European Bank for Reconstruction and Development The Leading Private Sector Investor in Western Balkans Belgrade, 20 th April 2011
Structure of Presentation 1. Introduction to EBRD 2. Financing with EBRD 3. EBRD and Agribusiness 4. Crisis Response and Beyond 5. EBRD contact 6. Questions and Answers
1. Introduction to EBRD
What is the EBRD? International financial institution owned by 61 countries and two inter-governmental institutions. Capital base of EUR 30 billion with capital increase approved in Zagreb in May 2010. Operates through the Head Office in London and Resident Offices in 30 countries of operation. Works in both the public and private sectors. Financing is provided directly or through financial intermediaries.
What are the EBRD s objectives? Support economic growth in its countries of operation. Promote entrepreneurship, competition and privatisation. Promote adoption of strong corporate governance, including environmental sensitivity. Promote foreign direct investment and mobilise domestic capital. Provide technical assistance.
EBRD s cumulative investments amount to EUR 62.0 billion up to the Dec 2010 Cumulative commitments (billions ) 60 56 52 48 44 40 36 32 28 24 20 16 12 8 4 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 Unaudited as at 30 September 2010 The EBRD is the largest single investor in the region and mobilizes significant foreign direct investment beyond its own financing. As of the end of December 2010, the Bank had cumulative commitments of 60.0 billion. Private sector > 74% of EBRD portfolio Debt 77%, Equity 23% of EBRD portfolio Investments in 2010 EUR 9.0 billion from EUR 7.9 billion in 2009 2010 investments in WB EUR 1 billion
2. Financing with EBRD
The EBRD offers a variety of different financing instruments Senior, subordinated, convertible Long term Loans Working capital Fixed / floating interest rates Major (USD, EUR) and local currencies (e.g. Romania, Russia, Poland) Political risk guarantees Equity Common / preferred shares Mezzanine financing Exclusively minority participations (up to 35%) Portage Equity Syndication In-house syndication unit Lender of record EBRD s Preferred creditor status attracts other financiers
EBRD financing requires careful upfront risk assessment and a clear investment strategy Financing requirements How to obtain finance? Ensure appropriate returns by carefully assessing the risks: Management strength and strategy Clear business plan and project costs Transparency of operations 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
3. EBRD and Agribusiness
EBRD and Agribusiness Agribusiness From 2000, the EBRD has invested EUR 6.5 billion in over 422 projects in the Agribusiness sector. 2010: 63 projects signed with EUR 836 million committed investments vs. 59 projects with EUR 639 million in 2009. One of the largest sector teams within the EBRD with 33 bankers in London and Resident Offices accounting for around 40% of the projects in the EBRD s corporate sector portfolio. Client network of leading global and regional players. Downstream Agricultural inputs & production Agribusiness Strategy Primary & secondary processing Packaging & distribution Upstream Retail & Food Service All activities along the food and drink production chain are included Rather focused on increasing demand than supply. Downstream investments are mainly in vertical integrated companies with positive spill-over effects to primary agriculture. Indirect support to smaller farmers and food enterprises via SME credit lines. As a result, EBRD has a conservative approach towards direct land investments.
Important to maximise supply potential and identify bottlenecks along the entire food value chain Investments along the value chain Consumer Seeds Farm Machinery Agricultural Chemicals Bio-tech Distributors/ Services Agricultural Inputs Grains Oilseeds Livestock Dairy Fish Production Edible oil Millers Malters Grain Handling Primary Processing Food Processors Meats/Poultry Baked Goods Confectionery/ Snacks Beverages/Beer/Water Dairy/UHT/Cheeses Frozen Foods Fish Pet Food Packaging Production Glass Bottles/ Jars PET Bottles Cans Carton Containers Distribution Foodservice Food retailers Distributors Caterers Wholesale Markets
EBRD and Agribusiness: sector views Developing appropriate strategies in dealing with market challenges Retail consolidation is happening but competition is healthy: higher competition in retail will create larger choices for suppliers and consumers and help fight food inflation (like in UK in 1Q2011). Still highly fragmented (Serbia 25m2/per capita, BiH 10m2/per capita, Croatia 150m2/per capita) Regional expansion: higher growth opportunities in western Balkan countries including higher brand recognition (ex-yu legacy) then in the EU as well as understanding of consumer preferences establishing early entrance subsidiaries or JV. Strong processors are the key to a healthy sector; as they provide a sustainable market for agricultural products.3 Moving closer to primary agriculture- A better legal and institutional framework is a must for farmers to get the financing they need as a result of EBRD introduction of warehouse receipts financing.
