ebrd – a good partner in russia verona 28 october 2011

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Verona 28 October 2011

EBRD – a good partner in Russia


Eric Rasmussen

Director Russia

Industry, Commerce and Agribusiness

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Agenda

- EBRD- Priorities and presence in Russia- Private Equity- Information and Communications Technologies (ICT)- Pharma- Annex

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EBRD: A network of 36 offices in 30 countries

More than half our bankers based in the region

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Japan8.6%

EBRD region excluding

EU(2)7.3%

USA10.1%

Others11.3%

EU 27 Countries (1)

62.7%

Current paid in capital is €6bn including an increase of €1bn in May 2010

Current callable capital is €15bn

In 2010, the Board of Governors approved a 50% increase in the Bank’s authorised share capital from €20bn to €30bn

The €10bn increase* will provide additional investment capacity for the period 2011-2015 to enhance the Bank’s response to the global crisis

*Callable capital to be increased by €9 billion upon receipt of subscriptions from members, with the provision to review its usage after 5 years

(1) Includes European Community and European Investment Bank each at 3%; France, Germany, Italy, UK each at 8.6%

(2) Russia at 4%

EBRD Global Shareholder Structure2010 Annual Meeting: 50% capital increase to €30bn

Triple-A Shareholders Form 60%

as at 1 September 2010

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EBRD: Cumulative commitments by sector

Agribusiness, 9%

Equity Funds, 5%

Financial Institutions, 28%

Manufacturing and Services, 12%

Municipal & Env Inf, 6%

Natural resources, 7%

Power and Energy, 10%

Property and Tourism, 4%

ICT, 5%

Transport, 14%

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International financial institution,

promotes transition to market

economies in 30 countries from

central Europe to central Asia

Owned by 61 countries and two

inter-governmental institutions

Capital base of €30 billion*

*At the Annual Meeting in Zagreb in May 2010, the Board of Governors approved the Bank’s capital increase from €20bn to €30bn authorised capital

Note: Unaudited as at 31 December 2010

Cumulative commitments of €62.0 billion

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30

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70

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

EU

R b

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EBRD’s historical investments of EUR 60 billion. About 25% in Russia.

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Invested over €62n in more than 3,119 projects since 1991

Private sector > 79% of EBRD finance

Debt 83%, Equity 17% of EBRD finance

€9.0bn invested in 2010

EBRD in 2010

Source: EBRD data as at 31 December 2010

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19

97

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An

nu

al b

usi

nes

s vo

lum

e (A

BV

)

-5

5

15

25

35

45

55

65

Net

cu

mu

lati

ve b

usi

nes

s vo

lum

e

Equity ABV (EUR billion)

Debt ABV (EUR billion)

Net Cumulative Business Volume(EUR billion)

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EBRD’s priorities in Russia

Mittelstand and Larger Enterprises

Mittelstand and Larger Enterprises

• Promote regional growth – via development of

independent Russian regional companies

• Support modernization and diversification of Russian industry

– through engagement of financial industrial groups committed to corporate governance

• Build investor confidence and foster transfer of know how and technologies

– by pro-active support of foreign partners

Closing the Infrastructure Gap

Closing the Infrastructure Gap

• Reduce transport bottlenecks and ensure flow of goods via

– support of increased private provision of transport services

– financing the PPP program– engagement with reform-

minded state-owned transport companies

• Improve levels of services to population and industrial clients through

– rehabilitation of municipal infrastructure and development of new facilities

• Modernize power generation and remove electricity transmission bottlenecks

– by financing investment programs of private and state companies

Capital markets and Financial intermediaries

Capital markets and Financial intermediaries

• Foster sound banking sector – strengthen bank's balance sheets

and capital base

• Support corporate standards in banks– leveraging equity investments

• Encourage consolidation– support M&A

• Develop domestic investor base, deepen capital markets

– by financing non-bank financial institutions

• Support development of RUB interest rate derivative and long term fixed interest rate bond markets

– promote wide use of Mosprime– EBRD RUB bond programme

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EBRD products

Direct EBRD financing

LoansLoans

• Non or limited recourse to sponsors

• Hard / local currency

• Medium / long term

• Floating / fixed rates

• New equity

• Privatizations

• Underwriting

• Quasi-equity

• ‘Portage’

Indirect EBRD financing

• Guarantees to Confirming Banks for trade finance instruments (i.e. L/Cs, payment guarantees etc.) of local issuing Bank covering the payment risk

• Short-term financing of local Issuing Banks providing exporters/importers with liquidity for pre-export and post import and local trade finance purposes

