Property". This replacement helps to distinguish the Valuations done for Financial Accounting and related to the assets being reflected at the Accounting Documents  of an Enterprise from other types of the Valuation tasks.

All methods, ways and procedures of measuring the Market-based Cost, provided they are applied and used appropriately and correctly, lead to general expression of the Market-based Cost, when they are based on the criteria possessing the Market Origin. The method of Sales' Comparison other methods of Market Comparisons shall be based on the Market Studies. Costs for construction and wear and tear amount shall be determined on the analysis on cost calculation made on the Market-based data and accumulated  wear and tear. Profit Capitalization method or a method of Discounted Cash Flow shall be based on the Cash-Flows to be determined by the Market and Profitability Rates  based on the Market-based data. Although the availability of information and the situation at the Market and around an Asset itself determine which of the Valuation methods is being most acceptable and adequate, application of any of the abovementioned procedures shall bring to definition of the Market-based Cost provided that each of those methods is based on the Market-based data.

Applicability of various methods and procedures for the Market-based Cost's Valuation shall be determined based on a manner through which usually Sale of Propert is being done in an Open Market. Having been based on the Market Information, each method is actually a Comparative Method. In each situation connected with the Valuation, a certain or several Valuation methods present the maximal idea  about the activity of an Open Market. At each task for determining the Market-based Cost, an Appraiser shall consider all methods select the most suitable ones among them.

Those who strive to get a credit security for financing or try to evaluate the state of such a security sometimes may require conduct of the Valuation to be made on a basis different from the Market-based Cost. At such circumstances an Appraiser shall dispose of the applicable normative-legal provisions and apply to conduct any kind of the Valuation on basis of a method differing from the Market-based Cost only in the case provided that such a Valuation does not contradict the according laws and instructions and in the other case is not misleading. In such circumstances an Appraiser shall usually include into the Report the calculated size of a Market-based Cost or other necessary information concerning the possible discrepancy between the calculated sizes of the non-Market-based Cost and the Market-based Cost.

Reference to definition of a Cost Determination being different from the Market-based Cost, shall be made to  NSOI No 3. An Appraiser shall be most prudent so that to avoid situations at which the calculated size of a non-Market-based Cost may possibly become mistaken with the Market-based Cost. Although at certain circumstances the calculated size of a non-Market-based Cost may be adequate to the situation, those who are going to make use of it shall be aware that those same Cost size numbers may not appear (and such cases being quite usual) during the occurrence of a Market Sale.

4. CORRELATION WITH THE FINANCIAL ACCOUNTING STANDARDS OF THE REPUBLIC OF UZBEKISTAH

The Valuations being done related to providing Loans, Mortgages and Debt Instruments, shall not necessarily meet the same terms as the Valuations conducted with the aim of public Financial Accounting disclosure. For example, the Concept of the Market-based Cost for existing usage, as a rule, does not fit the purposes of the Assets' Valuation to be done for the purposes of credit security. However, an Appraiser shall define whether the NSOI requirements are applicable, if yes, then he (or she) shall guarantee their correct application and present the due explanations.

5. REQUREMENTS OF THE STANDARDS

At the Assets' Valuation, when the results are to be used for receiving Loans, Mortgages and Debt Instruments, an Appraiser, as a rule, shall define the Market-based Cost of those assets in accordance with the NSOI No 5.

In those and only those cases when the circumstances, normative regulations and legislation stipulate or require deviation from application of the Market-based Cost as the Valuation basis, an Appraiser shall apply the appropriate ways and procedures for Valuation and Cost Determination. Such a kind of deviation shall be clearly reflected at the Valuation Certificate or Valuation Report along with reference and determination of Cost to be defined, as well as explanations of reasons for such a deviation. In case of substantial difference between the Assets' Market-based Cost and the Cost of an alternative type, such a fact shall be pointed out at the Valuation Certificate or Valuation Report, and that fact shall be discussed with the client.

As a rule it is an Appraiser's duty to provide the guarantee that on course of conduct of the Assets' Valuation to be presented for credit security, the laws, regulations and procedures by which the Assets' Valuation is regulated, were observed. Certain unusual and mitigating circumstances are possible, when such an observation can not be guaranteed due to legal collisions and discords existing among the book-keepers or other specialists. Although at such circumstances Appraisers are not able to guarantee observance of the requirements, they shall not begin a task fulfillment if they feel that the required Valuation does not conform with the according  laws, regulations and procedures or if they consider that the results of the Valuation may be wrongly interpreted or applied. Term for hiring an Appraiser shall be clearly described at any Valuation Certificate or Valuation Report, meant for use by third parties and all their reports shall be composed in such a manner so that reasonable readers do not consider them as the misleading ones.

