The IPO as Exit Strategy for Emerging Market Private Equity

The IPO as Exit Strategy for Emerging Market Private Equity Jeffrey Leonard GEF Management Corporation IFC 7th Global Private Equity Conference May 18-20, 2005 jleonard@gefdc.com Global Environment Fund A Decade of Emerging Market Private Equity GEF Investment Team H. Jeffrey Leonard, PhD President __________________________________ ________ Wendell Robinson, CFA Managing Director _______________________________________ ___ Scott MacLeod, MBA Managing Director __________________________________ _____ • 15 years private equity experience • 28 years professional work in developing countries, trade, finance and investment • Advisor to U.S. Government, World Bank and other International Orgs. • 40 years private equity experience • 30 years financial and operations experience • 15 years managing private equity investments for GEF & Rockefeller & Co. • 20 years private equity experience • 30 years project finance and financial structuring experience • 20 years with the International Finance Corporation Portfolio Review Global Environment Emerging Markets Fund II, L.P. GEEMF II Overview • $120 million fund launched in late 1997 • Approximately $115 million invested from 1998 to 2002 • Total assets of portfolio on December 31, 2004 are $262 million • Limited Partner IRR (net) on 12/31/2004: 24.6% • Multiple: 3.4 X return on LP Contributions • Eight original investments, plus one spin-out: • 1 complete liquidation • 3 listed companies with fully registered stock • 1 IPO pulled from market at last minute Emerging Markets: 2005 “If countries were NBA players, then emerging markets such as India and China were the all-stars of the past year. Emerging market economies are outpacing developed countries in the global economic recovery and may continue to do so for some time. Investors need to think globally and there are a growing number of sites, designed to track hot markets like Mexico which or stocks like Turkcel, the Turkish cell phone company that climbed over 100% in the past 12 months…” -- MSNBC Report, April 2005 Emerging Markets: 1997 “When I am buying Migros [Turkish retail shopping outlets] at four times current earnings, nothing can go wrong. This is like shooting fish in a barrel…” -- James Cramer, thestreet.com, April 1997 “Liquidity Is for Losers” (Unless you are a selling shareholder) “One the most appealing aspects of emerging markets is their relative illiquidity, which makes many of them essentially off-limits to larger institutional investors. This is a perfect example of where "the little guy" has a distinct advantage.” --Jonathan Hoenig, November 2004 Capitalist Pig Asset Management Private Equity Definition Emerging Markets are Markets from Which You Cannot Emerge in an Emergency IPO Follow-On vs. Gold/Silver MSCI: Emerging Market vs. S&P 500 The Process Has Improved India: Diagram of listing procedure Recent IPOs in Brazil Public Market Case Studies Global Environment Emerging Markets Niko Resources, Ltd. Investment Date: Investment: Ownership: Region: Sector: • • • • • • June 2000 $18.0 million 10.7% Southeast Asia Natural Gas Exploration & Production 100 80 (C$ in millions) Business Canadian-based natural gas company with principal assets in India and significant exploration projects in Bangladesh Company listed on Toronto Stock Exchange in 2001. Currently bringing on stream a west coast offshore platform which will double production In 2005-2006, production expected to double again through participation with Reliance Industries in a large offshore east cost block Stock price at C$ 61 -- nearly 10x GEEMF II’s basis GEEMF II has realized US$ 101.5 million of cash. The remaining portion at current market price is worth about $43 million. 60% EBITDA CAGR 60 40 20 0 2000 2001 2002 2003 2004 Revenues EBITDA GEF Sales of NIKO (2001 – Apr. 2005) 3,000 Volume in thous. Shares 80 Price C$ Linear (Volume in thous. Shares) Shares sold by GEF, in thousands Moving Avg. Weekly Volume ( '000 shares) 1000 70 60 50 40 Price C$ 2,500 350 425 2,000 450 300 420 1,500 200 200 30 1,000 100 20 10 500 0 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Dec-04 Apr-05 0 America Latina Logistica (ALL) Investment Date: Investment: Ownership: Region: Sector: December 1998 $22.4 million 7.0% South America Railroad & Logistics 1,200 39% EBITDA CAGR Business • ALL has become the largest independent rail and logistics operator in South America • Service area covers region representing 70% of Mercosur’s economic activity • A successful Brazilian IPO in June 2004 was 6 times oversubscribed, allowing GEEMF II to sell 20% of its position. The stock is trading at a 70-100% premium over invested cost • Realized $7.7 million. Project phased sales of $44 million over 2005 and 2006 (including round in March 2005) 1,000 (R$ in millions) 800 600 400 200 0 1999 2000 2001 2002 2003 Revenue EBITDA ALL (pref) Price/Vol. History Since IPO Source: Bloomberg DASA Price/Vol. History Source: Bloomberg Sanepar Investment Date: Investment: Ownership: Region: Sector: April 1999 $18.0 million 2.8% South America Water Utility 1,200 1,000 800 600 400 200 • • • • Business Sanepar is the water and wastewater utility for the state of Parana in southern Brazil  7.8 million people with water connections  3.5 million people with wastewater service Most profitable water utility in Brazil and highly regarded throughout Latin America IPO Planned for 2003, pulled because of market conditions Subsequent political battles make IPO difficult 19% EBITDA CAGR (R$ in millions) 1999 2000 2001 2002 2003 Revenue EBITDA Global Forest Products Investment Date: Investment: Ownership: Region: Sector: January 2001 $20.9 million 24% South Africa Forestry (ZAR in millions) Business • GFP is an environmentally–sustainable integrated forest products company • 64,000 ha of FSC certified plantation forest, of which 57,000 ha pine. Three sawmills of about 600,000m3/year capacity and one plywood plant of 75,000m3/year capacity • Company is in year 4 of 7-year corporate turn-around with revenues and EBITDA projected to grow 3x and 10x in coming years • Company set to triple its forest land through major South African acquisition • Interest in listing company from South Africa and NASDAQ 700 500 300 100 -100 2001 2002 2003 EBITDA 2004 Revenue