2
AMC is a capital mobilization vehicle of IFC:‘crowding in’ investment to emerging markets
Investment Services
Advisory Services
Asset Manageme
nt
• Loans and intermediary services
• Equity and quasi-equity
• Syndications
• Structured and securitized products
• Risk management products
• Trade finance
• Subnational finance
• Treasury operations
• Access to finance
• Corporate advice
• Environmental and social sustainability
• Infrastructure Advice
• Investment Climate
Invests third-party capital in a private equity format
Allows outside investors benefit from IFC’s expertise at achieving strong equity returns as well as development impact
Helps IFC fulfill its role and leverage its balance sheet by mobilizing third-party funds to increase investment
3
What is the Russian Bank Capitalization Fund?
Who?
What?
Investments in bank equityTarget investment sizes US$20-$100 millionShares of 10%-30% (with some exceptions)RBCF investing to profit – need to exit
When?
How?
Private equity fund managed by IFC Asset Management Co Investors IFC, Russian Federation, VEB and international investors
Fund established June 2012Considering investments now2-4 investments per year, maximum ~10
IFC Moscow is primary point of contactPrepare information in advancePresent IFRS financials and investment presentation
•Be realistic: in equity investments, one in twenty-fifty projects make it through full process• Some very good banks will not meet fund criteria•RBCF is not a ‘bail-out fund’
Why?Russian banking sector is promising, but with huge capital needs
Financial sector critical to development of economyBring new investors to Russian banking sector and set examples
4
RBCF legally established June 2012Initial fund size US$275
First investments under consideration
Investor
Target Commitment
(in $M)
IFC $250
Russian Federation 50
VEB 250
Other institutional investors
Up to 1,000
Target Total Commitments:
RBOF established with first close of US$275m
One-half of committed amounts for IFC, RF and VEB
Target investorsTarget investors Target investmentsTarget investments
$1-1.5 billion
Target bank profile
Bank size
# of projects
Avg. investme
nt(in $M)
National consolidators
$4-$20 bln (Assets)
3-5 100 – 300
Medium-sized, high growth, niche and other
$500-$4000 mln (Assets)
8-10 20 – 200
Combination of larger banks with smaller banks with funding fueled growth...
A few larger ticket investments combined with higher-growth mid-
sized banks to benefit from consolidation ‘at both ends’
$1-1.5 billionTarget Fund Size 10-15
5
RBCF Legal Structure
5
IFC manag
ed
IFC Russia Bank
Capitalization Fund
Equity GP
Manager: IFC Asset
Management Company,
LLC.
LP
in
tere
st
GP
in
tere
st
LP 2 LP 3
LP
in
tere
st
LP
in
tere
st
IFC TRUST FUND
LP
in
tere
st
100
% o
wn
ed
•Limited partnership managed by IFC Asset Management•Russian Federation &VEB investments through an IFC-managed trust fund
•Investors: IFC, IFC Trusts 1 & 2•No RF & VEB involvement in management of Fund or investment decisions
6
The Russian banking market is highly fragmented
0 20 40 60 80 100
100%All
banks
Banks 501-~1000
1%
Banks 201–500
5%
Banks 101–200
5%
Banks 51–100
8%
Banks 21–50
12%
Banks 11–20
10%
Banks 6–10
7%
3%
4%
6%
12%
27%
Fragmented market:~1000 banks, led by a few State
banks
Fragmented market:~1000 banks, led by a few State
banks
Lower cost efficiency in smaller banks of RBOF's target
segment
Lower cost efficiency in smaller banks of RBOF's target
segment
51%
Top 5 banks (all state) account for over half of
all banking assets
25%RBOF's target
segment accounts for a quarter of all banking
assets
Opportunity for value creation through consolidation and improved efficiency
Total assets (%)
Growth / consolidation will help achieve minimum efficient scale and
market power
0
74%
% (1H 2010)
Banks 1-20
Banks 21-50
Banks 51-100
60%
40%
52%20%
80%
53%
Cost1 / income ratio
$6Bn+Asset size $2-6Bn $2Bn-$800M
7
Criteria for Bank Selection – Target Banks
IFC Standards
Investment Thesis
IFC is investing its own funds and those of investorsValue proposition (expected returns to investors) are criticalHow are investors (including IFC) going to profit from the investment?
