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Italy & Ukraine: Building Together

Italy & Ukraine: Building Together. July 2012 Kiev Olga Yeriomina. The EBRD. Who is the EBRD?. The European Bank for Reconstruction and Development is an International financial institution, promoting transition to market economy in 30 countries from Central Europe to Central Asia

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Italy & Ukraine: Building Together

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  1. Italy & Ukraine:Building Together July 2012 Kiev Olga Yeriomina

  2. The EBRD

  3. Who is the EBRD? • The European Bank for Reconstruction and Development is an International financial institution, promoting transition to market economy in 30 countries from Central Europe to Central Asia • Owned by 61 countries and 2 institutions • Capital base of over €30 billion • Head office in London, UK • Highest possible AAA credit rating

  4. Global Shareholder Structure2010 Annual Meeting: 50% capital increase to €30 billion • Current paid in capital is €6 billion including an increase of €1 billion in May 2010 • Current callable capital is €15 billion • In 2010 the Board of Governors approved a 50% increase in the Bank’s authorised share capital from €20 billion to €30 billion • The €10 billion increase* will provide additional investment capacity for the period 2011-2015 to enhance the Bank’s response to the global crisis * Callable capital to be increased by €9 billion upon receipt of subscriptions from members, with the provision to review its usage after 5 years • (1) Includes European Community and European Investment Bank each at 3%; France, Germany, Italy, UK each at 8.6% • Russia at 4% As at 1 September 2010

  5. EBRD Investments We have invested: • Over €71.1 billion in more than 3,389 projects since 1991 • €9.0 billion in 386 projects in 2010 • €9.1 billion in 380 projects in 2011: • 72% in private sector • Debt 82% & Equity 18% Reconciled as at 31 December 2010

  6. What are the EBRD’s Objectives? • Promote transition to market economies by investing mainly in the private sector • Mobilise investment • Support privatisation, restructuring and better municipal services • Encourage environmentally sound and sustainable development

  7. The EBRD in Ukraine

  8. EBRD in Ukraine – first 20 years • Largest financial investor in Ukraine with 20 years of experience in the local market • Ukraine is the Bank’s second largest country of Operation (after Russia) • Clients - leading local and foreign companies • Focused on long term financing of debt and equity, but also funding working capital, trade and purchase of industrial equipment • Total cumulative amount invested in Ukraine to date is EUR 7.43 billion - funding almost 293 projects (March 2012)

  9. EBRD Annual Business Volume - Ukraine Net ABV

  10. EBRD Current Portfolio in Ukraine – Allocation by Sector (31March 2012) Total Portfolio Euro 4,3 billion Equity Funds Agribusiness Municipal Infrastructure Manufacturing and Services Natural Resources Power and Energy Financial Institutions Property and Tourism Telecommunications Transport

  11. Working With The EBRD

  12. Benefits of working with the EBRD Preferred Creditor Status – granted by the GoU in the Agreement Establishing the EBRD is key. Because of this: Many companies consider that the EBRD provides a level of protection against unfair treatment and corrupt practices. Co-lending banks (especially B Lenders) like to partner with the EBRD for the same reason – and as such involving the EBRD can act as a catalyst to attracting other banks. The Bank has been active and represented in the Region for 20 years: Extensive knowledge of local economy, business environment and practices Close working relationships with government

  13. Benefits of working with the EBRD EBRD is willing to share the political risks Financial flexibility (wide range of products tailored to fit client needs). The Bank is increasingly unique as an institution willing to provide long-term debt. The Bank is willing to take equity stakes in clients – both true equity and portage equity. Typically the Bank takes a seat on the Advisory Board and can provide significant local knowledge and support. Technical assistance is available – particularly for projects including components of energy efficiency.

  14. EBRD Financing Features - Debt Amount - typically over € 10 million - typically limited to 35% of the total project cost of a project; Currency – typically USD or Euros (we currently have no capacity to lend in Hryvnia). We can also lend in Rubles; Structure – we can consider investments as Senior, Subordinated / Mezzanine, - Long-term, and short term Working Capital Finance. We can work alongside domestic and international banks ; Term / Maturity – typically up to 8 years for Long-Term Senior Debt to companies – potentially longer for projects; Margins – dependent upon the risk profile. Note, that the EBRD can provide debt with a significantly longer term than is typically available to private companies from local banks.

  15. Example of EBRD-financing : Project Financing with an EBRD A/B Loan 5 Project financing with an EBRD A/B Loan Shareholder 1 EBRD “A Loan” A-loan (maximum 35% of project costs) Loan Project entity Equity Shareholder 2 Participant Banks “B Loan” B-loan (under EBRD umbrella) Note: details are simplified

  16. EBRD financing features - Equity As an equity investor the EBRD can provide new equity as a minority shareholder - typically, when we invest equity, our share is around 25%. Through the Supervisory Board, EBRD will participate in increasing shareholders’ value. We look to sell our shares (typically after 5 to 7 years) either together with the controlling shareholders to a new reputable owner, or under a put option back to the controlling shareholders. There needs to be a clearly defined exit strategy at the point we provide the investment.

