Recent trends in Private equity and Hybrid financing in Russia
-
Upload
alexander-abolmasov -
Category
Economy & Finance
-
view
1.396 -
download
1
Transcript of Recent trends in Private equity and Hybrid financing in Russia
1
NewRussiaGrowth Private Equity Advisors
2009
Alexander Abolmasov
Recent trends in Private equity and Hybrid financing in Russia
May I call you back? I am just in the middle of something.
2
- Liquidity crisis-We expect second wave of liquidity crisis in 3-5 months
- Private equity trends
- Hybrid financing trends
3
Credit crisis – problems with liquidity
- The amount of Russian corporate debt due in 2009 will be about $350bn out of $900bn outstanding:
- $200bn Russian bank loans
- $120bn external debt (syndicated loans and eurobonds)
- $27bn domestic bonds
-International debt capital (syndicated loans or Eurobonds) is accessible only to biggest Russian corporations
-24% of Russian Eurobonds are Gazprom, another 29% - VTB, Sberbank, TNK-BP, Gazprombank and Agricultural bank.)
- Mid-sized Russian companies have problems with access to their usual sources of debt :
- local bank loans
- domestic ruble bonds
Source: Central Bank of Russia
Source: Central Bank of Russia
Bank loans55061%
Ruble bonds455%
External debt 30034%
Bank loans
Ruble bonds
External debt
Russian outstanding corporate debt structure, $bn
up to 6 months
9%
6-12months27%
1-3 years29%
after 3 years35%
Bank loans term structure, %
44
Russian Banking System – liquidity problems for next 2-3 years
- New money is not available from the banks
- State banks (all TOP 5 banks) share increased from 42% to 47% of total loans since August 2008.
- Overwhelming share of government support goes to state banks
- State banks prioritize large state companies
- Private banks have problems with capital, because of losses and NPL, which could reach 10-30% by the end of 2009.
Source: Central Bank of Russia, Sberbank, RenCap
Source: Central Bank of Russia
-100
-50
0
50
100
150
200
3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 E 3Q09 E 4Q09 E
Russian banking system capital and additional capital required to keep the current loan portfolio
Russian banking system capital
Additional capital required according to Renaissance forecast (real NLB rate 1Q09 -10%; 4Q09E -40%)
Additional capital required according to Sberbank forecast (real NLB rate 1Q09 -10%; 4Q09E -30%)
$bn
200
250
300
350
400
450
500
Dec
-06
Feb-
07
Apr
-07
Jun-
07
Aug
-07
Oct
-07
Dec
-07
Feb-
08
Apr
-08
Jun-
08
Aug
-08
Oct
-08
Dec
-08
Feb-
09
Apr
-09
Jun-
09
Aug
-09
Oct
-09
Dec
-09
Russian corporate loans outstanding $bn
5
Credit crisis – Corporate ruble bonds market will almost cease to exist
Source: cbonds.ru
- Banks were main buyers of bonds, but now the liquidity dried up
- No new corporate bond issues since August 2008 apart from Gazpromneft and Russian RailRoads (expected in April 2009)
- Average duration of domestic ruble bonds is just 0.86 years
- For third tier issues only 0.45 years
Source: Micex emission documents, evaluation of Bank of Moscow
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Redemption Coupons Put option
The schedule of monthly payments of corporate sector*bn. $
0
10
20
30
40
50
60
70
80
Ap
r-00
Oct
-00
Ap
r-01
Oct
-01
Ap
r-02
Oct
-02
Ap
r-03
Oct
-03
Ap
r-04
Oct
-04
Ap
r-05
Oct
-05
Ap
r-06
Oct
-06
Ap
r-07
Oct
-07
Ap
r-08
Oct
-08
Ap
r-09
Oct
-09
Ruble corporate bonds outstanding$bn.
6
Credit crisis – interest rates rise
-The borrowing rate for companies in ruble terms has gone up from 10% to 25-30%
- The borrowing rate for companies in USD terms has gone up from 8-11% to 16-25%
- Average interest rate for ruble bonds are 26 -29% (for the third tier issues - 53%)
- Eurobonds rates are 10-25% in USD.
- Russian Government bonds YTM increased from 6% to 10%.
Source: cbonds.ru
Source: Central Bank of Russia
0
5
10
15
20
25
30
35
40
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09
Ruble lending rates in Russia
Interbank rate (Mosprime, 6m)
Corporate lending rate
%
5%
15%
25%
35%
45%
55%
Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09
Blue chips2 TIER3 TIER
Corporate bonds rates in Russia
7
- Liquidity crisis-We expect second wave of liquidity crisis in 3-5 months
- Private equity trends -Private equity funds have problems with access to new money
- Hybrid financing trends
8
• Total AUM of the global PE industry has grown from $960bn in 2003 to just under $2.5trn in 2008
• Overhang of $250bn of private equity fund interests:
• Liquidity problem (28%)• Denominator effect (35%)
LPs want to reduce exposure to private equity
9
PE still out-perform other asset classes
Money weighted all PE average IRR’s
Source: Preqin, Volume 5, Issue 1
Med
ian
retu
rn (%
)
• PE returns will decline, especially the 2005-2007 vintages
• Median return from PE outperforms equities and real estate
Median return by asset classes of public pension plans, as of June 2008
10
Problems with distributions and valuations
• Distributions from PE funds reduced 3-5 times in 2008 compared with 2007
• Problems with valuation:
• Number of funds with no valuation change increased from 15% to 80%.
11
How long does it take to raise the fund
Source: Preqin
Average months spent on the road to close a fund• Fundraising is expected to take longer: • less money on the market • increase number of funds • poor economic conditions.
• More focus: • past performance• fund manager reputation
12
- Liquidity crisis-We expect second wave of liquidity crisis in 3-5 months
- Private equity trends -Private equity funds have problems with access to new money
- Hybrid financing trends -Hybrid financing funds is a temporary solution
13
Russian specific:
• Distressed funds will have very risky investment profile.
• Mezzanine funds will replace banks, which stopped to provide new money.
Corporate Restructuring:
• Acquire defaulted assets at deep discounts to intrinsic value;• Swap debt for equity.
Distressed Portfolios: Acquiring “Bad Bank” Assets • Seek deeply discounted portfolio;• Acquire and restructure portfolios into tranches and opportunistically sell off portions of
portfolios; and • Manage “bad bank” assets sourced from western funds, banks and other investors.
14
Example: Distressed debt strategy
15
Volga River Credit Opportunity Fund
Senior Debt with Equity Kickers
Strategy•18-24 month senior loans in USD•Low volatility businesses•No distressed companies•Collateralized•$10-50m ticket size•15%+ current return•Equity kickers – 30%+ gross return
Target industies•Non-cyclical (food and beverages, telecoms)•Counter-cyclical industries (discounters, fast food)•Import-substitution (agriculture, pharmaceuticals) •Exporters (petrochemicals)
Deal terms to include•Strong security•Control over use of funds•Board participation and strong shareholder-type negative covenants•Amortization after 15-18 months