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European Bank European Bank for Reconstruction and Developmentfor Reconstruction and Development
Project Financing in Russia
2005Eric Rasmussen
Deputy Moscow Office
Table Of ContentsTable Of Contents
EBRD in RussiaEBRD in Russia
Project Finance GuidelinesProject Finance Guidelines
Basic Project StructuresBasic Project Structures
Recent ExamplesRecent Examples
ContactsContacts
Growing Presence in RussiaGrowing Presence in Russia
Since 1991 the EBRD’s a Cumulative Business Volume is €5.9 billion (this is 23% of all projects financed by EBRD)
At the end of 2004 the Portfolio Stock was at €3.75 billion and Operating Assets were at €2.29 billion
76% of the Bank’s portfolio in Russia was the private sector, while 81% was debt, 14% equity and 5% guarantee
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1991-1994 1997 2000 2003
Annual Business Volume (cumulative '91-'94)
Net Cumulative Business Volume
€ billion
Cumulative Business Volume
General Industry 17% Telecoms
Informatics & Media
2%
Municipal & Env Inf
11%
Natural Resources
12%Power and Energy
7%
Prop Tour and Ship 5%
Small Business Finance
3%
Transport17%
Energy Efficiency
0.1%Financial Institutions
18%
Agribusiness 8%
Russia Portfolio Stock by SectorRussia Portfolio Stock by Sector
Portfolio Volume €3.7 billion
Regional Portfolio & PipelineRegional Portfolio & Pipeline
Portfolio of 250 projects in 41 regions
Full pipeline contains 137 projects in 32 regions.
A “real” presence in 19 regions in which the Bank has 4 or more projects accounting for at least € 10 million in the portfolio.
EBRD EBRD RResident esident OOffices in High Growth Areasffices in High Growth Areas
St. Petersburg RO
Moscow ROEkaterinburg RO
Vladivostok RO
Rostov RO (2006)
Samara RO (2005)
High Market Potential
Good Market Potential
EBRD Operational PrioritiesEBRD Operational Priorities
Promote a sound investment climate and stronger institutions
Support the creation of sound financial sectors
Develop small and medium-sized enterprises
Promote infrastructure development
Demonstrate restructuring of enterprises
Take an active approach to equity investment
Financing InstrumentsFinancing Instruments
Loans
Equity, including combination of loan and equity
Guarantees, including credit enhancements (performance bonds etc.)
SME loans
Equity funds
Micro/small business programmes
Credit lines
Trade Facilitation Programme
Co-financings
Direct Indirect
Deciding on a JV or a wholly owned green field
Financial transparency and International Accounting Standards
Experience in emerging markets
Strong strategy and business plan
Bankable transaction - other financial partners and resources
EBRD presence/political support
Assisting Foreign InvestorsAssisting Foreign Investors
Disclose shareholder structure and beneficial ownership
Financial transparency and IAS
Financial strength and capital adequacy
Efficient management
Strong strategy and business plan
Bankable transaction - other financial partners & resources
Clear probable exit if an equity investment
Size of EBRD financing (debt equity max 35% per project)
Supporting Russian CompaniesSupporting Russian Companies
Supporting Small Business in Russia Supporting Small Business in Russia
Covers over 130 cities
Disbursed more than US$1.8billion through over 220,000 loans
Loans portfolio consists of 80% micro loans (under US$10,000) financing through more than 250 fully functioning participating branches of Banks in Russia
Excellent repayment ratio at 99.4% at end 2004
RSBF Disbursements 1997 – 2004
The Russia Small Business Fund (RSBF)
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10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
Jan
97
Jul 9
7
Jan
98
Jul 9
8
Jan
99
Jul 9
9
Jan
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Jul 0
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Jan
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Jul 0
1
Jan
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Jul 0
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Jul 0
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Jan
04
US
D
Financial Crisis
Contact: www.microcredit.ru
Direct Equity FundsDirect Equity Funds
Largest single investor in the sector with a strategic goal to reach out to small and medium-sized Russian companies fostering a new generation of entrepreneurs