Real Role in Economy
The Numbers
All IFC performance standards, financial reporting, financial covenants and others are unchanged
IFC is a demanding investor and will look for partners with track record, excellent reputations and good corporate governance
Meaningful role in economy (% of regional market, role in providing necessary financial services to SMEs, households, corporations
Innovative services and products welcomeSize: Primarily top 250 banks by assets, with regional presence
Investment size: $20-100 mln, for stake of 10% -30% (exceptions possible)
Co-investors: RBOF goal is to help attract additional foreign investment – hence structures with more investors get priority
IFC may co-invest and provide debt, risk management and other products
8
Simplified Investment Criteria
Transparency
InvestmentClear answers to why invest? (ROE, NIM, COI, etc)Profitability, stability, capital, growth, potential returnsClear path to sale/exit in 5-10 yearsWhat will market position be during investment period?
Operations
Basic approach
IFRS financial statements by a high-quality auditorClear ownership, reputation of owners and institution criticalQuality of managementProblems: high related party, linked loans, unclear business
Meaningful role in regionsBoth traditional and innovative banking products (non-speculative)
Strong risk managementSize: Primarily top 250 banks by assets, with regional presence
Investment size: $20-100 mln, for stakes of 10% -30% (in most cases, some exceptions)
Largest banks / foreign / government mostly excludedSmallest banks: more likely through acquisitions
9
~ 100 potential targets
• Meeting minimum financial requirements
Robust Sourcing Methodology
~ 1000 banks
~ 300 banks• Locally owned• Privately owned• Good reputation• Non captive
10 target banks in 10-24 months
• $650M• Follow-on
investments anticipated
IFC already in contact with many banks on regular basis• Six banks: equity investment• 26 investee companies + High demand from non-client
banks
Identify commercially viable candidates• Excluding “pocket banks”,
“treasury banks” or “ captive banks”
• Excluding subsidiaries of international banks
• Excluding banks not having basic minimum financials (IFRS requirement)
Identify eligible banks• Screening for key financial
indicators (e.g., minimum scale)• Excluding reputational issues• Screening for private sector (or
to be privatized)
Identify top target banks for focused business development efforts• Specific opportunities have
been identified or are likely, based on IFC’s relationship (excluding recently exited investments), ranking by capital needs, likelihood of transaction, size, and systemic importance (in particular network banks)
Russian Banks
Eligible Banks
Target Pool
Near-term Pipeline
10
RBOF able to identify opportunities and add value
Key issues of Russian marketKey issues of Russian market How RBOF creates valueHow RBOF creates value
Structured exit
Bank selection
Operating phase
Target selection
Efficiency and profitable growth
• Sustained growth improving efficiency, profits and M&A opportunities
Improving bank fundamentals
• Supporting active risk management and NPL recovery
• Ensuring basic banking capabilities
Target selection
•Identifying banks with highest upside potential
•Selecting best banks with basic risk mgmt
•Strong deal flow based on IFC client base
Sale preparation, execution
• Structured exit preparation
• Attracting potential acquirers
• Opening investment opportunities for foreign investors
Reputation• IFC “stamp of approval” and
involvement• Enforcing international
standards of Corporate Governance
FundingEquity funding combined with range of IFC debt instruments and increased market access
1High growth opportunities
Banking market set to out-pace GDP as penetration catches up with Western levels
Mid-sized banks lack
funding and scale
Structural underfunding of economy and banking sector, concentration of large state banksMany banks lack due to scale, credit, and transparency concerns
High NPLs with low standards
of professionalis
m
Need to introduce basic banking standards (e.g., proper risk management, principles of ALM)Over-due loan levels in RBOF's target segment appear to have peaked, but are under-reported
Market Fragmentation
with opportunity to
increase efficiency
>1000 banks in total, led by a few state banks. with ~60% of banks either captive or subscaleOpportunity for value creation through consolidation
2
3
4
5
Attractive valuations
Market valuations currently a fraction of pre-crisis levels
11
IFC has demonstrated strong performance in Russia and financial
services investmentsIFC has a proven track record in
financial services and RussiaIFC has a proven track record in
financial services and Russia
Over past ten years, 3 of 4 of IFC exits from Russian banking investments were
highly successful
Over past ten years, 3 of 4 of IFC exits from Russian banking investments were
highly successful
IRRIRR
• Sold at same price as purchased in ruble terms
103%
47%
46%
-5%
Globally, financial services is one of IFC's most profitable sectors with average IRR of ~30%
IRR since inception at 40% for all sectors in Russia• 1998-2008 IRR was 62.1% for all
sectors...• ...and 67% for financial services
Milestone transactions executed successfully
• First mortgage securitization• Ruble bond issues (partial guarantees)• Close to $1 billion in ruble financing• $500M syndication in 2008• Investments in over six regional banks
Currently no NPLs and none incurred during financial crisis
Bank 1
Bank 2
Bank 3
Bank 4
12
Target banks will be in a position to benefit from the Fund’s resources at a crucial time.
