deals with russian companies (sushov).pdf · joint venture with anglo platinum (part of anglo...

DEALS WITH RUSSIAN COMPANIES

NH€apital

2Поиск инвестора в телекоммуникационной отраслиDEALS WITH RUSSIAN COMPANIES 2

NH€apitalDmitry Suschov is a non-executive director of a UK listed company Eurasia Mining Plc., a

JV partner of a

global mining company Anglo Platinum (part of Anglo American). He is also a director of the following Russian and Ukrainian companies: Dalpolymetal, Daltekhgas, Kiev Oxygen Works, and Pivdentekhgas

as

well as investment companies: NH Capital, Deloan

Investments and NH Kazakhstan. Dmitry

is an investment banker with experience as a managing director with IG Capital (former Lukoil-Reserve-Invest with over $7bln. under management), and held senior positions with MDM Bank, PricewaterhouseCoopers and Ernst & Young where he was Metals, Automotive and Industrial Products Leader for Russia and CIS

Investment companies Gas companies Mining companies

OJSC Dalpolymetal

–

RussiaCJSC Oxygen

worksUkraine

OJSC YugtekhgasUkraine

OJSC DaltekhgasRussia

RussiaEurasia Mining Plc, United Kingdom

Deloan

Ivestments, United Kingdom

NH CapitalRussia

NH Kazakhstan,Kazakhstan

Introduction


NH€apital

EurasiaMining

Barrick Gold

Con. Puma(Kinross Gold)

Joint Venture with Anglo Platinum (part of Anglo American) is doing field works on a territory of 475 square kilometers on 3 deposits: Western Imandra, Volchetundra and MonchetundraInvestments to date are in excess of $10 mln.Other companies exploring neighboring deposits:

Barrick Gold – the largest gold company in the world with the market capitalisation of $37,5bln.Kinross Gold (another large gold producer with the market capitalisation of $14bln.Renova – one of major Russian investors, a shareholder in TNK-BP and Rusal

Similar deposits are being mined across the border in Finland

Example: our investments in Eurasia Mining Plc.

Russia


NH€apital

Eurasia Mining Plc.UK listed mining company

Value not disclosedFinancing the company

(via Delaon

Investments)2008-2009

CryogenmashRussia’s only ASU maker

250 000 000 USDSell to strategic investor

(Gazprombank)2008-2009

StromLWood processing

Value not disclosedAcquisition advisory to

Swedish company2008-2009

Volzhsky Abrasive WorksSiC manufacture38 500 000 USD

Sell to strategic investor(Carborundum

Universal)End of 2008

Recent deals

DalpolymetalMajor lead producerValue not disclosedAcquisition advisory to

Russian Mining CompanyEnd of 2008

Office complex inMoscow

17 500 000Sell to strategic investor

(Khimmash

Group)2008


NH€apital

NHCapital makes direct investments and advises on deals (on success fee basis). NHCapital

has a JV with Anglo Platinum (part of Anglo American) via Eurasia Mining Plc and a JV with Swedish company Nordic Industries on construction materials. The investment banking division of NHCapital

is advising major

Russian companies including Gazprombank

Group, PromSvyazCapital Group (includes financial services, IT, real estate, media and other assets), Unicor Group (includes

financial services, agriculture, bakery,

pharmacy and other assets), Nafta Moskva (a shareholder of major

international banks) as well as foreign companies including Rurik

Industries (Sweden) and Galileo Vacuum Systems (Italy)

NHCapital clients


NH€apital

Russian investments abroad

Russian investments in Italy

Foreign investments in Russia

Doing business in Russia

Content


NH€apitalInternational expansion of Russian companies

5-9

10-19

20-29

> 30

USA - 33

Canada- 12

Kazakhstan - 19Ukraine-37Moldova-7

Austria-6Serbia-5

Greece-5

Hungary-8

Belgium -

5UK-27

Finland-10

France-6Italy-14

Ger-25

Switzerland -

6

Netherlands -

32

India-7

Uzbekistan-8

Turkey-8

Chech

Republic-8

Armenia-12

Belarus-13

Cyprus -

16

EUROPE - 152

Number of deals

Source: Thompson research


NH€apital

Manufac

turing

Transp, C

omm, E

lectric

, Gas..

.

