COF Presentation CEE, November 2009, London

NewRussiaGrowth
Private Equity Advisors
Opportunities for Investments in Russia:
private equity and mezzanine
Alexander Abolmasov
Director
Email: aabolmasov@nrgc.com
November2009

NRG at a glance
PrivateEquity
Credit Opportunity
Real Estate
Established in 2006
20 LPs
US$ 177 million
Team of 10 professionals
5 portfolio companies
Established in 2009
Seed capital US$ 30 million
Target 1st closing: Q4 2009
Team of 5 professionals
One deal warehoused
Joint Venture established in 2009
Target 1st closing: Q4 2009
Target size: US$ 300 million
Well known team of real estate professionals with proven track record
2

Credit crisis is Russia: 1999 vs 2008.
Russia changed dramatically in 9 years
GDP 8.5x,
CBR reserves 54x
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

Russian Economy is back on track
GDP growth: 2Q09 +0.1%, 2010E +5% .
Destocking the major reason for GDP decline (9.1% of the total 10.4%).
The CPI is flat since August. YTD inflation is at 8.1%, versus 11.5% a year earlier.
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

Russian banking system structure
State banks share of total corporate loans increased from 49% to 62% since August 2008
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

Russian banking system – liquidity problems for next 2-3 years
New money is not available from the banks
Private banks have problems with capital, because of losses and NPL
6.4% bad debt + 26% “restructured” debt
Total banking capital $50bn. Additional capital up to $70bn could be required.
Sources of credit organisations, $ bn
6

Interest rates rise
Corporate lending rates in Russia
The borrowing rate for companies in ruble terms has gone up from 10% to 20-25%
The borrowing rate for companies in $ terms has gone up from 8-11% to 16-22%
Average interest rate for ruble bonds are 12 - 18% (for the third tier issues – 22% - 28%)
Eurobonds rates are 9- 20% in $
Corporate bonds rates in Russia
Source: cbonds.ru
7

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

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.
9

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:
Mid-sized
Cash flow positive
No distressed borrowers (Debt/EBITDA < 3.5x)
Investment structure:
Senior debt
18-24 month loans in $
Collateralized
Pledge of target companies’ shares, real estate, liquid assets
Personal guarantees of the companies’ owners
Target returns:
18%+ targeted interest/current return
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.
13

Pipeline: Summary
14

15
NewRussiaGrowth
Private Equity Advisors
Thank you!
Alexander Abolmasov
Director
Email: aabolmasov@nrgc.com
WWW: www.nrgc.com

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