Credible Investors
Fund will be comprised of sophisticated international investors Investees will continue to receive the same level of services and
benefits as if they were transacting directly with IFC, with added oversight from AMC staff
Counter-Cyclical Strategy
During times of financial crisis, foreign investments in emerging markets diminish further as portfolio investments decline rapidly
Fund will act to stabilize banks in order to speed up economic recovery and increase lending to productive sectors of local economies
By directly providing emerging market banks with much needed capital, as well as catalyzing additional capital for those banks in a time of severe crisis, the Fund will:
Support economic growth in Russian economies through financial intermediation
Be well positioned to capture upside via countercyclical investment
Experienced Team
Senior AMC and IFC investment professionals with extensive experience originating, executing and supervising investments in Russian commercial banks
Investment teams have the full support of IFC’s entire investment infrastructure, including dedicated portfolio, risk, corporate governance and equity sales departments
Advisory Services Benefit from advisory services to portfolio banks Strengthening private sector development and improving banks’
economic and financial performance, and their social and environmental sustainability
Key Benefits for Investee Banks
13
Rigorous Investment Process
Largest emerging market
deal flow
Deep industry/ regional
knowledge
Capability to develop innovative
structures
Dedicated teams with relevant experience
Origination Evaluation Execution Supervision Exit
AMC leverages IFC’s proven origination, execution and supervision resources while conducting rigorous independent investment evaluation approved by independent
Investment Committees.
Defined strategies
• IFC infrastructure, network and name leads to steady pipeline of potential deals
• Deep and broad analysis of local markets, regulatory regimes and sector fundamentals
• Negotiation leverage due to limited competition and institutional credibility
• Dedicated, locally based portfolio supervision teams in frequent contact with clients
• Frequent use of structural exit mechanisms
• Locally-based business developers supported by AMC and IFC Management
• Due diligence conducted by industry experts and appropriately staffed teams of investment professionals
• Flexibility to offer tailored investment products across the full capital structure
• Strict social and environmental compliance requirements
• Multiple scenarios: - Sale to strategic - IPO - Put to sponsor
• Unique access to challenging markets facilitates deal flow
• Deep knowledge of local legal environment drives efficient deal structuring
• Unique relationship with and access to local regulators
• Experience in less developed capital markets
14
Proven Strategy
Deal SourcingIFC’s unmatched access to emerging market
investment opportunities
• AMC Funds enhance the IFC product offering by enabling additional/larger deals
Fund Management
•Experienced operations staff with long private equity experience at leading fund managers
•Use of first class third party firms for audit and ancillary back-office functions
Investment Selection
•Thorough review of all eligible IFC investment proposals
Independent decision-making
Alignment with fund objectives
•Clear exit strategies
Value-Add• Experienced professionals with extensive
principal investment experience
• Tax and legal structuring with Fund specific focus
• Review and mitigation of conflicts of interest
AMC enhances the time tested IFC investment process that has evolved over the past 50+ years.