Finance

, Insu

rance

, Real

Estate

Service

s Mini

ng

Retail Trad

e

Wholesa

le Trad

e Cons

tructi

on

Agricu

lture,

Forestry

, Fish

ing

2006

2007

2008

0

5

10

15

20

25

30

35

40

45

International expansion statistics

Russian companies have increased their international presence over the last 3 years

Number of deals has been growing by 35% p.a.from 64 in 2006 to 117 in 2008

Manufacturing industry was the most popularamong Russian investors

Number of deals in Manufacturing industry segments in 2008

Steel and other metal

products; 18

Pharma; 2

Constuction and other

materials; 3Consumer goods; 4

Foods; 4

Machinery and

equipment; 14


Number of deals by sectors in 2006 - 2008


NH€apitalTop 25 Russian multinationals by foreign assets

# Name IndustryForeign

Assets, $ m

1 Lukoil Oil/gas 18

921

2 Gazprom Oil/gas 10

572

3 Severstal Metals/mining 4

546

4 Rusal Metals/mining 4

150

5 Sovcomflot Transport 2

530

6 Norilsk

Nickel Metals/mining 2

427

7 AFK Sistema Telecoms/retail 2

290

8 VimpelCom Telecoms/retail 2

103

9 Novoship Transport 1

797

10 TNK-BP Oil/gas 1

601

11 Evraz Metals/mining 1

322

12 FESCO Transport 1

074

13 PriSCo Transport 1

055

# Name IndustryForeign

Assets, $ m

14 Novolipetsk

Steel Metals/mining 964

15 RAO UES Electricity 514

16 TMK Metals/mining 490

17 Eurochem Agri-chemical 456

18 GAZ Manufacturing 366

19 OMZ Manufacturing 354

20 Alrosa Metals/mining 294

21 ChTPZ Metals/mining 244

22 Alliance

Oil Oil/gas 211

23 Acron Agri-chemical 200

24 Euroset Telecoms/retail 147

25 Mechel Metals/mining 116

Total 58,744

Russia's Top 25 multinational investors (ranked by foreign assets) have US$59bln

of assets abroad, have nearly US$200bln

in foreign sales (including exports) and employ 130,000 people outside Russia


NH€apital





Content


NH€apitalRussian-Italian international trade

Italy is one of the major trade and economic partners of Russia. Russian trade volumes with Italy are the 4-th largest after Germany, the Netherlands and China

International trade between countries grew in 2008 by 46,7% and amounted to $52.9 bln. Russian exports grew by 52.3% to $41.9 bln, while imports - by 28.8% to $11 bln

Russian-Italian international trade, $bln.

10,915,2

23,5

30,836

52,9

8,512

19

25,127,5

41,9

2,4 3,2 4,5 5,78,5

11

0

10

20

30

40

50

60

2003 2004 2005 2006 2007 2008

Sales Export ImportTradeSource: Russian State Statistics Service


NH€apitalRussia welcomes cooperation with Italian companies

Russian Prime Minister Vladimir Putin appreciates high volumes of Russian-Italian trade

Putin has recently met 15 major Italian businessmen in his countryside residence near Moscow

Among topics of discussion were:

Italian support of South Stream pipeline designed to pump 30 bln m3 of Central Asian gas to Europe

Joint development of a hi-tech project to build the Superjet-100 medium-haul passenger airliner

Putin also announced that the two countries would hold a number of mutual negotiations in the nearest future

"We are open to comprehensive partnership with Italian businesses" Putin said, adding that no developments within Russia or Italy would be able to hamper their bilateral business partnership, which he said was set to "expand and strengthen"

V. Putin

looking at the Italian flag during Russian-Italian summit in 2008


NH€apitalGood relations on the top level

Vladimir Putin has made several working visits to Italy

Putin was in Sardinia for a meeting with SilvioBerlusconi, who had won a third term as prime minister in Italy's parliamentary election

The two leaders discussed the current state and future of Russian-Italian cooperation

The meeting was one of Berlusconi's first with a foreign leader since the elections

Berlusconi highlighted Italy’s economic ties with Russia, saying it is now Russia's fourth-largest economic partner with 2nd place in terms of imports from Russia, and 7th for exports to Russia

“Italy will propose discussions with the rest of the European Union on introducing visa-free travel between Russia and the 27-nation bloc”, Silvio Berlusconi said after the meeting


NH€apitalRussian investments in Italian companies

Year Target name Acquiror

name Deal size, EURm Deal comments

2008 Refining facility Lukoil 1

347 has acquired 49% stake in the refining plant

2008Imal

Srl's

fibreboard factory

Proektirovanie

i Stroitelstvo

-

XXI 14,6 Russian construction company has acquired the fibreboard manufacturing factory

2007 Jobs SpA Borodino GK ZAO n/a

Russian alcoholic beverages manufacturer has acquired a stake in Piacenza-based high-speed packaging machinery manufacturer