Most part of the Loans, Mortgages and Debt Instruments extended by banks and other financial institutions are being secured in way of a guarantee of share participation at the concrete assets of the borrower companies and individuals. To conduct Valuation at such circumstances, the Appraisers shall comprehensively understand the requirements of those institutions as well as the structure of the terms and accords stipulated within the framework of a loan agreement.

In all cases of Valuation of the Assets presented for credit security, what possesses the important significance is a Report being clear, objective, reflecting the essence of the matter and understandable for a reader as well as the Cost calculated data. Valuation of the Debt Instruments being quoted at an Open Market may be come within the application of special rules related to Financial Statements as well as to the NSOI No 4. The Appraisers shall clear up, understand and fulfill all special requirements related to such kinds of Valuation.

An Appraiser shall expose at his (her) Report all substantial moments concerning the assignment in question and adhere to the NSOI in process of composition of his (her) Report as per described below.

6. EXPLANATIONS ON THE USE OF THE NSOI No 5

In a general way requirements of the NSOI No 5 for Valuation of the Assets presented for credit security, are similar to those established for other types of assignments on Valuation of the Market-based Cost. In particular, it is necessary to establish and reflect at the Report the grounds for any deviation from the standards. Following the remarks brought below, different types of the Property require specific approaches.

Objects of the Investment Property

Profitable Objects of the Property are usually valuated individually, although the credit institutions may wish to establish the Cost of an Object of the Property as part of the Objects' Portfolio. In such cases the difference between such potentially discriminate approaches shall be clearly indicated.

In cases of the Objects of the Investment Property an Appraiser is recommended to make distinction between the General Profit generated by the Property both with taking into consideration of the attracted Borrowed Funds and without them. Similarly when making references to "Internal Rate of Profitability" (IRP) it shall be indicated, whether within them the Borrowed Funds have been taken into consideration or not. Besides, explanations shall be given in cases of specific approaches to the Taxation.

Objects of the Property occupied by their Owners.

Objects of the Property occupied by their owners shall be valuated as the ones having been abandoned by their owners and based on their most effective use. This does not exclude an owner as a participant of the Market, but at the same time requires that any advantage related to the Object occupied by its owner which may be reflected at Valuation of a Business, shall be separated from Propert's Cost. In case of default the property presented as the credit security may be sold only with the change in status of occupation of that Property. If an Appraiser is required to present some other basis for the valuation in that case, the  Valuation Certificate or Valuation Report shall also contain references to the Cost, derived on the basis of the Market-based data related to sales of similar objects abandoned by their owners.

Specialized Objects of the Property

Specialized Objects of the Property, possibilities for sale of which are limited upon the determination and which possess the Cost being a constitutional part of a Business, taken separately may turn out as unsuitable for the purpose of credit security. If they are introduced as a mortgage (separately or in aggregate), they shall be valuated on basis of the most effective usage as the objects abandoned by their owners, while for all the assumptions made the panchrest (full explanation) shall be given. In case of absence of the Market-based data needed for the Valuation of the Specialized Objects of the Property, usually the method of Replacement Cost with taking into consideration of the wear and tear shall be applied, however it shall not be confused with the Market Valuation methods for credit security (including those based on the Market-based data on the Cost method).

Objects of the Property, usually valuated as the Trade Organizations

Certain kinds of Property including (but not only) the hotels and other Enterprises of the recreation area, usually are valuated with thorough analysis in view of their steady level of profits, received from the Accounting Reports ‘ data or the Forecasts, with exclusion of a special magnitude - the Goodwill derived on the account of the level of management exceeding the average one based on the observations' data. In such cases the creditors' attention shall be drawn to substantial difference between the costs that may exist between an acting Enterprise and an Enterprise at which:

•  Business has been closed;
•  or Storages evacuated;
•  or Licenses / Certificates, Franchising Agreements or Permissions have been annulled or being under the risk;
•  the Property have been damaged at a result of the uncivilized treatment, or
•  other reasons which may have a negative influence upon the results of further functioning exist.

The circle of problems to be covered by an Appraiser's consultancy may be expanded up to inclusion into them the issue of potential changes within the status of Propert subject to acceptance as a credit security. For example, if the Free Cash Flows provided by Propert, regarded as subject to credit security, in a substantial degree are dependent to a concrete leaser or leasers representing a single branch of industry, as well as other conditions which may cause instability in future, an Appraiser shall indicate those facts at the Valuation Report or Valuation Certificate. In some cases the Valuation of an Object of Property qualified as the object abandoned by its owners may become suitable for alternative usage.