EBRD and Agribusiness: sector views Recognised strategies of sub-sectors Branded food and beverages producers with clear regional expansion strategies - Projects with: Somboled (Serbia), Tikves (FYR Macedonia), Brcko (BiH), Marbo (Serbia), Grand (Serbia), Droga Kolinska (Slovenia), Stark (Serbia), Atlantic Group (Croatia), Agrokor (Croatia), Dukat (Croatia) etc, Growing local and international retailers - Projects with Idea (Serbia), VF Komerc (Bosnia and Herzegovina), Voli (Montenegro), Kaufland (regional), Billa (regional), Spar (Croatia), Processors such as edible oil, meat and juice producers - Projects with Victoria Group (Serbia), Boni (Bulgaria), Nectar (Serbia) Investments in primary agriculture (MK/Agroinvest Ukraine, CHS Romania, Serbia and Hungary)
Agribusiness Clients Extensive experience in cooperating with the leading Agribusiness and FMCG corporates of the entire food chain. We are working with local and international clients with many follow on projects.
Western Balkans Agribusiness Strategy An overview Western Balkans: important region for agribusiness. Countries standing out: Serbia and Croatia Western Balkans made 13 % total agribusiness in 2010. 10 transactions in 2010 and 13 in 2009 as a crisis tool. Trademark deals in 2010: Atlantic Group and WHR in Serbia In Turkey, the Bank had two projects in 2010: Noble Turkey and Ulker.
Agribusiness portfolio Western Balkans Agribusiness team transactions in 2009 in cooperation with the EBRD offices in the region Victoria Group (EUR 40m, Serbia; agribusiness) Spar (EUR 25m, Croatia; retail) Žitoluks (EUR 3.7m, FYR Macedonia; bakery) Konzum BiH (EUR 50m, BiH; retail) Bimal (EUR 4m, BiH; edible oil) Zdravje (EUR 1m, FYR Macedonia; dairy) VF Komerc (EUR 1.25m, BiH; retail) Devolli (EUR 6m, Serbia (Kosovo); food and beverage) Albi (EUR 5m, Serbia (Kosovo); retail) Tikveš (EUR 2.5m, FYR Macedonia; wine) Mesopromet (EUR 2m, Montenegro; meat processing) Voli (EUR 4m, Montenegro; retail) Vitaminka (EUR 0.8m, FYR Macedonia; food)
Agribusiness portfolio Western Balkans Agribusiness team transactions in 2010 in cooperation with the EBRD offices in the region Atlantic Group Equity (EUR 27.5m, Croatia) Atlantic Group Debt (EUR 30m, Croatia) Bingo (EUR 3.7m, BiH) MIK Sveti Nikola (EUR 1.6m, FYR Macedonia) Pestova (EUR 0.5m, Kosovo (under 1244)) Societe Generale WHR (EUR 20m, Serbia) Albi (EUR 1.6m, Kosovo (under 1244)) Haxhijaha (EUR 0.9m, Kosovo (under 1244)) Banca Intesa WHR (EUR 10m, Serbia) CHS Regional facility (EUR 13.4m, Serbia)
Agribusiness Portfolio Serbia 2006 2007 2008 2009 2010 Deals Somboled EUR 10m Victoria Group EUR 45m Idea EUR 70m Victoria Group EUR 40m Societe Generale WHR EUR 20m (cross border) Stark EUR 10m (cross border) MladostSid EUR 10m (working capital) (working capital/ee) Nectar EUR 10m (expansion) Agroinvest EUR 10m (cross-border) (restructuring / retail) (restructuring/ working capital) Banca Intesa WHR EUR 10m (commodity backed financing) CHS EUR 13.4m (working capital) Total EUR 30m EUR 65m EUR 70 EUR 40m EUR 43.4m - # 3 3 1 1 3
Agribusiness Portfolio Croatia 2006 2007 2008 2009 2010 Deals Agrokor EUR 110m (restructuring/ cross border) Dukat/Somboled EUR 10m (restructuring/ cross border) Getro EUR 28.8m (restructuring) Idea/Agrokor EUR 70m (cross-border) Spar EUR 25m (expansion) Konzum EUR 50m (cross-border) Atlantic Group EUR 27.5m Atlantic Group EUR 30m (acquisition finance) Total EUR 120m EUR 28.8m EUR 70m EUR 75m EUR 57.5m - # 2 1 1 2 2
4. Crisis Response and Beyond
