Exploring investment opportunities in Belarus

Transcription

1 March 10, 2010 Exploring investment opportunities in Belarus Roman Osipov, Director Investment and Financial Advisory UNITER Investment Company Disclaimer: 1 March, 2010 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. 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 Republic of Belarus: 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 %; 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%. Source: National Statistical Committee, UNITER 2

3 Belarus economic backgrounds Belarus played the role of an assembly plant in the Soviet economy Due to limited natural resources and raw materials, the country was one of the largest recipients of funds channeled to industrial development. During the USSR s last 20 years, the value of capital assets in real terms in Belarus grew 4,1 times, compared with 3,4 times average growth in other Soviet Republics. Between 1970 and 1989, Belarusian national income growth rates stood 1,7 percentage points higher than the Soviet average. Thus, a very substantial and to some extent unique industrial base was created in Belarus, dominated mainly by the traditional industries (49% of GDP in 1990) Even during the Soviet era, the Belarusian economy was export-oriented In 1990, the Total Exports / GDP ratio amounted to 50%, far higher than in other Soviet Republics. Exports outside the CMEA came to 5,5% of GDP in second place behind Russia, which exported mainly natural resources. The traditional industries continue to play the most important role in the economy. Belarusian industry is dominated by machinery, metalworking, mineral products. In 2007, the share of machinery and metal working in total industrial output aggregated 24.5%. Sectors dealing with fuels, fertilizers, and petrochemicals hold very good positions due to a solid industrial base in Belarus, favorable external conditions, links with Russia. Belarus possesses one of the largest deposits of potash salts for production of potash fertilizers in the world Belarus is an export oriented economy External trade turnover/ GDP ratio in 2007 reached Since the beginning of 2008, external trade turnover has been growing 5 times faster than GDP, so that the ratio reached 1,21 by the end of 2008 The major import and export items are Mineral products and Machinery and Equipment. These sectors contribute 57.9% to total exports and 60.5% to imports The largest trading partner of Belarus is Russia. This position has even strengthened since In 2007 the share of the Russian Federation in Belarus total external trade turnover reached 49.2%. Exports to Russia 36.6%. Imports from Russia 59.3% Russia is the largest supplier of raw materials to Belarus and the largest consumer of Belarusian investment, chemical, and food products The main export items from Belarus to the EU are: Mineral products, Petrochemicals and fertilizers, Ferrous metals, Textiles and textile goods, Wood and wood products Source: UNITER 3

4 Belarus-IMF cooperation Source: UNITER, 4

5 Belarus EBRD cooperation Source: UNITER 5

6 Belarus EBRD cooperation NewStrategic priorities The Strategy therefore outlines a calibrated strategic approach that will allow the Bank to increase its engagement with Belarus on the basis of concrete implementationof sector-specific reforms designed to promote the further development of a market economy. The objectives in Belarus over the Strategy period willincludethefollowing,withcertainareasof activityto bephased inas progressinmeetingsectorconditions isdocumented: Expansion of existing credit lines for micro, small and medium-sized enterprises via established privately owned partner banks, including the Belarusian Bank for Small Business. The Bank will also consider expanding its SME credit lines to commercially oriented state-owned banks with credible privatisation prospects in order to increase the geographical reach of its credit lines into the Belarusian regions and to support future privatisationefforts. Provision of technical assistance and, potentially, financial support to pre-privatisation and privatisation measures. These activities will focus in the first instance on technical assistance for the establishment of a Privatisation Agency and the pre-privatisation of a number of mediumsized and large state-owned firms,inline withbelarus Stand-by Agreement withthe IMF and DevelopmentPolicy Loanwiththe WorldBank. Promotion and financing of activities aimed at increasing energy efficiency, by working with local financial intermediaries to develop dedicated energy efficiency credit lines. The Bank will also work with private operators and foreign strategic investors to support the development of sustainable energy sources. The development of both energy efficiency credit lines and renewable sources of energy will require the Belarusian authorities to develop an appropriate regulatory framework to foster long term investments in this sector. Expansion of the Bank s Trade Facilitation Programme (TFP) to promote cross-border activities. TFP for existing Bank clients will be increased for on-lending to private sector clients. In addition, the Bank will consider the step-by-step expansion of the TFP programme to allow private sector partner banks to provide trade finance to selected state-owned clients and make TFP available to selected state-owned banks, with similar requirements in terms of commercial nature of operations and privatisation prospects as in the MSME credit line case for on-lending to private sector clients. Provision of support for the reform and technical upgrade of the environmental infrastructure and municipal services sector in cities and smaller urban areas to reduce pollution, improve energy efficiency, and improve standards for basic services including provision of clean drinking water, sustainable processing of waste and waste water, and enhancing energy efficiency of district heating and other urban infrastructure. Where possible the Bank will work alongside partners such as the NDEP, NIB and EIB to achieve these mutually shared objectives. Source: UNITER 6

