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