European Bank European Bank for Reconstruction and Developmentfor Reconstruction and Development

Project Financing in Russia

2005Eric Rasmussen

Deputy Moscow Office

Table Of ContentsTable Of Contents

EBRD in RussiaEBRD in Russia

Project Finance GuidelinesProject Finance Guidelines

Basic Project StructuresBasic Project Structures

Recent ExamplesRecent Examples

ContactsContacts

Growing Presence in RussiaGrowing Presence in Russia

Since 1991 the EBRD’s a Cumulative Business Volume is €5.9 billion (this is 23% of all projects financed by EBRD)

At the end of 2004 the Portfolio Stock was at €3.75 billion and Operating Assets were at €2.29 billion

76% of the Bank’s portfolio in Russia was the private sector, while 81% was debt, 14% equity and 5% guarantee

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1991-1994 1997 2000 2003

Annual Business Volume (cumulative '91-'94)

Net Cumulative Business Volume

€ billion

Cumulative Business Volume

General Industry 17% Telecoms

Informatics & Media

2%

Municipal & Env Inf

11%

Natural Resources

12%Power and Energy

7%

Prop Tour and Ship 5%

Small Business Finance

3%

Transport17%

Energy Efficiency

0.1%Financial Institutions

18%

Agribusiness 8%

Russia Portfolio Stock by SectorRussia Portfolio Stock by Sector

Portfolio Volume €3.7 billion

Regional Portfolio & PipelineRegional Portfolio & Pipeline

Portfolio of 250 projects in 41 regions

Full pipeline contains 137 projects in 32 regions.

A “real” presence in 19 regions in which the Bank has 4 or more projects accounting for at least € 10 million in the portfolio.

EBRD EBRD RResident esident OOffices in High Growth Areasffices in High Growth Areas

St. Petersburg RO

Moscow ROEkaterinburg RO

Vladivostok RO

Rostov RO (2006)

Samara RO (2005)

High Market Potential

Good Market Potential

EBRD Operational PrioritiesEBRD Operational Priorities

Promote a sound investment climate and stronger institutions

Support the creation of sound financial sectors

Develop small and medium-sized enterprises

Promote infrastructure development

Demonstrate restructuring of enterprises

Take an active approach to equity investment

Financing InstrumentsFinancing Instruments

Loans

Equity, including combination of loan and equity

Guarantees, including credit enhancements (performance bonds etc.)

SME loans

Equity funds

Micro/small business programmes

Credit lines

Trade Facilitation Programme

Co-financings

Direct Indirect

Deciding on a JV or a wholly owned green field

Financial transparency and International Accounting Standards

Experience in emerging markets

Strong strategy and business plan

Bankable transaction - other financial partners and resources

EBRD presence/political support

Assisting Foreign InvestorsAssisting Foreign Investors

Disclose shareholder structure and beneficial ownership

Financial transparency and IAS

Financial strength and capital adequacy

Efficient management

Strong strategy and business plan

Bankable transaction - other financial partners & resources

Clear probable exit if an equity investment

Size of EBRD financing (debt equity max 35% per project)

Supporting Russian CompaniesSupporting Russian Companies

Supporting Small Business in Russia Supporting Small Business in Russia

Covers over 130 cities

Disbursed more than US$1.8billion through over 220,000 loans

Loans portfolio consists of 80% micro loans (under US$10,000) financing through more than 250 fully functioning participating branches of Banks in Russia

Excellent repayment ratio at 99.4% at end 2004

RSBF Disbursements 1997 – 2004

The Russia Small Business Fund (RSBF)

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10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

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Jul 9

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Jul 9

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Financial Crisis

Contact: www.microcredit.ru

Direct Equity FundsDirect Equity Funds

Largest single investor in the sector with a strategic goal to reach out to small and medium-sized Russian companies fostering a new generation of entrepreneurs

More than $500 million raised by funds with Bank’s participation 11 RVFs consolidated around 4 fund managers with $60-$100 million each

- Eagle: Black Earth, Smolensk, Urals- Norum: North West and West Russia- Russia Partners: Lower Volga- Quadriga - St. Petersburg, West Siberia