More than $500 million raised by funds with Bank’s participation 11 RVFs consolidated around 4 fund managers with $60-$100 million each
- Eagle: Black Earth, Smolensk, Urals- Norum: North West and West Russia- Russia Partners: Lower Volga- Quadriga - St. Petersburg, West Siberia
Investor in the new Baring Vostok Fund ($205 million total capitalisation) Founder of the Russian Venture Capital Association (RVCA) Ready to work with other fund manager with proven successful track-record
to further improve private equity infrastructure
EBRD’s Trade Facilitation Programme EBRD’s Trade Facilitation Programme
Case Study: Export of Equipment to Russia
A Russian Issuing Bank under the TFP opens a Letter of Credit to a foreign Confirming Bank, payable in several instalments after delivery
EBRD guarantees payment to the Confirming Bank
The Confirming Bank discounts the Letter of Credit to the exporter
Exporters and Importers check under www.ebrd.com/tfp, for which Issuing Banks and which tenors EBRD may guarantee the payment
35%35%
Minimum Project
Euro 20m
Minimum EBRD financing Euro 7m
Basic Financing GuidelinesBasic Financing Guidelines
Significant equity contribution from
the Sponsor ensures a prudent
capital structure
Appropriate return on investments
- a fair balance of risk / reward
EBRD money usually not to exceed
35% of capitalisation of company
(or 50% in case of syndication)
Typical Project Balance SheetTypical Project Balance Sheet
Project costs % Sources of capital %
Capital investment 60 Western sponsor cash 30
Contingency 10 Financial investors/in-kind 5
EBRD 5
Capital investment 70 Total equity 40
Existing liabilities 15 EBRD loan 30
Working capital 15 Commercial bank loan 30
Total debt 60
Total uses 100 Total sources 100
How to obtain finance from EBRD How to obtain finance from EBRD
Commitment to work together
– clarify role of EBRD
– mandate to initiate transaction
– mutual understanding of corporate integrity issues
Project / business plan and strategy
Feasibility or market studies (if available)
Basic StructuresBasic Structures: Risk Equity: Risk Equity
International Sponsor(s)
management control ownership
EBRDProjectCompany
Local Sponsor(s)
ownership
EBRD exits through a put to the Sponsors with pricing depending on performance of the Company.
An alternative is full risk equity after “Project Completion” targets are met
EBRD’s risk can be limited to specified (such as political risk) events with recourse to the Sponsors in all other cases.
Risk Pure
Note: details are simplified for case study
Equity
Equity
Basic StructuresBasic Structures: Syndicated Debt : Syndicated Debt
EBRD
Co-financing BanksA/B loan structure
Company
Debt Participation
EBRD can finance up to 35% of company’s balance sheet from own funds
EBRD syndicates additional debt from commercial banks
Debt
Basic StructuresBasic Structures: Mixed Equity and Debt: Mixed Equity and Debt
Sponsorsignificant ownershipmanagementexpertise
Co-financing BanksA/B Loan structure
Project Company
EBRDEBRD
EBRD equity up to 20%
Syndicated long-term debt
Equity Debt
Local Partner
Example: UralkaliExample: Uralkali
Uralkali
Signed on 12 December 2003
EBRD Loan: US$ 75 million (67% syndicated)
Purchase and installation of gas engines sites
Modernisation of equipment and machinery for extraction and transportation sites
Example: Severstal - Arcelor JVExample: Severstal - Arcelor JV
EBRD Loan: $90 million (33% syndicated).
Creating a $170 million JV between Arcelor, the biggest global steel producer and Severstal a major Russian steel producer for a greenfield construction of a galvanized steel plant.
Signed on 11 February 2003
Severstal - Arcelor JV
Equity €13.6 million
Purchase of a 10% equity stake in "Stinol", the largest refrigerators production plant in Russia, recently acquired by Merloni. Investment will be used to upgrade existing facilities for local production of a Western quality product.
Example: MerloniExample: Merloni
Signed on 27 February 2002
Merloni - Stinol
Signed on 27 June 2001
General Motors - VAZ JV
Example: General Motors - AvtovazExample: General Motors - Avtovaz
Equity US$ 40 million and Loan €108 million of which €25 million syndicated
Green-field construction and operation of a factory to manufacture 75,000 vehicles in Togliatti, Russia. Avto VAZ and GM hold an equal share in the venture.