Real Estate Objects being at the Stage of Development

Real Estate Objects not bringing profit and maintained for development or as sites for construction of non-specialized buildings, shall be valuated based on the existing and potential rights for carrying out the development and control over them. Any assumptions concerning the planning and other substantial factors must be reasonable and clearly indicated at the Valuation Report or Valuation Certificate.

Tht Time-table of Step-by-Step Financing, to be an integral part of the Loan Agreement, shall be discussed with the creditors. During the Development Cycle periodical conduct of the Market Assessment based Valuations.

Choice of the appropriate method for valuation of the Objects being at the Stage of Development depends on the status of the works performed by the date of valuation indicated at the Valuation Report, as well as upon the degree at which the given Object may be sold beforehand or granted on lease before its completion. An Appraiser with special thoroughness shall:

• consider a time difference between the date of Completion of Development and the date by which the Valuation has been done. At those analysis the influence of Demands connected with the Additional Development upon the expenses and incomes with the use, if needed, the calculation of the Discounted Cost, shall be reflected;
• indicate in an adequate manner the changes in the Market  Situation expected during the period left until the Completion of Development;
• consider and indicate in a due manner the limits for the risks connected with the Development, and
• consider and reveal any known interrelations among the parties involved into the process of the Development.

Nonrenewable Assets

Special problems are connected with the Valuation of the Nonrenewable Assets. It is necessary, in particular, pay attention to period and schedule for the paying of a loan, including the dates of the interest payments and principal sum of the debt in their connection with the size of a Nonrenewable Asset and the planned program for its extraction and usage.

The rent, the payment for which exceeds the market rates and thus creates an advantage for a lessor, may present by itself a Main Asset connected with the appropriate Real Estate Object. In such cases the rent may be considered as a Nonrenewable Asset, by a reason that any cost attributed to it will be decreasing by degree of the rent payments effected and diminution of a lessor's advantage related to the size of payments received owing to the rise of  the market rates for the rent.

An Appraiser

Character and framework of an assignment possess especially important significance both for an Appraiser and those who use his (her) services.

Certain normative and legal acts regulating the sphere of financial services, may require special licensing or registration in cases when the Valuation Services to be rendered concern not only Cost of Propert but the Securities' Emission as well.

By a reason that the majority of agreements on security of Loans, Mortgages and Debt Liabilities  are based on special trusting relations, it is especially important that an Appraiser should be independent and not related to any of the parties supposed to have entered or going to enter into the mutual financial relationship. It is also important that an Appraiser should have or be able to acquire, the due experience of work with a concrete type of Property at an area where Propert subject to Valuation is located.

7. REQUIREMENTS TO THE INFORMATION DISCLOSURE

Valuation Reports shall not be misleading. As a whole such reports prepared for the valuation performed in accordance with the NSOI No 5, shall conform to the requirements made for the report as described at the NSOI No 2. In particular, they shall contain a concrete reference for determination of a Market-based Cost as described at the NSOI No 5, as well as a reference to the way of Valuation of Propert from the point of view of its usefulness or most effective usage.

Such valuations shall also be addressed to a concrete date of the Valuation (i.e. the date to which the derived magnitude of a Cost is applicable). The purposes and functions of the Valuation, as well as other criteria related to the business and suitable to guarantee an adequate and reasonable  interpretation of the results, judgments and conclusions derived by an Appraiser, shall also be necessarily indicated.

Although in some circumstances a concept, usage and application of the alternative expressions of a Cost may become appropriate, an Appraiser shall guarantee that in case such alternative expressions of a Cost have been found and reflected at a Report,  they are legal and adequate and can not be interpreted as a reflection of a Market-based Cost.

At composing a Report on Valuation of the Market-based Cost for the purposes of providing security for Loans, Mortgages  and Debt Liabilities, an Appraisal is obliged to:

• present a complete and understandable Report in such a way, that provides its not being misleading;
• present a substantial volume of information allowing those who will read that Report and rely upon it, completely understand the initial data, reasoning and analysis, lying at basis of judgments and conclusions of an Appraiser;
• formulate all assumptions and limiting conditions upon which the Valuation has been based;
• neatly identify and describe Propert subject to Valuation;
• identify within Propert, a Share or Shares subject to Valuation;
• give a definition for Propert subject to, indicate the purpose for Valuation, date of Valuation performed and the date of issue of a Valuation Report;
• give complete and exhaustive explanation for the used bases  for the Cost Valuation as well as the grounds for their application and conclusions;
• present a signed Professional Certificate confirming the objectivity and candour of a Valuation performed, professional contribution of an Appraiser, applicability of the NSOI No 5, as well as disclose other information related to business.