m&a as iran market entry strategy funding & compliance · • cement:buying for a european...

M&A as IRAN Market Entry StrategyFunding & Compliance

Iran Trade Business BriefingLondon, April 26, 2017

INDUSTRIAL | FINANCIAL | LEGAL

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Iran – a 80 Mio consumer re-emerging economy



2009: I came as co-investors in wind energy in Iran

(engineering office in Tabriz, compliant industrial and financial strategies)

2014: Formed Arjan Capital Ltd. to support European companies executing their business in Iran (legal, operations, finance)

Validated compliant by EU client and French Government

2016-2019: Lecture @ Faculty of Entrepreneurship, University of Tehran

2016 – 2019: Official UK/Swiss representative of

EDI-Iran the Investment and Economic Development Committee,

a single-counter initiative for incoming investors, reporting to the President’s Office.

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My own Iran Activities

Iran

SouthKorea

Poland

Germany

Turkey

Vietnam

Source:

There is a wide range of Comparable Economies

Country Pop. GDP

Vietnam 93M 194B

Germany 82M 3.35T

Iran 80M 462B

Turkey 77M 718B

SouthKorea 50M 1.472T

Poland 39M 475B

INDUSTRIAL | FINANCIAL | LEGAL 4

Strengths 1. Economic Diversification

2. Scientific Education

3. Consuming population

4. Urban living

5. Entrepreneurial

community

6. Strategic location

Challenges 1. Macroeconomic stability

2. Competitive business and regulatory environment

3. Productivity

4. Flexible labour market

5. Functioning of the international Financial System

6. Attracting and deploying investment

17-Apr-24 5

Build on strengths and reduce the challengesto create economic growth

INDUSTRIAL | FINANCIAL | LEGAL 5

In the past 25 years no other frontier economy has had this many advantages!


• Currency lost ¾ of its value since 2009, local value critical, imports expensive

• Iranian v/s European negotiation style and investment process (China case?)

• Yet little experience on both sides - beware of the expectation gap

• Situation since implementation day improved - still more smoke than fire

• We see opportunities for industrial / strategic investors (M&A)

• Financial investors will remain hesitant - and for a while

• Banking & Finance in practice not smooth – alternatives required

• Correspondent banking still slow (technology, contracts, credit rating..)

• Align business opportunity to national need (import & trade financing a must)

• In a nutshell: East Germany / Eastern Europe 1989

• Iran after implementation day (Jan 2016) has become a matter of corporate policy -before it was clearly a matter of law.

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To bear in mind


Compliant ways for transfers:

1. Smaller regional banks in Europe with little or no US exposure

2. Sell to alternative buyer active inside and outside Iran

3. Discount trade receivable to private sector (Factoring )

4. Barter/Compensation (eliminates cross border complexity, still as well documented as a cash transaction)

Funding / Investment options

• Trade & Equipment Financing (import / export goods)

• Project Finance (build, own, operate your asset (power stations, hotel..)

• Take-off Agreement financing (Petro-chemical industry, mining, agriculture)

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Move of funds to and from Iran still not easy


Business in Iran

The over-promised land

It is proving harder than expected for investors to make a start

Apr 23rd 2016 | TEHRAN | From the print edition

..“Lacking lubrication

“We can’t sell to Iran because our bank won’t accept payment,” says a British producer of drilling parts for oil platforms, who has stayed out of Iran’s market for the past six years. European export credit agencies are issuing some credit notes, such as a recent Italian one for $5 billion. A few European banks, including Belgium’s KBC and Germany’s DZ Bank, have started handling transactions, probably because neither has a big presence in America. Even so, they cannot trade in dollars (unless, America says, those dollars were already abroad) and appear only to be testing the water.

