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  • 1. Private Equity World Middle East 2005 EAST CAPITAL Russia and Eastern European markets: opportunities in the “new” European Economies Kestutis Sasnauskas, East Capital Private equity
  • 2. East Capital in brief
    • 2 billion USD under management in open ended mutual and private equity funds
    • 60 employees
    • Offices in Stockholm, Moscow and Paris
    • 250.000+ investors
    • 7 year track record
    • Independently owned and managed
  • 3. Our Toolbox UCITS funds East Capital Eastern European Fund East Capital Russian Fund East Capital Baltic Fund East Capital Balkan Fund Central Europe Balkans Baltic States Russia & CIS Offshore funds East Capital Bering Russia Fund Private Equity East Capital Amber Fund East Capital Bering Ukraine Fund Explorer Property Fund- Baltic States
  • 4. Average annual performance of the Funds versus benchmark index since inception Performance in EUR
  • 5.
    • Economic Outlook: stable growth
    • Scouting the Private Equity Landscape in Russia
    • Investment Opportunities in Russian and Eastern European Private Equity
    Suggested agenda
  • 6. Reasons to invest in Eastern Europe & Russian private equity
    • Strong underlying economic growth
    • Competitive advantages in the enlarged EU
    • Attractive valuations
    • The only way to access rapidly growing sectors of the economy
  • 7. Eastern Europe – Chinese-style economic growth GDP increase (%), 2004
  • 8. What happened before? GDP increase before entering EU
  • 9. What happened later? GDP increase after entering EU
  • 10. Case study: Car industry in Slovakia
    • A school-book study on how to attract FDI
    • Slovakia may soon produce more cars per head of population than any other country in the world
      • Volkswagen: 300,000 cars/year
      • Peugeot-Citroën: 300,000 cars/year (production to start in 2006)
      • Kia Motors: 200,000 cars/year (production to start H2 2006)
    • What made car manufacturers start production in Slovakia?
      • Tax reforms
      • Competitive cost structure
      • Full access to EU markets after May 1 2004
  • 11. Flat taxes in Eastern Europe – some examples 14% 14% Serbia 24% 13% Russia 25% 13% Ukraine 12% 12% Georgia 16% 16% Romania 19% 19% Slovakia 15% 25% Latvia 0% (24%) 24% Estonia Corporate income tax Personal income tax
  • 12. Wage differences between Eastern and Western Europe Nordic vs. Baltic countries Central Europe The EU “cost leaders” Source: Eurostat,
  • 13. Suggested agenda
    • Economic Outlook: stable growth
    • Scouting the Private Equity Landscape in Russia
    • Investment Opportunities in Russian and Eastern European Private Equity
  • 14. Why private equity in Russia?
    • There are approximately 3 million registered private companies in Russia
    • 250 companies are listed on RTS
    • 75 companies have depository receipt programmes
    • 90% of the index is in oil& gas, utilities and telecom
    the only way to access large part of economy is through private equity funds
  • 15. Private equity in Russia
    • Few private equity players on the market mainly distributed in two groups:
      • Local financial industrial groups
      • Institutional investors (foreign capital)
    • Institutional funds are generally small: 15 – 400 MUSD in size.
    • Debt financing is still expensive, but…
    • … rapidly improving macroeconomic situation resulting in decreasing cost of financing
  • 16. MCAP as % of GDP
  • 17. IPO activity is picking up Within the next year we expect approximately 60 IPOs with a total value exceeding USD 10 bn in Central and Central & Eastern Europe. Main activity in Moscow and Warsaw. IPO volume in Russia 2000- 2005
  • 18.
    • Economic Outlook: stable growth
    • Scouting the Private Equity Landscape in Russia
    • Investment Opportunities in Russian and Eastern European Private Equity
    Suggested agenda
  • 19. Investment opportunities
    • Possibilities of privatisations of extremely undervalued assets are already exploited
    • Focus on exposure to domestic economy
      • Consumer goods and retail
      • Financial sector
      • Real estate & construction material
      • Retail & logistics
    • Strong cash flows
  • 20. Banking Assets in % of GDP (2004) Source: Central Banks, 2004-12-31
  • 21. Growth of corporate & retail market in Russia Source: CBR
  • 22. Property market opportunity in the Baltics
    • The Baltic property market is still underdeveloped in a Western European context, characterized by limited size, low transparency and low liquidity…
    • …but, the market offers:
      • attractive yield rates
      • low interest rates
      • high demand for modern properties
      • declining vacancy rates…
    • ….and strong fundamentals for value growth for investors with local knowledge and relationships
    Yield rates on A-type commercial property
  • 23. Property market opportunity (cont.)
    • Significant gap (5-7%) between yield rates and mortgage rates
    • Opportunity to make 15-25% annual equity returns based on yield only
    • In addition, market fundamentals indicate good potential for value growth as well:
      • Strong economic development
      • Limited availability of office and retail space
      • Conversion process to Western European levels
    • Furthermore, low correlation with equities, provides an attractive diversification possibility
    Gap between yield and mortgage rates* Property price development* *Figures for A-type commercial property
  • 24. Contacting East Capital
    • Head office
    • East Capital
    • Kungsgatan 30, Norra Kungstornet – Box 1364
    • SE-111 93 Stockholm, SWEDEN
    • Telephone: +46 8 505 88 500, Telefax: +46 8 505 88 508
    • www.eastcapital.com
    • Kestutis Sasnauskas, CEO, East Capital Private Equity
    • Direct phone: +46 8 505 88 515
    • Email: [email_address]
    • Carl Meurling, East Capital Asset Management AB
    • Direct phone: +46 8 505 88 519
    • Email: [email_address]