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EAST CAPITAL

EAST CAPITAL. Russia and Eastern European markets: opportunities in the “new” European Economies Kestutis Sasnauskas, East Capital Private equity. Private Equity World Middle East 2005. East Capital in brief. 2 billion USD under management in open ended mutual and private equity funds

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EAST CAPITAL

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  1. EAST CAPITAL Russia and Eastern European markets: opportunities in the “new” European Economies Kestutis Sasnauskas, East Capital Private equity Private Equity World Middle East 2005

  2. East Capital in brief • 2 billion USD under management in open ended mutual and private equity funds • 60 employees • Offices in Stockholm, Moscow and Paris • 250.000+ investors • 7 year track record • Independently owned and managed

  3. Our Toolbox Russia & CIS Baltic States Balkans Central Europe UCITS funds East CapitalRussian Fund East CapitalBaltic Fund East CapitalBalkan Fund East CapitalEastern European Fund Offshore funds East CapitalBering Russia Fund East CapitalBering Ukraine Fund Private Equity East CapitalAmber Fund Explorer Property Fund- Baltic States

  4. Average annual performance of the Funds versus benchmark index since inception Performance in EUR

  5. Suggested agenda • Economic Outlook: stable growth • Scouting the Private Equity Landscape in Russia • Investment Opportunities in Russian and Eastern European Private Equity

  6. Reasons to invest in Eastern Europe & Russian private equity • Strong underlying economic growth • Competitive advantages in the enlarged EU • Attractive valuations • The only way to access rapidly growing sectors of the economy

  7. Eastern Europe – Chinese-style economic growth GDP increase (%), 2004

  8. What happened before? GDP increase before entering EU

  9. What happened later? GDP increase after entering EU

  10. Case study: Car industry in Slovakia • A school-book study on how to attract FDI • Slovakia may soon produce more cars per head of population than any other country in the world • Volkswagen: 300,000 cars/year • Peugeot-Citroën: 300,000 cars/year (production to start in 2006) • Kia Motors: 200,000 cars/year (production to start H2 2006) • What made car manufacturers start production in Slovakia? • Tax reforms • Competitive cost structure • Full access to EU markets after May 1 2004

  11. Flat taxes in Eastern Europe – some examples

  12. Wage differences between Eastern and Western Europe Nordic vs. Baltic countries Central Europe The EU “cost leaders” Source: Eurostat,

  13. Suggested agenda • Economic Outlook: stable growth • Scouting the Private Equity Landscape in Russia • Investment Opportunities in Russian and Eastern European Private Equity

  14. Why private equity in Russia? • There are approximately 3 million registered private companies in Russia • 250 companies are listed on RTS • 75 companies have depository receipt programmes • 90% of the index is in oil& gas, utilities and telecom the only way to access large part of economy is through private equity funds

  15. Private equity in Russia • Few private equity players on the market mainly distributed in two groups: • Local financial industrial groups • Institutional investors (foreign capital) • Institutional funds are generally small: 15 – 400 MUSD in size. • Debt financing is still expensive, but… • …rapidly improving macroeconomic situation resulting in decreasing cost of financing

  16. MCAP as % of GDP

  17. IPO activity is picking up IPO volume in Russia 2000- 2005 Within the next year we expect approximately 60 IPOs with a total value exceeding USD 10 bn in Central and Central & Eastern Europe. Main activity in Moscow and Warsaw.

  18. Suggested agenda • Economic Outlook: stable growth • Scouting the Private Equity Landscape in Russia • Investment Opportunities in Russian and Eastern European Private Equity

  19. Investment opportunities • Possibilities of privatisations of extremely undervalued assets are already exploited • Focus on exposure to domestic economy • Consumer goods and retail • Financial sector • Real estate & construction material • Retail & logistics • Strong cash flows

  20. Banking Assets in % of GDP (2004) Source: Central Banks, 2004-12-31

  21. Growth of corporate & retail market in Russia Source: CBR

  22. Property market opportunity in the Baltics Yield rates on A-type commercial property • The Baltic property market is still underdeveloped in a Western European context, characterized by limited size, low transparency and low liquidity… • …but, the market offers: • attractive yield rates • low interest rates • high demand for modern properties • declining vacancy rates… • ….and strong fundamentals for value growth for investors with local knowledge and relationships

  23. Property market opportunity (cont.) Gap between yield and mortgage rates* • Significant gap (5-7%) between yield rates and mortgage rates • Opportunity to make 15-25% annual equity returns based on yield only • In addition, market fundamentals indicate good potential for value growth as well: • Strong economic development • Limited availability of office and retail space • Conversion process to Western European levels • Furthermore, low correlation with equities, provides an attractive diversification possibility Property price development* *Figures for A-type commercial property

  24. Contacting East Capital Head office East Capital Kungsgatan 30, Norra Kungstornet – Box 1364 SE-111 93 Stockholm, SWEDEN Telephone: +46 8 505 88 500, Telefax: +46 8 505 88 508 www.eastcapital.com Kestutis Sasnauskas, CEO, East Capital Private Equity Direct phone: +46 8 505 88 515 Email: kestutis.sasnauskas@eastcapital.com Carl Meurling, East Capital Asset Management AB Direct phone: +46 8 505 88 519 Email: carl.meurling@eastcapital.com

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