2007 SBC Bottling & Canning SpA

Borodino GK ZAO 17

Russian alcoholic beverages manufacturer has acquired Montecchio

Emilia-based bottling and packaging machinery manufacturer

2007 Prince Hotel Inturist

VAO OAO 10 Russian tour operator has acquired Forte Dei Marmi-based 4-

star hotel

2007 Energetic Source

The Renova

Group 400 Russian conglomerate has acquired Italian gas and energy

trading groupSource: Companies information, Mergermarket

Over the last 3 years Russian companies invested more than 2,7 bln EUR in acquisitions in Italy

Variety of industries and deal sizes (see the table below) show overall high interest from Russian investors in Italian companies


NH€apitalRussian investments in Italian companies

Year Target name Acquiror

name Deal size, EURm Deal comments

2007 Azzurro

Italia Inturist

VAO OAO n/a Russian tour operator has acquired Italian hotel operator

2006 Tombacco

SpA Retal

ZAO n/a PET-preforms

manufacturer has acquired the plastic products maker

2006 Eurallumina

SpA RusAl

ZAO 400 Russian major aluminium producer has agreed to acquire 56.16% stake in Italy based aluminium refinery

2006Undisclosed chemical facility

Acron

OAO n/a Russian nitrogenous fertilisers producer has signed an agreement for the acquisition of Italian chemical facility

2006 Finmek

SpA AFK Sistema

Group 100 Listed Russian conglomerate has agreed to acquire a 51% stake

in Italy based manufacturer of telecommunication terminals

2005 Lucchini

SpA Severstal

OAO 430 Steel manufacturer acquired 62% in the steel products manufacturer

2005 Palini

e Bertoli

SpA EvrazHolding 61 Russian steel manufacturer has acquired a 75% stake in Italian

manufacturer of rolled steel plates

Source: Companies information, Mergermarket


NH€apital





Content


NH€apitalForeign investments in Russian companies

British Virgin Islands - 5

Cayman Islands - 5

Switzerland -

18

Austria-14

Cyprus -

75

Netherlands -

32

Belgium -

6Luxembourg-9 Hungary-8

Chech

Republic-7

Canada- 20

USA - 74Japan - 8

South Korea - 6

EUROPE - 414

Australia - 6

Kazakhstan - 8

Sweden-39Finland-37Norway-17

UK-92

Spain-8

France-28

Poland-11

Ukraine-12

Italy-14

Germany-61

5-9

10-19

20-29

30-60

> 60

Number of deals



NH€apital

Manufa

cturin

g

Finan

ce, In

suran

ce, R

eal E

state

Mining

Trans

p, Com

m, Elec

tric, G

as, S

an...

Service

s Reta

il Trad

e

Wholes

ale Trad

e Con

struc

tion

Agricu

lture,

Fores

try, F

ishing

2006

2007

2008

0

10

20

30

40

50

60

70

Foreign investments statistics

Foreign companies have also increased their presence in Russia over the last 3 years

Number of deals is growing by 34% p.a. from 127 in 2006 to 229 in 2008

Investor preferences were changing from infrastructure in 2006 to manufacturing in 2007and financial sector in 2008

Foods; 15

Consumer goods; 6

Steel and other metal products; 5

Constuction and other

materials; 3 Pharma; 2Machinery

and equipment;

16

Number of deals in Manufacturing industry segments in 2008


Number of deals by sectors in 2006 - 2008


NH€apital

Italian investments in Russian companies have been also developing very fast in recent years according to Russian State Statistics Service

Major Italian investors in Russia are the following companies: FIAT (automotive), Indesit (domestic appliances), Teknimont (chemicals), Marazzi (construction ceramics), Ferrero (confectionery), Federleno Arredo (furniture industry)

Italian investments in Russia, $mln.

145,8249,5 254,6 243,4

486,3

1120

0

200

400

600

800

1000

1200

2003 2004 2005 2006 2007 2008(6mon.)