7 Belarus 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; IV. governmental program encompassing 52 clear steps towards further simplification of Doing Business in Belarus (taxation, business administration.) Source: UNITER 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; sale of IV. Leading pharmaceuticals manufacturers: sale of controlling stakes to a strategic buyers, JVs; V. Refinery readiness to negotiate investment opportunities for Polimir JSC Naftan JSC; VI. Energy and Green projects: JVs (energy generation and waste treatment) ; VII. Under stand by agreement with IMF a pilot privatization of 7 enterprises. 7

8 March 10, 2010 Sectors with prime appeal Financial sector Most developed in terms of corporate governance; Huge potential for development ; Insurance sector has a very low level of penetration compared to peer countries. Telecommunications Less affected by the world crisis; Room for privatization (Beltelecom, MTIS cable networks); Low penetration of telecom services if compared to peer countries (Cable Networks, Internet). Pharmaceuticals Good production base in generics; Strong position at the local market (Pharma market size is $500 m in retail prices); Privatization declared Food processing Sizeable domestic market ; High-quality local resource base (agricultural sector heavily supported by the State); Low level of industry consolidation in some sub-sectors (milk and cheese production, meat processing); Open niches (juices). Retail trade Comparatively high level of personal income, together with the lack of strong nationalchains Wood processing Rich local resources base (woods) if compared to EU countries; Excellent exports potential (EU markets) Source: UNITER 8

9 March 10, 2010 Sectors with prime appeal Logistics Transit opportunities; Underdeveloped logistic industry (by now - no logistic centers of A class operating) Construction Heavy state domination in the sector, underdeveloped facilities; No large private / independent construction companies; Growing demand for high quality construction services (especially from foreign investors) Construction materials Heavy (100%) state domination in the sector; Strong domestic demand, strong exports potential due to closeness to Russian market Machinery Strong position at the large CIS market (tractors and agricultural machinery, road building machines, equipment and machines for mining) Petrochemicals Solid industrial base created in the Soviet times (yarns and fibers, PET, basic petrochemical products, oil refining); Close oil and oil products transporting facilities links with the Russian Federation (main supplier of petroleum) Energy Underdevelopedsector,a seriousrestructuring isneeded; Supported by the state due to reasons of the national energy security Source: UNITER 9

10 March 10, 2010 M&A activity outlook The total estimated value of M&A deals in 2008 exceeded USD 1.5 bln. showing a significant increase compared to ; These figures do not account for acquisition of Beltransgaz s shares by Gazprom and real estate deals. In Jan-Dec 2009: I. Russian Sberbank acquired 93.27% stake in BPS-Bank at USD mln.; II. The leading Polish construction materials producer Atlas acquired one of the largest private Grodno based producers of building materials Taifun Llc. at USD 4 mln.; III. Russian milk company Unimilk was allowed to establish a JV with the Belarusian Shklov milk plant; IV. Danone s official expressed company s interest in working on the Belarusian market. FDI inflow into the Belarusian economy speeded up in In 2007 it increased 5 times compared to In 2008 it grew by 28.9% yoy and reached USD 2.23 billion. As of gross FDI inflow in Belarus has reached USD 1,2 bln., and will obviously hardly exceed results of the previous year. This drastic fall of FDI is a logical consequence of the global financial crisis of , when global FDI fell by more than 40% from $1.7 trillion in 2008 to a little over $1 trillion in Industry M&A number M&A value,m $ Banking sector Insurance 2 5 N/A N/A Leasing 0 2 N/A N/A Retail 3 1 N/A 11 Machine-building Transport Food&Beverages 1 3 N/A 133 Telecoms Total FDI flow in Belarus , m.$ Q2009 Source: UNITER, National Statistical Committee 10

