exploring investment opportunities in belarus · in 2009 industrial output volume in belarus...

Exploring investment opportunities in Belarus

1EBRD Annual Meeting & Business Forum

EBRD Annual Meeting& Business ForumBuilding Sustainable Growth

14 and 15 May 2010Zagreb, Croatia

Daniel Krutzinna

Associated PartnerUNITER Investment Company

Ministry of economy of the Republic of Belarus


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 positionscompared to 2007); the second year in a row among TOP-4global reformers;

lies in the Eastern Europe and offers a favourablegeographical position as a transit country;

possesses well-developed traditional industries that remainkey drivers of the economic growth;

occupies leading positions in machine building, oil processing,agriculture and food production, and metalworking on theRussian and global markets;

operates an open, export-oriented economy: external tradeturnover to GDP ratio exceeds 1 over the last 10 years;

depends heavily on supplies of Russian natural resources andraw materials and on exports of value-added products toRussia;

has 70% of national GDP generated by state-controlledenterprises with share in total exports exceeding 80%.

Territory - 207 600 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 - 99.6%;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.

“… 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

Putting Belarus on the map

Building Sustainable Growth



Belarus economy structure




In 2009 GDP nominal volume in dollarterms composed $ 48.8 billion and reducedby 18.5% in comparison with 2008.However, in 2009 GDP volume in real termsin Belarus increased by 0.2%. This situationis caused, first of all, by a first‐stage andthen a gradual national currencydevaluation. The main GDP growth‐promoting factor was the maintenance ofinvestment dynamic in the fixed assets,what connected with the state support ofthe construction sphere construction field.

In 2009 industrial output volume in Belarusamounted to 44 billion USD and reduced indollar nominal terms by 27.7%, however,the real decrease composed 2.8%. It isessential to note, that given real decreaselooks good in comparison with the sameperformance in neighbor countries. This canbe mostly explained by the Belarusianindustry «for storage» functioning.

Macroeconomic development




In 2009 the incomes of population in dollarterms reduced by 8.3% and made $ 3.3thousand per capita a year, however, thereal growth composed 2.8%.Nominal incomes decrease was mainly theresult of the national currency devaluation.Moreover, in 2009 the State practicallyfroze salary increase regarding budgetorganizations and pensioners. Budgetexpenses optimization – the mainrequirement of IMF.

1,1 1,4 1,8 2,3 2,83,6 3,3

0,0

1,0

2,0

3,0

4,0

2003 2004 2005 2006 2007 2008 2009

Population incomes, thousand USD per capita a year

AARGR = 11,4%

In 2009 in Belarus the investment volume ofthe main capital formed $,15.4 billion andreduced by 7.8 % in dollar terms incomparison with 2008. Nevertheless, thereal investment growth composed 8.6%. Itsshare in GDP reached 31.5% and increasedby 3 pct in comparison with 2008. Ingeneral, since 2003 the average annualgrowth rate of real investment in the maincapital made 25.1%.





External conditions




Country comparison




Investment environment

In 2008 the Belarusian Government issued a list ofenterprises to be reorganized into open joint stock companies(505 enterprises) and to be privatized (144 enterprises) in2008-2010;

Moreover, privatization plans of the leading companies in thefinancial sector (banks and insurance companies) weredeclared. In addition, the Government is lifting limitations onsale of shares obtained by individuals during privatization in1990s.Thus, in the beginning of 2010 privatization plans will include:

I. 1 leading Belarusian Banks (# 5): sale of a majority staketo the strategic investor;

II. 2 large insurance companies: sale of controlling stake tostrategic buyers or IPOs in the foreign capital markets;

III. 2 largest state-owned Belarusian breweries: sale ofcontrolling stake to strategic buyers;

IV. Leading pharmaceuticals manufacturers: sale of controllingstakes to a strategic buyers, JVs;

V. Refinery– readiness to negotiate investment opportunitiesfor “Polimir” JSC – “Naftan” JSC;

VI. Energy and Green projects: JVs (energy generation andwaste treatment) ;

VII. Under stand–by agreement with IMF a pilot privatizationof 7 enterprises.

TOP- Priority task set by the President to attract FDIin Belarus(Belarus should be among TOP-30 of the mostinvestment attractive countries by 2010);