Investor in the new Baring Vostok Fund ($205 million total capitalisation) Founder of the Russian Venture Capital Association (RVCA) Ready to work with other fund manager with proven successful track-record

to further improve private equity infrastructure

EBRD’s Trade Facilitation Programme EBRD’s Trade Facilitation Programme

Case Study: Export of Equipment to Russia

A Russian Issuing Bank under the TFP opens a Letter of Credit to a foreign Confirming Bank, payable in several instalments after delivery

EBRD guarantees payment to the Confirming Bank

The Confirming Bank discounts the Letter of Credit to the exporter

Exporters and Importers check under www.ebrd.com/tfp, for which Issuing Banks and which tenors EBRD may guarantee the payment

35%35%

Minimum Project

Euro 20m

Minimum EBRD financing Euro 7m

Basic Financing GuidelinesBasic Financing Guidelines

Significant equity contribution from

the Sponsor ensures a prudent

capital structure

Appropriate return on investments

- a fair balance of risk / reward

EBRD money usually not to exceed

35% of capitalisation of company

(or 50% in case of syndication)

Typical Project Balance SheetTypical Project Balance Sheet

Project costs % Sources of capital %

Capital investment 60 Western sponsor cash 30

Contingency 10 Financial investors/in-kind 5

EBRD 5

Capital investment 70 Total equity 40

Existing liabilities 15 EBRD loan 30

Working capital 15 Commercial bank loan 30

Total debt 60

Total uses 100 Total sources 100

How to obtain finance from EBRD How to obtain finance from EBRD

Commitment to work together

– clarify role of EBRD

– mandate to initiate transaction

– mutual understanding of corporate integrity issues

Project / business plan and strategy

Feasibility or market studies (if available)

Basic StructuresBasic Structures: Risk Equity: Risk Equity

International Sponsor(s)

management control ownership

EBRDProjectCompany

Local Sponsor(s)

ownership

EBRD exits through a put to the Sponsors with pricing depending on performance of the Company.

An alternative is full risk equity after “Project Completion” targets are met

EBRD’s risk can be limited to specified (such as political risk) events with recourse to the Sponsors in all other cases.

Risk Pure

Note: details are simplified for case study

Equity

Equity

Basic StructuresBasic Structures: Syndicated Debt : Syndicated Debt

EBRD

Co-financing BanksA/B loan structure

Company

Debt Participation

EBRD can finance up to 35% of company’s balance sheet from own funds

EBRD syndicates additional debt from commercial banks

Debt

Basic StructuresBasic Structures: Mixed Equity and Debt: Mixed Equity and Debt

Sponsorsignificant ownershipmanagementexpertise

Co-financing BanksA/B Loan structure

Project Company

EBRDEBRD

EBRD equity up to 20%

Syndicated long-term debt

Equity Debt

Local Partner

Example: UralkaliExample: Uralkali

Uralkali

Signed on 12 December 2003

EBRD Loan: US$ 75 million (67% syndicated)

Purchase and installation of gas engines sites

Modernisation of equipment and machinery for extraction and transportation sites

Example: Severstal - Arcelor JVExample: Severstal - Arcelor JV

EBRD Loan: $90 million (33% syndicated).

Creating a $170 million JV between Arcelor, the biggest global steel producer and Severstal a major Russian steel producer for a greenfield construction of a galvanized steel plant.

Signed on 11 February 2003

Severstal - Arcelor JV

Equity €13.6 million

Purchase of a 10% equity stake in "Stinol", the largest refrigerators production plant in Russia, recently acquired by Merloni. Investment will be used to upgrade existing facilities for local production of a Western quality product.

Example: MerloniExample: Merloni

Signed on 27 February 2002

Merloni - Stinol

Signed on 27 June 2001

General Motors - VAZ JV

Example: General Motors - AvtovazExample: General Motors - Avtovaz

Equity US$ 40 million and Loan €108 million of which €25 million syndicated

Green-field construction and operation of a factory to manufacture 75,000 vehicles in Togliatti, Russia. Avto VAZ and GM hold an equal share in the venture.

