Partner to Invest in Transition Economies from Morocco to Mongolia Stockholm October 22nd 2014 Contents Part I: Overview of EBRD Part II: EBRD’s Co-investment Opportunities Part III: EBRD’s Equity Participation Fund 10/22/2014 2 EBRD – Investing from Morocco to Mongolia 2013 Population 612 mn 2013 Nominal GDP USD 5,417 bn Countries of Operation Central Europe & Baltics Cyprus Croatia Estonia Hungary Latvia Lithuania Poland Slovak Republic Slovenia South eastern Europe Albania Bosnia and Herzegovina Bulgaria FYR Macedonia Kosovo Montenegro Romania Serbia Eastern Europe & Caucasus Armenia Azerbaijan Belarus Georgia Moldova Ukraine Central Asia SEMED1 Russia Kazakhstan Kyrgyz Republic Mongolia Tajikistan Turkmenistan Uzbekistan Egypt Jordan Morocco Tunisia Russian Federation 1 SEMED: 10/22/2014 Turkey Turkey Southern and eastern Mediterranean region 3 Key Areas of Business At a Glance Portfolio €37.8 billion Cumulative Equity Investments €10 billion Number of projects (since 1991) 4,088 Cumulative business volume €92.1 billion Portfolio by Sector Portfolio by Region Central Asia, 8% Turkey, 9% Central Europe, 16% Eastern Europe, 20% Portfolio by Product *SEMED, 3% Guarantee , 1% Energy, 22% Cyprus, 0% S. E. Europe, 22% Russia, 21% Equity , 21% **ICA, 30% Financial Institutions, 23% Infrastructure , 25% Debt , 78% Data as of Sept 2014 (*) SEMED region (North Africa): Tunisia, Egypt, Morocco, Jordan (**) ICA: Includes Agribusiness, Property & Tourism, Manufacturing & Services and Information & Communication Technology 10/22/2014 4 EBRD Activities in North Africa Annual Business Volume 700 At a Glance Cumulative disbursements: €464 million Equity Investments: €105 million Number of projects: 44 (since 2012) Portfolio: €1,218 million Countries of Operations: Egypt, Morocco, Tunisia, Jordan 25 600 20 500 400 15 300 10 200 5 100 - 0 YE2012 YE2013 Annual Business Volume EBRD Portfolio in North Africa by Sector Industry, Commerce & Agribusiness. 13% 35% Sept 2014 Number of Investments EBRD Portfolio in North Africa by product Equity Portfolio 9% Energy 18% Infrastructure 34% 10/22/2014 Financial Institutions Debt Portfolio 91% 5 Contents Part I: Overview of EBRD Part II: EBRD’s Co-investment Opportunities Part III: EBRD’s proposed Equity Participation Fund 10/22/2014 6 Unique Investment Opportunities Future Growth of the Region Financing Gap for Equity EBRD: a credible intermediary •Untapped potential for production growth and development of local entrepreneur base •Continued growth of middle income class •Limited investments from international institutional investors •Limited access through traditional mechanisms •Achieves market returns while mitigating risk •IRR of 18% with 2.1x gross multiple for 90 realised direct equity investments since 1992* (*) Direct Equity Investments over EUR 10m since the inception of EBRD since 1992 10/22/2014 7 Unique value proposition of partnering with IFIs 1 • Unique position through EBRD’s special preferred creditor status, favourable tax Risk mitigation treatment, policy role, political connections, transition mandate and historical presence within the Countries of Operation • Exclusive privileges and immunities 2 • EBRD’s ‘Global Sponsor’ programme provides access to inroads into the region while being supported by a knowledgeable and protected partner Origination capabilities • Access to local sponsors, government led deals (eg privatisations) and FDI sponsors • Being both a creditor and equity provider creates multiple sources of proprietary deals • The Bank acts as Limited Partner in a portfolio of private equity funds, providing deal exposure through co-investments alongside high quality managers 3 • Heavy involvement in areas including banking systems reform, liberalisation of prices, Target region understanding privatisation (legalisation and policy dialogue) and creation of legal frameworks • Unique ability to apply deal-making experience in specific sectors to different countries as they progress through the transition process 4 Influential minority investor • As an IFI with strong local presence, political affiliations and local knowledge, EBRD has a strong influence on the investees even if it invests as a minority shareholder. This resulted in active co-investments with leading global strategic investors • Influence on corporate governance via board nominee director who are appointed to create shareholder value 10/22/2014 8 Multiple ways of co-investing with EBRD Co-investment in Direct Equity Deals •Partnership with global strategic investors, private equity firms and other international financial institutions to co-invest in various sectors •Direct equity investments by sovereign wealth funds and