Exploring investment opportunities in Belarus

Transcription

1 Exploring investment opportunities in Belarus Daniel Krutzinna Associated Partner UNITER Investment Company EBRD Annual Meeting& Business Forum Building Sustainable Growth 14 and 15 May 2010 Zagreb, Croatia 1

2 Putting Belarus on the map Belarus achieved an average 7.5 percent annual growth in the ten years up to 2008, benefiting from its inherent strengths and favorable external conditions. High investment-to-gdp ratios and productivity gains from a well-educated and disciplined labor force were the main contributors to growth.. IMF The : is on the 58-th place in the WB Doing Business 2010 ranking. #7 in the ranking by starting up business (+ 91 positions compared to 2007); the second year in a row among TOP-4 global reformers; lies in the Eastern Europe and offers a favourable geographical position as a transit country; possesses well-developed traditional industries that remain key drivers of the economic growth; Territory sq km ( ranked 86 in the world); Population 9.67 mln (ranked 79 in the world); Population density - 49 per sq km; Workforce 4.5 mln; Literacy -99.6%; Capital Minsk (1.81 mln people); Regional centres: Gomel (480 thou); Mogilev (390 thou), Vitebsk (360 thou), Grodno (320 thou), Brest (300 thou); Total GDP 2008 USD 59.9 billion. occupies leading positions in machine building, oil processing, agriculture and food production, and metalworking on the Russian and global markets; operates an open, export-oriented economy: external trade turnover to GDP ratio exceeds 1 over the last 10 years; depends heavily on supplies of Russian natural resources and raw materials and on exports of value-added products to Russia; has 70% of national GDP generated by state-controlled enterprises with share in total exports exceeding 80%. 2

3 Belarus economy structure 3

4 Belarus economy structure 4

5 Macroeconomic development In 2009 GDP nominal volume in dollar terms composed $ 48.8 billion and reduced by 18.5% in comparison with However, in 2009 GDP volume in real terms in Belarus increased by 0.2%. This situation is caused, first of all, by a first stage and then a gradual national currency devaluation. The main GDP growthpromoting factor was the maintenance of investment dynamic in the fixed assets, what connected with the state support of the construction sphere construction field. In 2009 industrial output volume in Belarus amounted to 44 billion USD and reduced in dollar nominal terms by 27.7%, however, the real decrease composed 2.8%. It is essential to note, that given real decrease looks good in comparison with the same performance in neighbor countries. This can be mostly explained by the Belarusian industry «for storage» functioning. 5

6 Macroeconomic development In 2009 the incomes of population in dollar terms reduced by 8.3% and made $ 3.3 thousand per capita a year, however, the real growth composed 2.8%. Nominal incomes decrease was mainly the result of the national currency devaluation. Moreover, in 2009 the State practically froze salary increase regarding budget organizations and pensioners. Budget expenses optimization the main requirement of IMF. Population incomes, thousand USD per capita a year 4,0 3,0 AARGR = 11,4% 2,0 3,6 3,3 2,8 1,0 2,3 1,8 1,1 1,4 0, In 2009 in Belarus the investment volume of the main capital formed $,15.4 billion and reduced by 7.8 % in dollar terms in comparison with Nevertheless, the real investment growth composed 8.6%. Its share in GDP reached 31.5% and increased by 3 pct in comparison with In general, since 2003 the average annual growth rate of real investment in the main capital made 25.1%. 6