11 M&A activity outlook March 10, 2010 Sound transactions 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 Source: UNITER 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. 11

12 March 10, 2010 M&A activity outlook VneshTorgBankacquired 50% of SlavneftBank for USD 25mln Mobilkom Austria acquired 70% stake in the Belarusian mobile carrier Velcom for EUR 730 mln. Alfa-Bank acquireda 39% stake in MezhtorgBank for ca. USD12mln Russian gas giant signed an agreement with the Belarusian government on 50% stake purchase in Beltransgaz for USD 2.5bln Olvi plc acquired 51% of the Belarusian Lidskoe Pivo brewery for USD 32 mln 2007 Apr May June Nov 2008 May June Jul Oct 2009 Dec Vnesheconombank acquired 53% of BelvnesheconomBank for USD 24 mln Heineken brewery invested 6.4 Euro mln. in 51% stake in Rechitsa brewery Turk Cellacquired formerly state-owned mobile phone operator BEST at 600 $ mln The largest russian Bank Sberbank, aqcuired 93.27% stake in the 4-th largest belarusian Bank, BPS-Bank at mln.$ Source: UNITER 12

13 The Belarusian banking sector general overview March 10, 2010 Industry overview Key figures As of 01 Sept 2009, there were 32 banks operating in Belarus; Four of the five largest banks are majority state-owned and together account for c.80% of total banking assets; There are 25 banks involving foreign capital with 8 of them being entirely foreign owned; Total banking sector assets in Belarus grew to BYR63,380bn as at 31 December 2008 (52% y-o-y growth); As at 2008YE, corporate loans accounted for 72% of total loans, while deposits were almost equally split between corporate (51%) and retail (49%); Despite the impressive growth rates demonstrated by the Belarusian banking sector in recent years, it is still relatively underpenetrated compared to CIS and CEE peers; 14 banks so far have been sold to foreign strategic and financial investors since 2006; The share of foreign capital in the Belarus banking sector increased from 9.8% as at January 2008 to 17,4% as at September ,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 Assets of banking system in Belarus, bln.$ 29,9 27,9 19,4 13,5 9, Q2009 Total Assets/GDP ratio among peer countries in 2008,% Hungary Czech Republic Ukraine Poland Kazakhstan Russia Belarus 49% 67% 73% 82% 97% 110% 109% 0% 20% 40% 60% 80% 100% 120% 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 Equity of banking system in Belarus, bln.$ 6,3 5,3 3,1 2,4 1, Q2009 Source: National Bank of Belarus, UNITER 13

14 The Belarusian non-life insurance sector overview March 10, 2010 Industry overview Key figures The overall Belarusian non-life market size is reported at $441.5mln.$ in The market has experienced rapid growth in the past few years, growing at a CAGR of 25% between 2005 and 2008; The Belarusian life-insurance market is underdeveloped and its GWP of life insurance/gdp ratio accounted for just 0,04% in 2008, which is almost 2.5 times less, than in Russia or Ukraine; The main component of the insurance industry growth is the voluntary risk insurance growth with annual GWP growth rates exceeding 30% during the last 4 years. The segment was driven by the strong growth in the consumer and mortgage lending, new car sales and higher use of transportation and medical services. State insurers and (or) those insurance companies where more than 50% of stakes belongs to the States are entitled to render compulsory insurance services. As a consequence, compulsory insurance share in the aggregated industry s premium is more than 55% Belarus insurance market development ,73% 0,80% 0,69% 436,5 0,70% 396,8 0,74% ,7 222, F GWP, mln.$ Penetration (% of GDP) Belarus insurance market segments %, 2008 Corporate property (incl.mod) 18,4% Liability insurance 8,6% OMPTL 18,5% Cargo 1,7% Other 1,5% Life 0,6% PA and other personal 31,8% Individual property (incl.mod) 18,9% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 68% 63% 59% 56% 54% 32% Belarus insurance market split by type of insurance,% 37% 41% 44% 46% F Voluntary Obligatory Source: Ministry of Finance, UNITER 14