GuaranteesGuarantees

• Specific risk guarantees

• Commodity-backed instruments

EquityEquity

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EBRD is more than equity and loans

AAA rated and internationally recognised IFI with long-term view

Willing to share risks, including political risks

Experience gained in problem resolution

Extensive knowledge of local business environment Good working relations with authorities

Good corporate governance (incl. protection of minority interests) High quality due diligence and opportunity studies

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Dialogue and PolicyFunctioning of

Public Institutions

Private Sectorknow-how, capital

& behaviour

Sustainable EconomyDependence on Natural Resources

Diversified Industry Structure Efficient Local Markets

Competitive Growth

% innovation absorbed by industrial companies

Costs and barriers to grow innovation

EBRD is a trusted partner in the dialogue on innovation

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Russia’s Modernisation Agenda

• Modernization of Russia in the 21st century will be based on the values and institutions of democracy

• State corporations should be reorganized and privatized

• State-run corporations and large companies shall be audited

• The government's share in commercial companies, including strategic businesses, should be reviewed

• R&D and technological development (Skolkovo and Rusnano)

• Develop new generation nuclear reactors and fuel by 2014

• A Russian communication satellites put into operation by 2015

• Corruption will decline as transparency increases

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All bankers agree that the Russian industry offer strong business opportunities ...notably Industrials, Non-Cyclical Consumer Goods & Services and Utilities show high growth.

1.5

Forecasted Revenue Growth in Russian Industries relative to Brazil, India, China and EU and EU (CAGR 2009 – 2012)

1.0

0.0

0.5

0.5

2.52.01.51.00.0

Utilities

Telecom

Technology

Non-Cyclical Cons.

Goods & Services

Industrials

Healthcare

Banks

Energy

Cyclical Cons.

Goods & Services

Basic Materials

Overvaluation

Undervaluation

Healthcare - although closer to overvaluation – has also

strong revenue growth compared to healthcare in Brazil, India, China and EU

Value of Russian Industries relative to Brazil, India, China and EU(12 months P/E of top 500 companies in each economy)

Data: Reuters (Dec 2010)

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However investor perception of slow reforms in Russia depresses the value of Russian assets compared to Brazil, India, China, EU…

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P/E (12 months trailing of the 500 largest companies in each economy)

20150

Forecast Long-Term EPS Growth

EU

China

India

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Russia

Brazil

Russian companies have lower P/E multiples in spite of projected strong growth

Data: Reuters (Oct 2010) and BCG analysis

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Tax r

ate

s

Access t

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inance

Work

forc

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kills

Political in

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Info

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Labour

regula

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Tax a

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Corr

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Court

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its

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Access t

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Custo

ms /

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de

reg

Russia

EU-10

Source: EBRD/WB BEEPS 2008-09. EU-10 include Bulgaria, Romania and exclude Cyprus, Malta.

BEEPS: Key Obstacles to Doing Business in Russia(response frequency in per cent)

FinanceSkilled labor

CorruptionPermits Access

… albeit new reforms focus on barriers to do business.

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Bu

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Investment Risks (Summary from Expert Magazine)Investment Risks (Summary from Expert Magazine)

HigherRussia RiskLower Very High

Average

Lower

Higher

Much lower

Very low

Very high

Saint Petersburg

Kaliningrad

Moscow city, Moscow region

Tatarstan, Bashkortostan, N. Novgorod, Samara, Perm Krasnodar, Rostov

Leningrad, Vologda,Belgorod, Yaroslavl,Lipetsk, Kaluga SaratovVolgograd

Pskov, Novgorod,Orenburg, ChuvashiaStavropol Tomsk

Orel Mordovia

Khakassia

Sverdlovsk, Chelyabinsk

Voronez, Tula, Tver, Khanty-Mansiysk-Yugra, Yamalo-Nenetsky AO, Krasnoyarsk, Kemerovo, Novosibirsk, Irkutsk, Maritime, Khabarovsk Sakha-Yakutia

Archangelsk, Komi (Syktyvkar), Murmansk, Karelia, Vladimir, Bryansk, Ryazan, Kursk, Kirov, Penza, Ulyanovsk, Tyumen, Astrakhan Altai T. Omsk, Amur

Nenetsky (Naryan Mar), Tambov, Ivanovo, Smolensk, Kostroma, Adygeya, Buryatia, Sakhalin

Mariy El Tyva, Altai Republic.