Italian investments in Russia

Source: Russian State Statistics Service


NH€apitalRussia is an attractive investment destination

Russia is increasingly considered a country with a stable investment climate. It has witnessed a big increase in foreign direct investment (FDI) inflows over the recent yearsKey drivers of FDI growth: a large and growing domestic market, strong human capital, richnatural resources and political stability “Russia needs many things and there is money to make that a reality” - a notion from respondents of recent CEO survey conducted by Foreign investment advisory council

Russia has taken considerable steps to improve general business climate:

The Law on Foreign Investment was improved and clarifiedPositive changes has been made in the Law on Subsoil, Water Code, Forestry Code, Civil Code, Law on CompetitionAmendments to the Tax Code improved tax controls

Most promising markets (A survey of CEOs, 2008)

Source: Foreign investment advisory council


NH€apitalM&A Activity by Sector

Financial sector in Russia is “hot” in terms of M&A activity in comparison to other CIS countries


NH€apital





Content


NH€apital

Babushka

Kolkhoz

Winter (Zima)

Russia as it is presumed…


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Domodedovo Airport

GUM

The colors of the night

Russia as it is…


NH€apital

Total Area: 17,075,200 sq. km

Population: 143.5 million

Climate varies from temperate continental to strongly continental

Average summer and winter temperatures

Region Summer Winter

Central Part +19°C (66 F) -11°C (12 F)

South +24°C (75F) -5°C (23 F)

Urals +18°C (64 F) -16°C (3 F)

Siberia +25°C (77 F) -40°C (-40 F)

Russian Federation


NH€apitalMoscow alone is huge…

… but it is just a small part of Russia

Moscow


NH€apitalMap of Per Capita Income in Russia

Central federal district, thousand Roubles

Belgorod region

7,4Bryansk region

7,1Vladimir region

5,9Voronezh region

8,5Ivanovo region

4,8Kaluga region

8,6Kostroma region

6,6Kursk region

7,9Lipetsk region

8,1Moscow

region

12,9Oryol region

6,8Ryazan region

6,3Smolensk region

7,4Tambov region

7,3Tver region

7,8Tula region

8,0Yaroslavl region

9,8city of Moscow

33,7

Source: Rosstat


NH€apital

Over the next 50 years, Brazil, Russia, India and China -

the BRICs

economies -

could become a much larger force in the world economy

Source: Goldman Sachs -

Global Economics Paper

BRICs will take the lead


NH€apital

From the above statistic data we may draw the following conclusions:

Russia is the only country in Europe where the age group of 15 to 34 years is growing in size

Per capita income is considerably growing in Russia and still has an immense further growth potential

Statistic Data for Russia and the EU

Bulgaria Poland Czech Republic UK France Germany Russia

2000-1 2005-6 2000-1 2005-6 2000-1 2005-6 2000-1 2005-6 2000-1 2005-6 2000-1 2005-6 2000-1 2005-6

Population, million 7,8 7,3 38,7 38,5 10,3 10,2 59,5 60,6 59,4 60,9 82,2 82,4 146,3 142,8

Age groups, years

0-14 % 15,6 13,5 18,9 15,8 16,5 14,7 19,0 17,5 18,9 18,3 15,6 14,1 17,8 14,9

15-34 % 28,6 28,4 30,7 31,6 30,1 29,4 27,0 25,9 27,4 25,8 25,6 23,3 29,7 31,9

35-54 % 27,3 27,0 29,5 28,5 29,1 28,4 28,2 28,9 28,5 28,0 29,2 31,6 30,6 30,2

55+ % 28,6 31,1 20,9 24,1 24,3 27,5 25,8 27,7 25,3 28,0 29,6 31,0 21,9 23,0

Average family size 3,4 3,2 3,0 2,8 2,8 2,5 2,7

Per capita income, $/person 505,1 682,5 991,7 2 097,2 2 177,7 2 192,0 109,4 368,4

City population, % 70,6 66,7 77,8 91,5 79,2 90,1 72,9

Source: Rosstat, Euromonitor


NH€apital

Source: Economic Ministry

Sources of growth 2005-2010 2011-2015

Restructuring of Oil and Gas 0.5 0.9

Transport strategy 0.3 0.4

Restructuring agriculture 0.2 0.2

Innovation strategy 0.15 0.3

Information technologies 0.2 0.4

Defense sector (including aviation) 0.2 0.3

Mortgage/construction 0.1 0.1

Total 1.65 2.6

Base growth 4.55 4.25

Total annual growth 6.20 6.85

Potential sources of additional GDP growth (percentage points annual)

Sources of Russian economy future growth


NH€apital

1998*

Currency regulations

Individual taxes

1998**

Corporate taxes & duties

Law enforcement, taxation

2003

Very good*Before August 1998 crisis

Very bad ** After August 1998 crisisAverageGood Bad

Legal framework

Law enforcement, general

2009

Legislative Framework and the Rule of Law


NH€apital

1998* 1998** 2003

Very good*Before August 1998 crisis

Very bad ** After August 1998 crisisAverageGood Bad

Bureaucracy

Corruption

Financial sector

International standards

Personnel

2009

Corporate governance

Trends in Other Critical Areas


NH€apital

Main points of interest - cheap labour and raw materials costs along with huge market volume