EBRD Loan: US$ 90 million The JV will build a new

plant at Severstal's facilities in Cherepovets, 400 km north of Moscow, to produce up to 400,000t of hot dip galvanised steel a year

Signed on 11 February 2003

Example: Sevestal - Arcelor JVExample: Sevestal - Arcelor JV

Severgal

Example: Example: System operator (SCADA)System operator (SCADA)

• € 80m syndicated loan with € 60m EBRD participation to a Russian power system operator for upgrade of its technology

Objective to support restructuring of the Russian power sector and improve it to the standards of European neighbours Signed on 17 December 2004

Example: Example: TogliattiAzot TogliattiAzot

EBRD’s largest-ever loan for energy efficiency of US$ 160m (Bank’s portion US$ 100m)

Reparation and modernisation of four ammonia production units

The project will result in significant gas savings and reduction of carbon dioxide emissions, that can be used as carbon credits under Kyoto ProtocolSigned on 9 December 2004

Example: LentaExample: Lenta

US$30m EBRD loan for the construction of three Lenta retail stores in St Petersburg

The Bank’s investment will benefit Russian consumers through higher quality goods and increased range of products sold at lower prices Signed on 3 December 2004

Example: Nokian TyresExample: Nokian Tyres

EUR 50m senior loan to finance construction of Nokian Tyre's Greenfield plant near St Petersburg

The plant will have an annual capacity of 2m tyres

The investment will help to develop the production of tyres in Russia and increase competition in this sector

Signed on 24 September 2004

Example: Pokrov Glass PlantExample: Pokrov Glass Plant

Provision of a US$11m loan to a Russian subsidiary of the Turkish company Anadolu Cam

Reconstruction and expansion of the capacity

Increasing quality and choice of food packaging in the market and introducing greater competition and innovation

Signed on 23 September 2004

ExampleExample: : Middle-Timan Bauxite MineMiddle-Timan Bauxite Mine

Expansion of an existing bauxite mine in the Komi Republic (Russia)

The EBRD finance comprises a loan of US$ 75 million. The Project will be co-financed by the International Finance Corporation with a parallel loan of US$ 75 million

The investment will help to enhance the competitiveness of the Russian aluminium industrySigned on 4 August 2004

Example: NarzanExample: Narzan

US$ 12.25m combined EBRD loan and equity investment to finance a Russian mineral water producer, including his CAPEX and working capital

The investment will help one of Russia’s best-known mineral water companies to expand its bottling capacity, develop new products and provide it with working capital

Signed on 11 May 2004

Signed on 06 May 2004

Example: International Moscow BankExample: International Moscow Bank

Provision of a US$ 200m syndicated loan (EBRD portion US$ 30m) for Russian small and medium-sized enterprises, particularly in less-developed regions

First of similar deals the Bank is working on to provide Russian banks with long-term funds so they can give Russian businesses much needed access to longer-maturity credit

Example: OAO Karelsky OkatyshExample: OAO Karelsky Okatysh

Provision of US$ 60 million long-term debt finance to develop iron ore mining in the Karelia region, thus ensuring adequate raw material supply for Severstal

Signed on 25 March 2004

Example: Rising Star MediaExample: Rising Star Media

US$ 17m loan for the construction of four multiplex theatres in Moscow and St Petersburg

Development of infrastructure for a modernising and fast growing media sector

Supporting the entrance of a strategic investor, a leading international cinema operator, into the Russian market and promoting competition

Signed on 06 February 2004

ContactsContacts

Victor Pastor, Director RussiaTel: +7-095-787-1111 / fax: +7-095-787-1122 E-mail: PastorV@mos.ebrd.com

Eric Rasmussen, Deputy Head of Moscow Office, Russia TeamTel: +7-095-787-1111 / fax: +7-095-787-1122E-mail: rasmusse@mos.ebrd.com

Leonid Vindman, Principal Banker, Russia TeamTel: +7-095-787-1111 / fax: +7-095-787-1122E-mail: vindmanl@mos.ebrd.com

Procurement Opportunities and General Information via web site: www.ebrd.com