Udmurtia Trans-Baikal

Kurgan Kabardino-Balkarya, N.Ossetya-Alania, Karachayevo-Cherkessya, Kalmykia, Kamchatka

Jewish, Chukotsky Chechen, IngushetiaDagestan

Investor perception reflect that Russia is a fabric of different regional investment climates…

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Bu

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Investment RiskInvestment RiskHigherRussia RiskLower Very High

Av

era

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Lo

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rH

igh

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ch

lo

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% of GDP% of FDI% of Population





Sum

Sum

26%34%10%

13%17%10%

40%34%43%

20%15%33%

1%0%2%

27%13%28%

46%52%58%

27%35%12%

100%100%100%

39%51%20%

40%34%43%

20%15%33%

2%0%4%

2%0%4%

DeeplyDepressed

LowerPotential

High Potential2 cities

Average potential

…which necessitates a differentiated approach to regional development (“European vs Asian modernization models”).

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St. Petersburg RO

Moscow ROEkaterinburg RO

Vladivostok RO

Rostov RO Samara RO

• 7 Offices in Russia with 120 staff on the ground• EBRD has direct presence in 54 Russian regions. • A “real” presence is maintained in 25 regions with 4 or more larger projects.

Krasnoyarsk RO

A Good Mitigation Against Regional Risks? …EBRD

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EBRD in Private Equity

EBRD’s portfolio of funds: over 15 years of investing in the asset class

132 funds

84 fund managers

EUR 2.8 billion in commitments (USD 3.6 billion) to funds with capital of EUR 14.2 billion (USD 18.5 billion)

1,129 underlying investments, up to 70% exited.

Largest PE Fund program dedicated to the region*

* Russia, CIS and CSE

Source: EBRD tracked portfolio as at June 2010, excluding real estate funds

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EBRD in Private Equity:Investments by Fund Size: Russia/CIS

Note: Percentage is the share of EBRD commitment of the total fund capitalSource: EBRD tracked portfolio as at June 2010

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EU

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0-20m 20-50m 50-150m 150-300m` 300-500m 0.5-1bn

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500

1,000

1,500

2,000

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18

10

6

3

1

44%

68%35%

18%

14%

7%

Fund Size

Fund Size

EBRD Signed

Number of funds

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EBRD in Private Equity:EBRD Commitments Over Time

Source: EBRD tracked portfolio as at June 2010

EU

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No

. o

f F

un

ds

CEE CIS Number of Funds

2

4

11

12

6

1111

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6

4

5

4 4

5

9

13

5

7

9

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50

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1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

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14SEE

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EBRD in ICTSelected Transactions in Technology Funds

Poland 2009Loan and equity € 22 million (own account)

CEE Regional 1999Technology Fund - Equity€ 12 million (own account)€ 44 million (total)

Russia 2009Technology Fund - Equity$ 30 million (own account)

Bulgaria 2006 Mezzanine€ 3 million (own account)€ 10 million (total)

Croatia 2010 Equity€ 4 million (own account)

Slovenia 2001 Equity€ 3 million (own account)€ 9 million (total)

CEE Regional 2007Technology Fund - Equity€ 10 million (own account)€ 40 million (total)

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EBRD in ICTSelected Transactions in Telecoms

Albania 2003Loan syndication € 35 million (own account)€ 85 million (total)

Bulgaria 2004Privatisation - Equity, Debt and Mezz€ 90.5 million (own account)€ 374 million (total)

Russia 2004, 2006 and 2009Loan syndication€ 115 million (own account)€ 420 million (total)

Kazakhstan 2005 and 2007Loan syndication for KaR-Tel$ 65 million (own account)$ 130 million (total)

Kazakhstan 2003Loan syndication$ 60 million (own account)$ 110 million (total)

Albania 2008 Privatisation - Loan syndication€ 30 million (own account)€ 100 million (total)

Poland 1998Equity (IPO)$ 76 million

Poland 2011 Equity€ 200 million

Russia 2006, 2008, 2010Loan and equity$ 40 million

Russia 2011Rouble Bond IssueRUR 2 billion (own account)RUR 13 billion (total)

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EBRD in ICTSelected Transactions in Media

Czech Republic 2002Acquisition debt$ 10 million (own account)$ 35 million (total)

Poland 2003Acquisition debt€ 22.5 million (own account)€ 52.5 million (total)

Romania 2007Loan and equity$ 8 million (own account)$ 15.5 million (total)

Russian Federation 2003 to 2005Loan syndication$ 90 million (own account)$ 130 million (total)

Romania 2003Debt Co-financing$ 7 million (own account)$ 11 million (total)

Regional CEE 2006Loan syndication$ 50 million (own account)$ 100 million (total)

Ukraine 2007 Equity€ 22.2 million (own account)€ 200 million (total)

Kazakhstan 2009Loan to RTS Decaux$ 5 million (own account)

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EBRD has invested over EUR 300 millions in the pharmaceutical sector for manufacturing, distribution and retail pharmacies.