EBRD Crisis Response and Beyond EBRD is providing financing to the local corporate companies through loan financing, equity and quasi-equity participations and guarantees. Also the Bank is providing loans for financing of industrial energy efficiency projects. Minimum financing of EUR 1 million. In response to the crisis, the Bank remains committed to: support its existing private sector clients as well as to financing commercially viable private sector projects with both local and foreign investors; provide long-term funding to local banks for on-lending to private SMEs; and continue to provide financing for infrastructure projects in the transport, power and municipal sectors.
EBRD Crisis Response and Beyond Crisis has hit the region hard: Liquidity and working capital issues Consumer purchasing power went down (cca 12%) with changed consumer preferences (lower retail basket by, focus on economy segment products, private label) Banks are focusing only on first-tier larger companies without appetite for significant new long term lending, further liming growth Limited expansion projects (new capital investments), but more focus on regional consolidation (sale of Delta Maxi to Delhazie Group, Droga Kolinska to Atlantic Group, Tus to IDEA, ongoing processes for Mercator, Fructal etc.)
EBRD Crisis Response and Beyond To alleviate lack of long-term funds in the WB region: EBRD is providing long term funding for Balance Sheet restructuring and improving maturity profiles EBRD offers long term debt with repayments in line with cash flows of companies, equity and quasi equity instruments etc. Co-financing with local and international commercial banks operating in the region to increase their risk appetite for long term lending in region (e.g. preferred creditor status etc.)
and what to focus on in the WB region Co-financing larger projects with commercial banks Risk Sharing schemes with local banks in financing post harvest operations using harvest as security (Warehouse Receipts) like in Serbia Risk Sharing schemes with local banks/leasing companies in financing agricultural equipment using equipment as security (currently exploring in Serbia) Equity/quasi investments on its own or in co-operation with private equity funds or strategic investors not willing to take region risk from the outset
and what to focus on in the WB region Serbia, together with Romania, Russia, Ukraine and Kazakhstan is classified as strategically important country for grain sourcing As a result, in addition to Warehouse Receipts (WHR), the Bank is working with Ministry of Agriculture of Serbia on preparing the legal ground for adoption of Crop Receipts (instrument used in Brazil for security for lending based on future crop) Today, in Brazil there is USD 20bln per year pre-financing using crop receipts The Bank believes this will increase liquidity and investments in agriculture sector Lack of agronomists & relevant experts across the agribusiness value chain, problem in primary agriculture is evident through substantially lower yields (potential co-operation with European Commission from their funds once Serbia and other WB countries obtain access to rural component of instrument for pre-accession assistance linked to candidate status)
Contact Miljan Ždrale Senior Banker EBRD London, Banking Division Industry, Commerce and Agribusiness Group Agribusiness (FMCG/Food Retail) Team Tel.: +44 207 338 6000 Fax: + 44 207 338 6109 zdralem@ebrd.com www.ebrd.com
Questions and Answers The time is always right for all kind of questions