15 The Belarusian life insurance sector overview March 10, 2010 Industry overview Key figures Life insurance segment in Belarus is the most underdeveloped of the insurance market segments. Life insurance share accounted for about 5% of total GWP during last 5 years Market size (annual gross written premiums) reached $ 22 m in GWP is expected to decline slightly (to $20 m); In the life insurance market in Belarus showed collected premiums CAGR of 26,7%. However, until now life insurance has the lowest penetration rate in CEE; In the given period premiums collected for extra pension insurance prevailed in the GWP structure of the life insurance segment and accounted for about 90%; The main drivers for the medium term ( ) development of life insurance segment: - Lifting of constraints for foreign companies to create life insurance companies in Belarus (currently significant barriers exist); - Expected liberalization of the insurance industry in Belarus allowing private companies to provide insurance service to state owned companies; 25,0 20,0 15,0 10,0 5,0 0,0 Belarus life-insurance market development 0,047% 0,037% 23,6 22,4 0,034% 0,034% 15,2 0,031% 12,6 9, F 7% 6,3% Life insurance GWP/GDP ratio,international comparison(%) 25 Life GWP split by product 6% 20 5% 4% 3% 2% 1% 0% 3,2% 3,1% 2,6% 1,6% 1,5% 0,8% 0,4% 0,3% 0,1% 0,1% 0,1% 0,04% ,6 8,9 12,1 0,6 0,5 0,7 19,7 2, Life insurance, mln.$ Extra pension insurance, mln.$ Source: Ministry of Finance, UNITER 15

16 The Belarusian leasing sector general overview March 10, 2010 Industry overview Key figures At present leasing transactions in Belarus are actively carried out by more than 20 banks and 50 specialized leasing companies; Internal leasing operations prevail on the Belarusian leasing market; In 2008 an aggregated volume of the Belarusian leasing market accounted for $ m which is by 60.4% more than in The market had also been growing rapidly for 4 previous years; Over new business showed a high and stable growth of 142% CAGR; The new business volume to GDP ratio for the Belarusian leasing market has surpassed the average level in Europe and has approached that of the developed European countries; Sstate owned leasing companies market share is decreasing (from 4% in 2004 to 0.1 % in 2007); 60% of new business account for leasing companies, 35% - for banks. Banks market share is gradually decreasing. Fourfold increase of the foreign leasing companies share over the last 4 years indicates attractiveness of the Belarusian leasing market for foreign investors; In 2008 two strategic M&A transactions took place in the industry New production volumes dynamics,mln.$ 2,4% 1433,9 1,9% 1,6% 838,9 1,4% 584,1 421, New production volumes, mln.$ Share in GDP,% New leasing volumes per asset type,% ,7% 27,0% 10,8% 0,5% % 48% 10% 2% 0% 20% 40% 60% 80% 100% Equipment Transport Real estate Others Total leasing portfolio as of the Year end, mln.$ 602,7 800,0 1128,5 1783, Source: Ministry of Finance, UNITER 16

17 Contact details Roman Osipov Investment and Financial Advisory Oleg Andreyev Senior Analyst andreev@uniter.by CJSC «UNITER Investment Company» Belarus, Minsk, Nezavisimosti, 117a, 12th floor Tel : ( ) Fax : ( ) uniter@uniter.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. 17

18 March 10, 2010 Thank YOU! 18