7 Macroeconomic development 7

8 External conditions 8

9 Country comparison 9

10 Investment environment TOP- Priority task set by the President to attract FDI in Belarus(Belarus should be among TOP-30 of the most investment attractive countries by 2010); Belarus became a Top 10 reformer (moving up from rank 85 to rank 58) in the World Bank s Report Doing Business 2010 ; 70% of GDP is still produced by state-controlled enterprises, including petrochemical, oil-refining, raw materials, automotive and machinery, agriculture and food industries; Government takes clear steps towards liberalization of the stock market and privatization: I. abolishment of golden share ; II. phase-out of the moratorium on circulation of shares acquired during preferential privatization; III. lists of hundreds of enterprises to be reorganized into open joint stock companies and list of companies ready for selling to investors; In 2008 the Belarusian Government issued a list of enterprises to be reorganized into open joint stock companies (505 enterprises) and to be privatized (144 enterprises) in ; Moreover, privatization plans of the leading companies in the financial sector (banks and insurance companies) were declared. In addition, the Government is lifting limitations on sale of shares obtained by individuals during privatization in 1990s. Thus, in the beginning of 2010 privatization plans will include: I. 1 leading Belarusian Banks (# 5): sale of a majority stake to the strategic investor; II. 2 large insurance companies: sale of controlling stake to strategic buyers or IPOs in the foreign capital markets; III. 2 largest state-owned Belarusian breweries: controlling stake to strategic buyers; IV. sale of Leading pharmaceuticals manufacturers: sale of controlling stakes to a strategic buyers, JVs; V. Refinery readiness to negotiate investment opportunities for Polimir JSC Naftan JSC; IV. governmental program encompassing 52 clear steps towards further simplification of Doing Business in Belarus (taxation, business administration.) VI. Energy and Green projects: JVs (energy generation and waste treatment) ; VII. Under stand by agreement of 7 enterprises. with IMF a pilot privatization 10

11 Sectors with prime appeal 11

12 Sectors with prime appeal 12

13 M&A and FDI In 2009 M&A transactions volume in Belarus composed m USD. The main volume was formed due to the purchase of Belarusian BPS Bank by Sberbank for m USD. During 2009 the transactions volume reduced in 2.8 times. Except the transaction with Sberbank, the following events were momentous: 1. The purchase of the Belarusian producer of dry construction materials Tajfun by the large Polish producer Atlas for 4 m USD; 2. The creation of joint ventures by large Russian producer of milk products Unimilk with a) Shklov milk plant b) Pruzhany milk plant. Also there was announced that Danone considers the opportunity to enter on Belarusian market. Moreover, during the year the participants of retail market in Belarus continued their development. The Russian project Belmarket bought network shops in Mogilev, the local retail operator Euroopt purchased the Mozyr network Nelli. In general, it is essential to mention, that M&A market in Belarus as all over the world was not in the best condition, but according to the results of it is expected the revitalization of the investors, particularly within announced privatization. Sphere The quantity of transactions Transactions volume, m. USD Bank sector ,8 Insurance N/A N/A N/A Leasing N/A N/A N/A Retail N/A N/A N/A Machine building Transport Food N/A Telecoms Construction materials Total ,9 In 2009 to the economy of Belarus were attracted 1.8 billion USD of direct investments, what was significantly less than in Moreover, since 2009 the performance calculation methodology has been changed. So, the most major investment in 2009 in Belarus became the payment of OJSC Gazprom for the next 12.5% share holding of OJSC Beltransfaz 13

14 Sound transactions GazProm is in the process of acquiring a controlling stake in BelTransGaz for USD 2.5 billion during the period ; Russian banks and insurance companies strengthened their positions in Belarus through acquisitions of controlling stakes in 4 medium sized Belarusian banks (VTB, Alfa Bank, VneshEconomBank, RosBank SocGen) and in 2 insurance companies (RESO Group); Mobilkom Austria Group acquired 70% of mobile service provider MDC (Velcom) for EUR 730 mln; Turk Cell acquired state owned mobile phone operator BEST for USD 600 mln; Heineken NV bought Syabar brewery the second largest beer brand in Belarus for EUR 70 mln and 51% stake in Rechitsa brewery (#4) for EUR 6.4 mln; Olvi plc (Finland) acquired a controlling stake in Lidskoe Pivo Brewery for USD 32 m.; Baltic Beverages Holding (Carlsberg) acquired Alivariya brewery (#3); Ergo Group acquired a private insurance company in 2008; Getin Holding (Poland) acquired small sized Belarusian bank Sombelbank; FransaBank (Lebanon) acquired small sized Belarusian Bank GT Bank; Home Credit Group (Czech Republic) acquired a controlling stake in Lorobank; PPF / Generali created a risk insurance company in Belarus; Horizon Capital (US based PE fund) is the ever first PE fund that entered Belarus through acquisition of the Minsk Transit Bank in 2008; Silvano Fashion Group (Estonia) was the first company owning predominantly Belarusian assets (Milavitsa lingerie manufacturer) listed at foreign capital market (Warsaw stock exchange) Kesko (Finland) acquired the leading construction materials retailer in Belarus Polish ATLAS purchased majority stake of private enterprise Tajfun the major manufacturer at the building sector in Belarus. ATLAS and Tajfun shall invest ca. 4 million USD for the modernization and manufacture development, within the next two years; Sberbank of Russia acquired 93.27% stake of the 4 th largest belarusian Bank BPS bank at mln.$. And has become the largest strategic investor into the Belarusian banking sector. In the nearest future Sberbank is planning to consolidate up to 100% of the belarusian bank. 14