EBRD Loan: US$ 90 million The JV will build a new
plant at Severstal's facilities in Cherepovets, 400 km north of Moscow, to produce up to 400,000t of hot dip galvanised steel a year
Signed on 11 February 2003
Example: Sevestal - Arcelor JVExample: Sevestal - Arcelor JV
Severgal
Example: Example: System operator (SCADA)System operator (SCADA)
• € 80m syndicated loan with € 60m EBRD participation to a Russian power system operator for upgrade of its technology
Objective to support restructuring of the Russian power sector and improve it to the standards of European neighbours Signed on 17 December 2004
Example: Example: TogliattiAzot TogliattiAzot
EBRD’s largest-ever loan for energy efficiency of US$ 160m (Bank’s portion US$ 100m)
Reparation and modernisation of four ammonia production units
The project will result in significant gas savings and reduction of carbon dioxide emissions, that can be used as carbon credits under Kyoto ProtocolSigned on 9 December 2004
Example: LentaExample: Lenta
US$30m EBRD loan for the construction of three Lenta retail stores in St Petersburg
The Bank’s investment will benefit Russian consumers through higher quality goods and increased range of products sold at lower prices Signed on 3 December 2004
Example: Nokian TyresExample: Nokian Tyres
EUR 50m senior loan to finance construction of Nokian Tyre's Greenfield plant near St Petersburg
The plant will have an annual capacity of 2m tyres
The investment will help to develop the production of tyres in Russia and increase competition in this sector
Signed on 24 September 2004
Example: Pokrov Glass PlantExample: Pokrov Glass Plant
Provision of a US$11m loan to a Russian subsidiary of the Turkish company Anadolu Cam
Reconstruction and expansion of the capacity
Increasing quality and choice of food packaging in the market and introducing greater competition and innovation
Signed on 23 September 2004
ExampleExample: : Middle-Timan Bauxite MineMiddle-Timan Bauxite Mine
Expansion of an existing bauxite mine in the Komi Republic (Russia)
The EBRD finance comprises a loan of US$ 75 million. The Project will be co-financed by the International Finance Corporation with a parallel loan of US$ 75 million
The investment will help to enhance the competitiveness of the Russian aluminium industrySigned on 4 August 2004
Example: NarzanExample: Narzan
US$ 12.25m combined EBRD loan and equity investment to finance a Russian mineral water producer, including his CAPEX and working capital
The investment will help one of Russia’s best-known mineral water companies to expand its bottling capacity, develop new products and provide it with working capital
Signed on 11 May 2004
Signed on 06 May 2004
Example: International Moscow BankExample: International Moscow Bank
Provision of a US$ 200m syndicated loan (EBRD portion US$ 30m) for Russian small and medium-sized enterprises, particularly in less-developed regions
First of similar deals the Bank is working on to provide Russian banks with long-term funds so they can give Russian businesses much needed access to longer-maturity credit
Example: OAO Karelsky OkatyshExample: OAO Karelsky Okatysh
Provision of US$ 60 million long-term debt finance to develop iron ore mining in the Karelia region, thus ensuring adequate raw material supply for Severstal
Signed on 25 March 2004
Example: Rising Star MediaExample: Rising Star Media
US$ 17m loan for the construction of four multiplex theatres in Moscow and St Petersburg
Development of infrastructure for a modernising and fast growing media sector
Supporting the entrance of a strategic investor, a leading international cinema operator, into the Russian market and promoting competition
Signed on 06 February 2004
ContactsContacts
Victor Pastor, Director RussiaTel: +7-095-787-1111 / fax: +7-095-787-1122 E-mail: [email protected]
Eric Rasmussen, Deputy Head of Moscow Office, Russia TeamTel: +7-095-787-1111 / fax: +7-095-787-1122E-mail: [email protected]
Leonid Vindman, Principal Banker, Russia TeamTel: +7-095-787-1111 / fax: +7-095-787-1122E-mail: [email protected]
Procurement Opportunities and General Information via web site: www.ebrd.com