Russia 2010Equity€ 15 million

Russia 2004 to 2011Loan + Equity +Loan€ 58 million

Ukraine 2010Equity$ 11.5 million

Armenia 2005 to 2010Equity and Loan EUR 1.9 million

HemopharmSerbia 2002 to 2004LoansEUR 40 million

EBRD in Pharma Selected Transactions

Ukraine 2006Loan € 32 million

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Petrovax: Background

Petrovax is a Russian pharmaceutical company focused on development and commercialization of vaccines and drugs in the field of immunology. The firm had in 2003 one key product (polyoxidonium) an immune stimulant and an adjuvant for the flu vaccine. Petrovax turnover in 2003 was EUR 5 millions.

Strengths

Intellectual property based on polyoxidonium molecule

Highly knowledgeable and ambitious scientific team

Key niche products

Weaknesses

Limited financial resources for R&D

Limited production facilities and capabilities

Low brand awareness

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Year: 2004

“Vaccine Project”: Construction of a state-of-the-art manufacturing facility for production of flu vaccine in syringes. And the development of a new flu vaccine in a partnership with a leading pharma player.

Partner: Abbott

EBRD Finance: EUR 25 million loan

Petrovax: Vaccine Project

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Year: 2008

“R&D Project”: Construction of a 2nd production line. Clinical trials, registration and commercialization of 2 new products; improvement in the organizational structure and corporate governance.

EBRD Finance: EUR 15 million equity

Petrovax: R&D Project

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Year: 2011

“Innovative Pipeline”: Development and commercialization of 3 new innovative medicines.

Potential Co-Investor: Rusnano

EBRD Finance: EUR 18 million debt

Petrovax: Next Innovation

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Industry Position today: A leading Russian pharmaceutical player with GMP facilities and a strong portfolio of branded products and products at various stages of development. Petrovax has several IP and production collaborations with the world’s leading pharma companies.

Partnerships with global companies:

Sales: More than 10x increase in sales and profitability over the last 5 years and growing.

Corporate Governance and Jobs: New jobs for a new generation of researchers. Implementation of IFRS, modern MIS and corporate governance practices.

Petrovax Case Story: Status Today

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GDP per capita (USD) (left axis) GDP (RUB bn) (right axis)

Collapse of Soviet Union

Russia crisis

Putin promises to double GDP within a decade

GDP per capita in USD has only just returned to levels of 1991

Comments on Russia’s outlook: Medium term outlook has improved and Russia has still lots of potential with medium term growth at 4-5%

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The root of a tree that grew up in wind is strong

EBRD is the largest financial investor in Russia

o AAA rated IFI and a long-term viewo active in 48 Russian regions o seven regional offices in Russiao 120 professionals on the ground with a passion

to support your investment

Thank you!

Eric RasmussenDirector, Industry, Commerce & Agribusiness

Russia Business GroupTel: +7 495 787 1111 (ext 164)

Email: [email protected]

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Annex. How to obtain EBRD financing

Financing requirementsFinancing requirements How to obtain finance?How to obtain finance?

Ensure appropriate returns by

carefully assessing the risks: Management strength and strategy,

brands Clear business plan and project

costs Transparency of operations / IFRS Disclosed identity of final

shareholders and corporate structure Identified and limited tax liability risk Recourse to subsidiaries generating

profits and holding assets

Ensure appropriate returns by

carefully assessing the risks: Management strength and strategy,

brands Clear business plan and project

costs Transparency of operations / IFRS Disclosed identity of final

shareholders and corporate structure Identified and limited tax liability risk Recourse to subsidiaries generating

profits and holding assets

Provide EBRD with an overview of

proposed investment Commitment to cooperation

clarify role of EBRD mandate to initiate transaction mutual understanding of

corporate integrity issues Project / business plan, market

analysis, strategy, ownership

structure, financial analysis, risk

assessment Exit strategy

Provide EBRD with an overview of

proposed investment Commitment to cooperation

clarify role of EBRD mandate to initiate transaction mutual understanding of

corporate integrity issues Project / business plan, market

analysis, strategy, ownership

structure, financial analysis, risk

assessment Exit strategy

www.ebrd.com

ebrd – a good partner in russia verona 28 october 2011

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