In Tehran, businessmen and officials say everything is stymied from afar. Ayatollah Ali Khamenei, Iran’s religious leader, says Americans lifted sanctions only “on paper”. Hamidreza Taraghi, who advises the Supreme Leader, says deals announced, including the largest with Airbus, were “just show”. (Airbus executives have been in Tehran this month, but the deal is yet to be finalised.) An international trade forum due in Tehran this autumn has been cancelled for lack of interest. Iran’s oil ministry has delayed a promised shindig in London five times…

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Well summarised by the Economist

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Sectors and Representative Transactions

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Challenge Solution

How to secure permits for wind farms(Acquisition of licenses for 3 x 100 wind farms across Iran)

ü Local investment partner with access togovernment

ü We delivered what we promised

Financing:

How to import funds

How to finance capital expenditures (CAPEX)

ü FIPPA license to protect importation of equity from inflation and political risk

ü Government offers 80% of loans for renewable energy at 7.5%

ü Identified access to international institutional investors with Iran appetite

Hardware & Technology:

Importation strategyü Identified German wind technology with direct

support from German technology provider whom we represent in Iran

Local assembly strategy ü Identified local partners to assemble product locally avoiding transport cost

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Wind Farm Development since 2009


• Strategicopportunity:• Thecurrentownerwishestodivest• Opportunityforacompany/groupthatwishes

toparticipateinthestronggrowingconstructionmarketinIranandratherbuyanexistingbusinesswithdistributionratherthangrowingorganically

CORPORATEOVERVIEW

PRODUCTPROTFOLIO

STRATEGICOPPORTUNITY

• Tile company was opened and operated in the second half of 1995 with a nominal capacity of 4’000’000 m² wall tiles

• Extending the product portfolio (porcelain, floor and decorative tiles with a variety of dimensions) increased the production up to 8’500’000 m²

• Produces high quality / luxurious tiles using local and foreign high quality raw materials

• Offers a wide range of classic and modern designs

• Tile company is listed on the Tehran Stock market

http://www…...irOFFICESCONCERNED:EuropeandAsia

• Ceramicfloortilesinvariousdimensions• Ceramicwalltilesinvariousdimensions

KEYFIGURES(€millions)Annualsales: EUR31mProfit: EUR8m(tbc)

TL Opportunities - Iran

11INDUSTRIAL | FINANCIAL | LEGAL

Tile Company

• Extensionpossibilities:• Facilityisalreadydesignedinsuchawaythatcapacitycanbe

doubledto80tperday• NewMarketstobeaddedimmediately:allthemarketsthat

borderMashhad(eastboarderofIran),Afghanistan,Turkmenistan,partofPakistan

• Productionin2015:3’670tons(avg productionperday– approx.12tons)

• Plantrunsat30%capacity(maxcapacityof12’800tonsp.a.)

• TOTALsalesin2015:EUR5.1m

CORPORATEOVERVIEW/BUSINESSCASE

KEYFIGURES2015(€)

CAPACITYANDSALES

• Ofinteresttofood/breadcompanieswhowishtoaccessan80mconsumersmarketinIranandneighbouringcountriesofsimilarmagnitude

STRATEGICOPPORTUNITY

TotalLoss: EURDepreciationp.a.: EURTotaldebtofcompany: EURBankInterestp.a.: EUR(expectedtobehalfoftheamountin2016)Tax: EUREBITDA: EUR

• Industrialbakerywithanexceptionalgrowthstory• Newlybuiltproductionplant• Possibilitytomorethantriplethecurrentproduction

volumewithexistinginstallations• Requirements:Managementexpertiseandsome

growthcapital

• 100%ofcompany:EUR• 51%ofcompany:)Owneriswillingtokeep49%orlessandkeephisstakeforashorterorlongerperiod (ifdesiredbybuyer)

SALESPRICEEXPECTATIONOFCURRENTOWNER


Industrial Bakery

http://www…...irOFFICESCONCERNED:EuropeandAsia

TRM FUNDLiechtenstein2016

Trade Receivable & Management Fund enabling international companies exporting securely

INDUSTRIAL | FINANCIAL | TRADE

Weadvise:


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Iran is now on the web Translink, an international CF boutique!



Are mainly about:

(a) Financing Trade and New assets, (b) Fixed assets upgrade (c.) Know-how transfer

• Trade and Equipment Financing – vital for economy and short term yield

• Logistic, Warehousing, Custom management

• Hotel / Hospital / Hospital Sector (invest, build, operate)

• Construction and Construction Material (Cement, Additives)

• Energy (power plants trade and investment for conventional and renewable/alternative energies (Gas, Steam, W-t-E, etc)

• Petrochemical sector (investment / take-off agreements)

• Medical (device, manufacturing)

• Financial Sector (offshore banking, Fintech / Insurance)

• Agriculture (invest / operate)

• Mining, Mining Services. Low Capex opportunities

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Opportunities we see…


• Iran deals must be best in class to attract third party financing.