15 M&A activity timeline 15

16 Privatization process The process is not structured and is very selective: (i) There is no central state body responsible for the whole privatization process (like the Privatization agency). A number of state bodies are involved into the process. Moreover, the composition of state bodies is different in each specific case / target / industry (banking sector, telecommunications, real estate development, construction and building materials, etc.); (ii) The role of specific persons (key decision makers, so called curators or supervisors ) is very important. Sometimes, these key decision makers may have no representation in relevant ministries / state bodies; (iii) Usually, the sale of shares of the privatized company is carried out without any public tender / competition. It is performed on the basis of direct negotiations and, finally, basing on a special decision of the President (Decree of the President); (iv) As the analysis of practice of privatization in showed, often privatization ideas could be initiated by potential buyers / investors. In this case the Government of Belarus is rather flexible in defining possible terms of privatization and in amending lists of companies to be privatized; (v) The description of the decision making process is presented below and is based on analysis of latest large privatization deals. However, the process in each case was different. 16

17 Privatization process For the past years in Belarus a very unique and specific process of negotiations with investors has been developed. All stages to be gone through and documents to be filed and approved are provided on the following block of charts 17

18 Privatization perspectives The Belarusian Government issued a number of lists of companies to be reorganized and/or privatized List N 1. Companies to be transformed during from State Unitary Enterprises to Open Joint Stock Companies with up to 100% share belonging to the State. The list was named as List of companies for privatization but actually it was the list of companies to be transformed into OJSC; The list comprises more than 500 unitary enterprises across different industries and sectors; There is still no decision on privatization of these companies but negotiations can be initiated by the investors. For reference, see List N 2. Companies to be privatized during The list includes about 130 companies for privatization in However, the majority of the companies are small or medium sized with sales not exceeding $ 50 m. Moreover, in most cases the State offers just minority stakes to investors. For reference, see List N 3. Companies to be privatized by recently created Privatization Agency (is planning to be created at the beginning of 2010 under stand by agreement with IMF). This is expected to be a list containing 7 companies. Currently the companies are at the preliminary stage of selection. Most probably, these targets will be more realistic than in the list #2, but apparently these will be SMALL and MEDIUM SIZED COMPANIES with sales not higher than $ m. 18

19 Privatization perspectives In addition, the Government now can be ready to negotiate the sale of majority / minority stakes in some companies not included into the previous list 19

20 CJSC «UNITER Investment Company» Belarus, Minsk, Nezavisimosti, 117a, 12th floor Tel : ( ) Fax : ( ) uniter@uniter.by Ministry of Economy of the Belarus, Minsk, Berson str. 14 Tel : ( ) Fax : ( ) minec@economy.gov.by Disclaimer: This report was prepared for informational purpose only and does not constitute an offer or solicitation of a strategic transaction. Points of view, forecasts and evaluations presented in this report reflect our opinion as of the publication date and may be changed without notice. Although the information contained herein has been obtained from sources we believe to be reliable and although we ensured their accuracy as of the publication date, we cannot guarantee, expressly or impliedly, practicality of this report regarding future events or current or future value evaluation. Any investment decision based on this report should be made only at the discretion of the investor and UNITER or its employees or any third party shall not be responsible in any form and in no circumstances for any action of any party taken on the basis of this report. Nor UNITER, nor any of its employees, nor any third party shall be responsible for losses that result from such actions. 20