  17. EBRD Expectations / Requirements • Transparency – a clear willingness and intent to provide accurate and honest information • The transaction needs to be “bankable” • Economic – i.e. projected cash flow is robust, justifiable and sufficient to repay debt – speculation is an equity risk; • Management has the necessary experience, a reputable track record and can evidence a willingness to apply good business practices; • Ability to provide an information package containing sufficient information for the Bank to make a preliminary assessment • IFRS accounting – commitment to have annual accounts audited in accordance with IFRS.

  18. Most Common Mistakes EBRD often seen as a lender of last resort – the Company needs equity / debt restructuring because it is in trouble….. go to the EBRD…. No! The EBRD is a commercial bank – we want to focus on solid / robust transactions: Typically Debt to EBITDA less than 3x DSCR 1.5x (Important to show the Company can meet all its debt obligations as they fall due.) Robust security cover including material operating assets / property Pledge over shares (these days often requested by clients!) Pricing – don’t compare 7 year term debt pricing with 1 year revolver pricing.

  19. Information Package / Business Plan • History / activity of the Company • Relevant management experience • Description of the operation – and proposed use of funds • Major suppliers / buyers • Exports / imports Basic Description of Company / Project • - What assets does the Company own? • What is their realistic value? • Where are they located? • Are they pledged to banks / what is available? Summary of Assets • Clear description of all ultimate shareholders noting any political connections. • Organization chart showing all companies in the group + jurisdictions of incorporation Clear Ownership Structure • Summary financial projections for the life of the debt • A clear summary of the key assumptions • An overview of existing bank debt – by bank including terms / amortization structure / security Summary Financial Projections

  20. EBRD Project Approval Procedure: • EBRD receives initial information (Info. Package / Business Plan) and considers project – Concept Review (approx. 1-2 months) • Following Concept Approval – a Mandate Letter is signed which outlines the project plan, development expenses and responsibilities. • Due diligence and Project preparation – conclusion of a Term Sheet. • Final Review by Credit Committee (approx. 3-6 months from Concept Review) • EBRD Board Approval of Directors (approx 1 month) • Signing – at which point documentation becomes legally binding • Total project preparation time: approx. 6-9 months (depending on project status, sector and the Company’s preparedness – NOTE – it is the Company that drives this timeline)

  21. Pipeline Overview

  22. The Future in Ukraine • Appetite in Corporate Ukraine to take on new projects is generally low. • A reflection of the political and economic difficulties facing many companies operating in Ukraine – key factors: • Corruption; • Costly and inconsistent legal and tax treatment; • Anticipated devaluation of the Hryvnia; • As a result many companies lack the confidence to invest money in new capital projects in Ukraine. • The country desperately needs to build confidence in the minds of investors. • Ukraine remains a country with enormous un-tapped potential…….

  23. Property & Tourism • The EBRD is active in this sector but annual volume is relatively small – on average about one deal a year. • Last year Hotel Leipzig in Kiev • 2012 – Multi Development retail shopping mall in Lviv • Project Expectations for 2012-13 • Bank appetite will remain cautious • Focus on meeting supply / demand gaps: • Affordable hotels and retail - with a particular focus in the regional cities of Ukraine

  24. Manufacturing & Services / Agribusiness • Very significant investment in 2011 (nearly EUR0.5 bn) – but economic and political instability in 2012 has seen a reduction in large projects. • We expect however to see a strong contribution in 2012-13 from the Agricultural sector which remains a destination for the inflow of foreign capital • Project Expectations for 2012-13 • Modernization – still key particularly in the steel sector • Energy Efficiency – major inefficiencies need to be addressed in all business sectors.

  25. Power&Energy • A EUR 50 m framework facility to support small renewable energy projects – USELF • Hydro rehabilitation – EBRD is part financing a EUR 614 m rehabilitation project for Ukrgidroenergo • Large portfolio and pipeline of projects in high voltage transmission area with Ukrenergo • EBRD reviewing several wind farm and solar projects with aggregate MW capacity over 300 MW • One wind farm project of over 57 MW is at a final stage of preparation

  26. Transport Focus on both public and private sector transactions: • Ukravtodor: Tranche B of Pan-European Corridors Project (EUR 200m) - start of implementation expected in 2012-2013; • Ukrzaliznytsia: Electrification Project (under preparation) - start of implementation tentatively in 2013-2014 • First syndicated deal with a private railcar operator in Ukraine in 2011 (Interleaseinvest)  Project expectations for 2012-2013: • Continued engagement with large public sector clients: Ukrzaliznytsia, Ukravtodor • Private deals in port, railway and logistics sectors 

  27. EBRD Ukrainian municipal portfolio & pipepline by sector As of 2011: EUR 190 m: investment portfolio EUR 300 m: pipeline

  28. Tel: +380 44 277 1100 Fax: +380 44 277 1160 Email: kiev@kev.ebrd.com www.ebrd.com/ukraine Kiev Resident Office 16 Nemyrovycha-Danchenka st. Kiev 01133, Ukraine How to contact us

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