• Iran transactions are yet BESPOKE, hence more resource intensive

• Perceived/true reputational impact of dealing with Iran, for your (US) business as some primary US sanctions are still active

MUST knows (KYT – know your transaction)

• Details about customer KYC(C), 2nd, 3rd degree?

• Key persons involved (management, board, share/stake holders..)

• Product (dual use? (e.g. high tech textiles, pipe coating)

• Banks and other intermediary companies involved on either side

• For us Iran requires twice the resources than established markets

• We keep a mindset and behave as if sanctions were still in place

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Due diligence based on commonsense and practicalities


AfewexamplesofcurrentFDI,ProjectFinanceandPrivateEquityActivitieswearecurrentlyinvolvedin:

• Cement: buyingforaEuropeanmidsizedcementcompanyproductioncompaniesinIran

• Mortar,grout/concretebindingagent: fortheIraniansubsidiaryofaprominentEuropeanmultibillioncompanywearebuyingorassistingtobuildin2017amortar&groutcompany,followedin2018bytheinvestment(makeorbuy)ofaconcretebindingagentcompany.

• Food:wearecurrentlyofferinganindustrialbakeryinIrantotheinternationalfoodindustry.

• Healthcare: wearebringingSwisstechnologylicense,productandinvestmenttoIranianhealthcarecompanies

• CausticSoda:weadvisealistedEUindustrialistinbuyingorbuildingasodaplantinIran

• Petbottleplant: wesupporttheinvestmentofaninternationalpetbottlemanufacturerinoneoftheprovincesinIranwhofollowhismultinationalFMCGclienttoIran

• FDIFunds: wearesettingupforIran-interestedinvestorsEUregulatedsectorfunds(likewedidforthetradefinancefundthatwillhousetheirinvestmentcurrentlyinthe sectorsof: Factoring/TradeFinance,Hotel,Solarenergy,Windenergyand Fintech

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Today’s M&A and Financing activites

WEAKNESSES

THREATS

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• Germany-like market in many respects: size, industrial backbone, ambitious (and good) in industry & engineering.

• Clear religious situation, Shiite mainly

• Generally very educated and willing to learn

• Significant M&A opportunities

• Similar to East Germany 1989

• Early mover advantage still remains for a while, though might be fading in 2017

• Financial sector remains limited for at least 2 years to come

• Cash buys many bargains

• Lack of (international) Management expertese, though great doctors and engineers

• Lack of training (not education)

• Needs time, money - and good nerves

• Little banking, trade finance facility available

• Strong Government influence over economy

• Religion / Politics mingle with business

• Underlying trading mentality can lead to disappointment of international investor/seller/buyer

• Beware of the middleman - not the agent

• Lack of international staffing, expats, hence rapid know how transfer

• Remaining US Sanction

OPPORTUNITIES

STRENGTHS

A personal SWOT analysis andwhy we remain in Iran


Andreas Schweitzer

Senior Managing Partner

Arjan Capital Ltd www.arjan.capital and www.delta-arjan.com

Int: +41 79 211 65 60 - Iran +98 912 092 8513 [email protected]

Senator, h.c. Andreas Schweitzer

Bundessenat für Wirtschaft und Technologie®

German Federal Senate for Economy and Technology


Thank you!

Disclaimer

The material contained in this document are illustrative and purely for discussion purposesand do not represent any binding obligation or commitment by Arjan Capital. Arjan Capitaldoes not make any representation as to the completeness of this document and assumes noliability for losses arising from the use hereof.

This document does not constitute an offer or invitation to enter into any type of financialtransaction. It may not be reproduced either in whole or in part, without the writtenpermission of Arjan Capital.

The activities of Arjan Capital are wholly sanctions compliant and Arjan Capital does notengage in any activity that is prohibited by any and all sanctions regimes relating to Iran.

This document is confidential and proprietary. It may not be transmitted to any person otherthan the original recipient to whom it was delivered by Arjan Capital.

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