COF Presentation CEE, November 2009, London

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  • 1. NewRussiaGrowth
    Private Equity Advisors
    Opportunities for Investments in Russia:
    private equity and mezzanine
    Alexander Abolmasov
    Director
    Email: aabolmasov@nrgc.com
    November2009
  • 2. NRG at a glance
    PrivateEquity
    Credit Opportunity
    Real Estate
    • Established in 2006
    • 3. 20 LPs
    • 4. US$ 177 million
    • 5. Team of 10 professionals
    • 6. 5 portfolio companies
    • 7. Established in 2009
    • 8. Seed capital US$ 30 million
    • 9. Target 1st closing: Q4 2009
    • 10. Team of 5 professionals
    • 11. One deal warehoused
    • 12. Joint Venture established in 2009
    • 13. Target 1st closing: Q4 2009
    • 14. Target size: US$ 300 million
    • 15. Well known team of real estate professionals with proven track record
    2
  • 16. Credit crisis is Russia: 1999 vs 2008.
    • Russia changed dramatically in 9 years
    • 17. GDP 8.5x,
    • 18. CBR reserves 54x
    • 19. Share of Oil&Gas in GDP decreased by 2.1x
    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
  • 20. Russian Economy is back on track
    • GDP growth: 2Q09 +0.1%, 2010E +5% .
    • 21. Destocking the major reason for GDP decline (9.1% of the total 10.4%).
    • 22. The CPI is flat since August. YTD inflation is at 8.1%, versus 11.5% a year earlier.
    • 23. RTS increased 2.3x since Feb 2009.
    %
    %
    CBR Reserves
    + 15% (+$58bn to $430bn)
    25% (+$120bn to $600bn)
    -37% (-$224bn to $376bn)
    4
    Source: RTS, CBR, NRG calculations
  • 24. Russian banking system structure
    • State banks share of total corporate loans increased from 49% to 62% since August 2008
    • 25. TOP 20 banks - 77% of corporate loans.
    Loans to corporate sector, $ bn
    62.1%
    100.0%
    75.5%
    23.3%
    10.2%
    10.2%
    5.6%
    4.0%
    4.4%
    4.5%
    5
  • 26. Russian banking system – liquidity problems for next 2-3 years
    • New money is not available from the banks
    • 27. Private banks have problems with capital, because of losses and NPL
    • 28. 6.4% bad debt + 26% “restructured” debt
    • 29. Total banking capital $50bn. Additional capital up to $70bn could be required.
    Sources of credit organisations, $ bn
    6
    Source: Central Bank of Russia
  • 30. Interest rates rise
    Corporate lending rates in Russia
    • The borrowing rate for companies in ruble terms has gone up from 10% to 20-25%
    • 31. The borrowing rate for companies in $ terms has gone up from 8-11% to 16-22%
    • 32. Average interest rate for ruble bonds are 12 - 18% (for the third tier issues – 22% - 28%)
    • 33. Eurobonds rates are 9- 20% in $
    Corporate bonds rates in Russia
    Source: Central Bank of Russia
    Source: cbonds.ru
    7
  • 34. Government support and growth of loans
    • 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
  • 35. 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;
    • 36. Sberbankextended a 3 year $192m loan to the company with a rate of 16.95%;
    • 37. 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;
    • 38. Expected “Sberbank-Сapital” IRR is 39% (subject to price fluctuations), IRR of the put option is 27%;
    • 39. Collateral: personal guarantee from property owners; pledge of 23.3% of shares worth $750m.
    9
  • 40. 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
  • 41. What is the Credit Opportunity Fund?
    Target companies:
    • Mid-sized
    • 42. Cash flow positive
    • 43. No distressed borrowers (Debt/EBITDA < 3.5x)
    Investment structure:
    • Senior debt
    • 44. 18-24 month loans in $
    • 45. Collateralized
    • 46. Pledge of target companies’ shares, real estate, liquid assets
    • 47. Personal guarantees of the companies’ owners
    Target returns:
    • 18%+ targeted interest/current return
    • 48. 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
  • 49. 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.
    • 50. Focus on mid-price and low-price segment with retail prices 40% lower on average than in Detskiy Mir.
    • 51. 50 own and 17 franchisee shops in 66 Russian cities.
    • 52. Key toy supplier for leading retail chains in Russia, such as Magnit, Perekrestok and Sedmoi Continent.
    • 53. In house developed ERP system allows controlling all sales and stocks daily.
    • 54. Average mark up is 96%, private label with mark up of 250% which account for 13% of total sales.
    • 55. EBITDA in 2009 is expected to grow by 37% despite 40% ruble devaluation and resulted slightly reduction of sales in USD.
    • 56. After new debt, the Debt/EBITDA ratio for the company will still be below 2x.
    Key financials
    12
  • 57. Begemot – leading toy retail chain.
    Transaction structure
    • Expected IRR: 42-48%. Floor IRR is 30.5% as secured by put option.
    13
  • 58. Pipeline: Summary
    14
  • 59. 15
    NewRussiaGrowth
    Private Equity Advisors
    Thank you!
    Alexander Abolmasov
    Director
    Email: aabolmasov@nrgc.com
    WWW: www.nrgc.com