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Bering Balkan Fund. Jacob Grapengiesser Partner, East Capital. Growth and politics – benefits of EU accession still valid. High long term GDP growth : Balkan countries at 3.5%-5% vs <2% for the Euro area Political stability and EU accession as an anchor of reforms.

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Bering Balkan Fund

Jacob Grapengiesser

Partner, East Capital

growth and politics benefits of eu accession still valid
Growth and politics– benefitsof EU accession still valid

High long term GDP growth: Balkan countries at 3.5%-5% vs <2% for the Euro area

Political stability and EU accession as an anchor of reforms

Country Status


Member of EU since 2004


Member of EU since 2007


Member of EU since 2007


Candidate country


Candidate country


Candidate country


Potential candidate country, SAA signed in May 2008


Candidate country

Bosnia & Herzegovina

Potential candidate country, SAA signed in June 2008

Source: Bosnian Embassy, Sweden; Macedonian Embassy, Sweden, IMF WEO September 2011

public debt to gdp
Public Debt to GDP

Public debtlevels far belowotherEuropeancountries.

Balkan countriesfulfill Maastricht criteriaregarding public debt.

worst markets but not the worst economies
Worst markets, but not the worsteconomies

Markets far below peak levels.

Economic contraction, but not more than European average.

Source: Bloomberg and IMF (November 03, 2011)

performance ytd usd
Performance YTD (USD)

In 2011, smaller Balkan markets best performing markets in Europe.

Outperforming large indexes by 20%-30%.

Source: Bloomberg, 04 November 2011

turkey investment highlights
Turkey – investment highlights
  • Strong recovery, driven by domestic demand
    • GDP: +8.9% in 2010 (2011E: +6.0%, 2012E: +4.5%)
  • Resilient public finances, low public debt to GDP
  • Inflation at historically low levels
  • Demand boosted by low interest rate environment
  • Solid banking sector
  • Relatively high earnings growth, attractive valuations
  • Western style, professional business environment

Strong domestic economy.

Public finances in a good shape.

Inflation at historically low levels.

Solid banking sector & attractive valuations.

turkey solid public balances
Turkey – solid public balances
  • Budget deficit to GDP declined considerably since Turkey 2001 financial crisis
  • Turkish policymakers are determined to maintain fiscal discipline
  • Government debt has steadily declined except for 2009 global financial crisis

Turkey used to have high budget deficit due to ever changing governments.

Government debt to GDP has declined from 74% 2002 to 39% today.

Source: IMF World Economic Outlook (April 2011), Eurostat, TurkStat

turkey solid banking sector
Turkey – solid banking sector
  • Well capitalized since the 2001 financial crisis
  • Banking earnings increased by 50% in 2009 and 10% in 2010
  • Margins have bottomed, recovery on the way

Well capitalized banking sector, no risk of defaults.

Strong banking sector was key reason for strong economic recovery.

Profitability should increase in 2012 with expanding margins.

Source: IMF, Turkish Banking Regulation and Supervision Agency (BRSA)

east capital bering balkan fund performance
East Capital Bering Balkan Fund Performance

MSCI EM Bering Europe % Balkan Index

Q3 2011 -24,1 -30

2011 YTD -26,8 -25,5

Since inception -28,6 -29,4

Annualisedsince inception -6,3 -6,5

Note: Figures as of 2011-09-30

Performance since inception

b92 a turnaround with strategic investor
B92 – a turnaround with strategic investor
  • Full scope Serbian media company
    • Good news: underdeveloped market with room for market consolidation
    • Bad news: the company was in trouble and we needed to turn it around
  • Solution was difficult as shareholders had different goals
    • Coordinating negotiations with existing and new shareholders
    • Strategic partner with perhaps strongest industry track record
    • Complicated, very dilutive share capital increase
    • Now aligned interest between 2 major shareholders, exit in 5 – 7 years
  • Turnaround progressing according to the plan
    • Prime time rating up 80% from 6% to 10.8%
    • Financial impact visible next year
  • Currently valued at EV of EUR 11.8m, 2012E 3.3x EV/EBITDA

Smart financial set up with very dilutive share capital increase.

Top class strategic partner.

nova kreditna banka maribor buyback
Nova Kreditna Banka Maribor – Buyback
  • Nova Kreditna Banka Maribor – 2nd largestSlovenian bank
  • Acquiredshares in SPO at 8 EUR
    • Goodnews – the bank is overcapitalised
    • Bad news – sharesfell in linewithEuropean banks
  • Risk of non-valueaccreativetakeovers
  • Management not incentivised on sharepriceperformance
  • Bank trading at 0.35x book, CAR 12%
  • Wehaveconvinced the governmentalagencyresponsiblefor the holding tovote for buyback
    • Butweneedto call for the EGM
    • Management is, slowly, supporting
  • Proposaltobuy back EUR20m or 10% of outstanding shares = 20% offree float
    • EGM to be called

Weneedtoconvince the governmentto support us as well as get manage- ment on board (withoutthembeingmotivated).

smaller holdings manual work process
Smaller holdings – manual work process
  • Jaffa
    • Serbian biscuit producer
    • Well run company, but little left for minority shareholders
    • Waited for buyout to expire and negotiated to sell 30% above the market price
    • Made 9% gain vs index decline of 39% during the period
  • IF BIG
    • Largest privatization fund in Bosnia and Herzegovina
    • Largest part of its portfolio in utility companies
    • We were buying during the crisis and built significant stake at very low levels
    • Now fight for control between 2 parties, our stake is the key and we can extract premium
  • Serbian agricultural companies
    • 3 companies with the same main owner
    • Good profitability, 2011E P/E < 2x
    • Trying to convince him to consolidate them with existing assets and go for a large capital market transaction

“Manual” work process: little financial information, no broker coverage, limited liquidity.

Capitalizing on local contacts.

Promote value creative strategies.

turkey and the balkans conclusions
Turkey and the Balkans– conclusions
  • Turkey and the Balkans will show long-term sustainable GDP growth
  • Public debtlevelshealthy vs Eurozoneeconomies
  • Balkan markets still beaten down, recoverywilltakeplace, butmighttaketime
  • Smaller markets doingrelativelywell
  • Working process different from the onein larger markets

Potential GDP growthof 4-5%.

Low public debt.

Localknowledge and contactnetworkessentialtorun the funds.