Mining is not the 1st priority now, while processing industries taking the lead

Labour Costs

Labour Costs (US$/hour)

0 5 10 15 20 25 30 35

ChinaRussiaTurkeyPoland

South KoreaSpain

UKUS

AustraliaFrance

SwitzerlandBelgium

Germany

Source: Economist Intelligence Unit


NH€apital

Source: “The Russia: Investment Destination”

-

a survey conducted for the Foreign Investment Advisory Council (FIAC) and the Economy Ministry of Russia

Respondents: 158* international companies, primarily headquartered in Europe and the United States

The size of the domestic market

Sustained growth rates of the domestic economy

Macroeconomic stability

Domestic technological and scientific potential

Cheap energy and raw materials

Administrative reforms to reduce bureaucracy and corruption

Favorable tax regime

High quality and low cost of human resources

Overall political stability

What are the top five advantages of Russia?

Reasons for entrance to Russian market

77%

55%

46%

40%

31%

30%

22%

17%

88%


NH€apital

“The tax and legal systems [in Russia] offer acceptable risks for us”

Sir John Brown, Chairman of BP, prior to placing $7billion into Russia.

“BRIC (Brasil, Russia, India and China) countries have the greatest prospects for long-term economic growth among big emerging-market countries”

Jim O’Neill, Director of the Economic Research Group in Goldman Sachs

Some opinions


NH€apital

Is your company thinking of investing in Russia?

Is your company planning on expanding or reducing its investments in the Russian market in the next 3 years?

Existing investors plan to expand, new multinationals line up for entry

105 existing investors 48 non-investors

Source: FIAC

Multinationals’ expansion to continue

Expand71%

Same level26%

Reduce3% Yes, within

the next year46%

Yes, in 1-3 years19%

Yes, but not earlier than in 3 years

8%

No27%


NH€apital

Corporate profits tax rate 20%

Capital gains tax rate 1 20%

Branch remittance tax 0

Withholding tax on dividends 2 5 -

15%

Withholding tax for foreign legal entities without permanent establishment in Russia:

Interest on certain types of state and municipal securities 15%

Other interest 20%

Freight 10%

Royalties from patents, know-how 20%

Payments of other Russian source income to foreign companies 20%

Notes: 1. Capital gains are taxed at the corporate profits tax rate 2. 15% rate of withholding tax on dividends applies if either the payer or recipient of the dividends is a foreign legal entity

The basic corporate profits tax rate consists of 2,5% payable to the federal budget, 17,5% payable to the regional and local budget = 20%

The regional element can be reduced by up to 4%, giving a minimum overall rate of 16%

Corporate Taxes at a Glance


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Unified Social TaxThree elements of payroll tax: federal budget, social insurance, medical insuranceTax is paid entirely by the employerRegressive tax rates from 26% to 2% on the pay of each employee based on the cumulative annual income

Minerals Extraction TaxFixed-duty rates for oil and gas condensate based on physical volume. A subject to variation in line with changes in world pricesOther minerals are subject to tax based on the value of extracted commercial minerals

Assets TaxTax is levied on property belonging to Russian legal entities and rep. offices of FLEsThe maximum tax rate is 2.2%.Several items were excluded from tax base(work in progress, inventory, deferred expenses)

Value Added Tax (VAT)General rate of 18% on the majority of sales of goods and servicesExported goods are subject to VAT at a zero rateVAT due to the budget = VAT collected from customers for goods sold - VAT paid to suppliers (Input VAT)

Other important taxes


NH€apital

Resident -

is a person that spends 183 days or more in Russia in a calendar year

Taxable income: basically everything -

salary, COLA, hardship, housing, home leave, other allowances and benefits in kind such as use of a company car for

private purposes

Russian source income: income received for work or services performed in Russiacapital gains from the sale of property in Russiarental income in respect of property in Russiainterest from deposits in Russia or dividends on shares held in companies in Russia

Personal Income tax rates13% - for most worldwide income received by tax residents30% - for Russian source income received by non-residents9% - for dividend income

Personal Taxation: taxable income and tax rates


NH€apitalContacts

Dmitry Suschov Managing [email protected].: +7 (495) 979 87 33

Giovanni [email protected]

Ilya [email protected].: +7 (903) 559 18 05

NH€apital

deals with russian companies (sushov).pdf · joint venture with anglo platinum (part of anglo...

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