large pension funds in EBRD’s region have been limited due to perceived political and economical risks, and small investment size required in the investees in the region Co-investment in Equity Funds •The largest Limited Partner in private equity in the region •Invested in more than 170 private equity funds, together with more than 1,300 limited partners to date, including sovereign wealth funds and pension funds •Investments often lead to co-investments in direct equity transactions Co-investment in Portfolio Investment •Equity Participation Fund aimed at attracting longterm large institutional investors •Investors benefit from unique EBRD governance, investment standards and reputation and financial and political risk mitigation •Provides large size (€50 mill+), diversified investment opportunity to large institutional investors In addition the EBRD is a natural venue for co-investment in long term project loans 10/22/2014 9 Contents Part I: Overview of EBRD Part II: EBRD’s Co-investment in Equity Part III: EBRD’s proposed Equity Participation Fund 10/22/2014 10 Outline of the Equity Participation Fund Innovative fund structure Target size EUR 750 million - 1 billion Target number of investments Around 50, depending on average investment size Expected investment size EUR 10-100 million Expected Fund return Portfolio return of 15% IRR Participation ratio 30% - The EBRD will retain 70% of the risk of all the equity investments Underlying Investments The Fund will acquire an indirect economic interest in all Eligible Direct Equity Investments made by the EBRD through Equity Return Swaps Fund term 12 years from the First Closing Date Fund structure English Limited Partnership Carried interest None Highly Innovative, efficient investment opportunity, not provided by existing PE Market 10/22/2014 11 Proposed Fund legal structure Traditional fund structure under the EBRD umbrella Structural outline: • English Limited Partnership to be established (the “Fund”) EBRD investee companies • Investors are admitted as Limited Partners adhering to the terms of the Fund • General Partner (GP) will be an English limited liability company (GPCo), owned 100% by a third party administrator • GP appoints EBRD as the Fund Manager through a Management Agreement 30% of underlying EBRD investments 70% of underlying investments will be retained by EBRD • The Fund buys an Equity Return Swap (“ERS”) from EBRD in respect of each eligible EBRD equity investment (ERS = participation rate x cost of the EBRD’s equity investment) • A fixed allocation ratio will be followed for Eligible Investments in Equity with 30% of investment risk allocated to the Fund. EBRD will retain 70% of the investment risk • In the Fund structure investors are passive and follow the EBRD investment process Equity Return Swaps Equity Participation Fund General Partner (GPCo) Investors (Limited Partners) 10/22/2014 12 Partnering with global institutional investors The EBRD Equity Participation Fund will enable global institutional investors to participate in the EBRD’s direct equity investment portfolio and strategy and benefit from: 1. Geographic and sector diversification 2. Long-term capital growth and return opportunity in line with market benchmarks 3. Robust track record of 23 years 4. Adherence to the highest ESG standards 5. Unique access to a universe of both public (pre-privatisation) and private companies 6. EBRD’s strong local presence and knowledge in all 35 countries of investments 7. Risk mitigation provided by EBRD’s stringent internal processes and its privileges and immunities 8. Low-cost intermediation (cost sharing management fee, no carried interest) Opportunity to invest in the growth potential across the EBRD Countries of Operation which is not accessible via public markets or traditional private equity funds 10/22/2014 13 Conclusion • Financial markets are undergoing a deep transformation • Deleveraging, de-risking, changes in regulatory landscape • In that process there are gaps in financing the real economy • Need for long term, patient, equity capital • Development banks that behave under market principles with local presence can fill that gap • By further using their risk absorption capacity and reputation • By facilitating and intermediating transformational investment and mobilising Institutional Investor Capital Opportunity for a Public - Public partnership for private sector development 10/22/2014 14 Contact Details Manfred Schepers, Senior Advisor Institutional Investment Partnerships schepers@ebrd.com +44 20 7338 7000 Jung Hwa Oh, Associate Banker Institutional Investment Partnerships ohj@ebrd.com +44 20 7338 6342 EBRD Headquarters: +44 20 7338 6000 10/22/2014 15