Belarus became a Top 10 reformer (moving up fromrank 85 to rank 58) in the World Bank’s Report “DoingBusiness 2010”;

70% of GDP is still produced by state-controlledenterprises, including petrochemical, oil-refining, rawmaterials, automotive and machinery, agriculture andfood industries;

Government takes clear steps towardsliberalization of the stock market andprivatization:

I. abolishment of “golden share”;

II. phase-out of the moratorium on circulation ofshares acquired during preferential privatization;

III. lists of hundreds of enterprises to be reorganizedinto open joint stock companies and list ofcompanies ready for selling to investors;

IV. governmental program encompassing 52 clearsteps towards further simplification of DoingBusiness in Belarus (taxation, businessadministration….)




Sectors with prime appeal




M&A and FDI

In 2009 M&A transactions volume in Belarus composed 289.9 m USD.The main volume was formed due to the purchase of Belarusian BPS‐Bank by Sberbank for 280.8 m USD.During 2009 the transactions volume reduced in 2.8 times.Except the transaction with Sberbank, the following events weremomentous:1. The purchase of the Belarusian producer of dry construction

materials “Tajfun” by the large Polish producer “Atlas” for 4 mUSD;

2. The creation of joint ventures by large Russian producer of milkproducts “Unimilk” with a) Shklov milk plant b) Pruzhany milkplant.

Also there was announced that Danone considers the opportunity toenter on Belarusian market.Moreover, during the year the participants of retail market in Belaruscontinued their development. The Russian project “Belmarket” boughtnetwork shops in Mogilev, the local retail operator “Euroopt”purchased the Mozyr network “Nelli”.In general, it is essential to mention, that M&A market in Belarus as allover the world was not in the best condition, but according to theresults of 2010‐2011 it is expected the revitalization of the investors,particularly within announced privatization.

In 2009 to the economy of Belarus were attracted 1.8 billion USD ofdirect investments, what was significantly less than in 2008. Moreover,since 2009 the performance calculation methodology has beenchanged. So, the most major investment in 2009 in Belarus became thepayment of OJSC Gazprom for the next 12.5% share holding of OJSCBeltransfaz

SphereThe quantity of transactions Transactions volume, m. USD

2007 2008 2009 2007 2008 2009Bank sector 7 6 1 87 175 280,8Insurance 2 5 1 N/A N/A N/ALeasing 0 2 0 N/A N/A N/ARetail 3 1 3 N/A N/A N/AMachine‐building 1 1 0 7 6 0Transport 0 1 0 0 6 0Food 1 3 3 N/A 133 5Telecoms 1 2 0 350 500 0Construction materials 0 0 1 0 0 4

Total 15 21 8 444 820 289,9




GazProm is in the process of acquiring a controlling stake inBelTransGaz for USD 2.5 billion during the period 2007‐2010;

Russian banks and insurance companies strengthened theirpositions in Belarus through acquisitions of controlling stakes in 4medium‐sized Belarusian banks (VTB, Alfa Bank,VneshEconomBank, RosBank ‐ SocGen) and in 2 insurancecompanies (RESO Group);

Mobilkom Austria Group acquired 70% of mobile service providerMDC (Velcom) for EUR 730 mln;

Turk Cell acquired state‐owned mobile phone operator BEST forUSD 600 mln;

Heineken NV bought Syabar brewery the second‐largest beer brandin 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 PivoBrewery 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 bankSombelbank;

FransaBank (Lebanon) acquired small‐sized Belarusian Bank GT‐Bank;

Home Credit Group (Czech Republic) acquired a controlling stake inLorobank;

PPF / Generali created a risk insurance company in Belarus;

Horizon Capital (US based PE fund) is the ever first PE fund thatentered Belarus through acquisition of the Minsk Transit Bank in2008;

Silvano Fashion Group (Estonia) was the first company owningpredominantly Belarusian assets (Milavitsa lingerie manufacturer)listed at foreign capital market (Warsaw stock exchange)

Kesko (Finland) acquired the leading construction materials retailer inBelarus

Polish ATLAS purchased majority stake of private enterprise Tajfun ‐the major manufacturer at the building sector in Belarus. ATLAS andTajfun shall invest ca. 4 million USD for the modernization andmanufacture development, within the next two years;

Sberbank of Russia acquired 93.27% stake of the 4th largestbelarusian Bank – BPS bank at 280.73 mln.$. And has become thelargest strategic investor into the Belarusian banking sector. In thenearest future Sberbank is planning to consolidate up to 100% of thebelarusian bank.

