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Crisis 2008: CBR reserves: $430 bn GDP2008: $1,670.3bn Oil&Gas: 9% of GDP Net private sector capital outflow, $ bn Crisis 1998: CBR reserves: $8bn GDP 1999: $196bn Oil&Gas: 18.7% of GDP 3 Source: Central Bank of Russia
Government aid package in Russia is about 10% of GDP vs. 5% of GDP in US.
% growth of corporate loans % of CBR loans in corporate loan portfolio CBR loans 8
Even state banks ask for equity kickers Case-study: Roll-over of Sberbankloan to SibirEnergy
SibirEnergy sales in 2008 were $3.5bn.The company is listed on the LSE and ranked 56 among the largest companies of Russia;
Sberbankextended a 3 year $192m loan to the company with a rate of 16.95%;
Equity kicker: 4.03% of shares for $1. The market price of that stake is – $128m plus the additional value of the put option circa$60m;
Expected “Sberbank-Сapital” IRR is 39% (subject to price fluctuations), IRR of the put option is 27%;
Collateral: personal guarantee from property owners; pledge of 23.3% of shares worth $750m.
Short and long-term investment strategy 2009 Generate current interest income until repayment Provide secured debt to strong borrowers Credit Opportunity Fund Options and warrants to share upside 2009 - 2010 Real Estate Opportunity Fund Invest at distressed valuations Generate some current rent income Refinance as cap rates exceed interest rates. Sell at recovered value 2010 - 2011 2009 Help them grow on the empty field Sell at next long-term high market Private Equity Fund “Bottom fishing” Invest in “survivors” 10
What is the Credit Opportunity Fund? Target companies:
Equity kickers leading to 30%+ targeted gross return
Governing Law:Deal documents – English Law Collateral of assets in Russia – Russian Law Monitoring and control:Board participation with veto rights Right to appoint a Financial controller Regular reports from the company Control over use of funds Negative controls covenants 11
Begemot – leading toy retail chain. Company description
Begemotis a leading toy retailer in Russia, second only to Detskiy Mir in terms of revenue from toys.
Focus on mid-price and low-price segment with retail prices 40% lower on average than in Detskiy Mir.
50 own and 17 franchisee shops in 66 Russian cities.
Key toy supplier for leading retail chains in Russia, such as Magnit, Perekrestok and Sedmoi Continent.
In house developed ERP system allows controlling all sales and stocks daily.
Average mark up is 96%, private label with mark up of 250% which account for 13% of total sales.
EBITDA in 2009 is expected to grow by 37% despite 40% ruble devaluation and resulted slightly reduction of sales in USD.
After new debt, the Debt/EBITDA ratio for the company will still be below 2x.
Key financials 12
Begemot – leading toy retail chain. Transaction structure
Expected IRR: 42-48%. Floor IRR is 30.5% as secured by put option.