Sound transactions




M&A activity timeline




Privatization process

The process is not structured and is very selective:

(i) There is no central state body responsible for the whole privatization process (like the Privatization agency).

A number of state bodies are involved into the process. Moreover, the composition of state bodies is different in each

specific case / target / industry (banking sector, telecommunications, real estate development, construction and

building materials, etc.);

(ii) The role of specific persons (key decision makers, so‐called “curators or supervisors”) is very important. Sometimes, these key

decision makers may have no representation in relevant ministries / state bodies;

(iii) Usually, the sale of shares of the privatized company is carried out without any public tender / competition. It is performed on the basis of direct negotiations and, finally, basing on a special decision

of the President (Decree of the President);

(iv) As the analysis of practice of privatization in 2007‐2009 showed, often privatization ideas could be initiated by potential

buyers / investors. In this case the Government of Belarus is rather flexible in defining possible terms of privatization and in amending

lists of companies to be privatized;

(v) The description of the decision making process is presented below and is based on analysis of latest large privatization deals.

However, the process in each case was different.




For the past years in Belarus a very unique and specific process of negotiations with investors has been developed. All stages to be gone through and documents to be filed and approved are provided on the following block of charts

Privatization process




List N 1. Companies to be transformed during 2008‐2010 from “StateUnitary Enterprises” to “Open Joint Stock Companies” with up to 100%share belonging to the State.The list was named as “List of companies for privatization” but actually it

was the list of companies to be transformed into OJSC;The list comprises more than 500 unitary enterprises across different

industries and sectors;There is still no decision on privatization of these companies but

negotiations can be initiated by the investors. For reference, seehttp://www.gki.gov.by/Investors/on_privatization/

List N 2. Companies to be privatized during 2008‐2010. The list includesabout 130 companies for privatization in 2008‐2010. However, themajority of the companies are small or medium sized with sales notexceeding $ 50 m. Moreover, in most cases the State offers just minoritystakes to investors. For reference, seehttp://www.gki.gov.by/Investors/on_privatization/

List N 3. Companies to be privatized by recently created PrivatizationAgency (is planning to be created at the beginning of 2010 under stand‐byagreement with IMF). This is expected to be a list containing 7 companies.Currently the companies are at the preliminary stage of selection. Mostprobably, these targets will be more realistic than in the list #2, butapparently these will be SMALL and MEDIUM SIZED COMPANIES with salesnot higher than $ 50‐100 m.

The Belarusian Government issued a number of lists of companies to be reorganized and/or privatized

Privatization perspectives



http://www.gki.gov.by/Investors/on_privatization/

http://www.gki.gov.by/Investors/on_privatization/


Privatization perspectives

In addition, the Government now can be ready to negotiate the sale of majority / minority stakes in some companies not included into the previous list




Disclaimer:

This report was prepared for informational purpose only and does not constitute an offer or solicitation of a strategic transaction. Pointsof view, forecasts and evaluations presented in this report reflect our opinion as of the publication date and may be changed withoutnotice. Although the information contained herein has been obtained from sources we believe to be reliable and although we ensuredtheir accuracy as of the publication date, we cannot guarantee, expressly or impliedly, practicality of this report regarding future eventsor current or future value evaluation. Any investment decision based on this report should be made only at the discretion of the investorand UNITER or its employees or any third party shall not be responsible in any form and in no circumstances for any action of any partytaken on the basis of this report. Nor UNITER, nor any of its employees, nor any third party shall be responsible for losses that resultfrom such actions.

CJSC «UNITER Investment Company»Belarus, Minsk, Nezavisimosti, 117a, 12th floorTel : (+375 17) 385 24 63Fax : (+375 17) 385 24 64email : [email protected]

Ministry of Economy of the Republic of BelarusBelarus, Minsk, Berson str. 14Tel : (+375 17) 222 60 48Fax : (+375 17) 200 37 77email : [email protected]


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